Innovative model for empowering Macedonian power utility through American-South Korean consortium

Although North Macedonia has invested significant efforts in the past few years to catch up with the energy transition, decarbonize, and scale up the construction of renewable energy plants, the current energy crisis has exposed the vulnerabilities of its energy sector and showed that the existing power generation capacities are insufficient. A new model proposed to the government and state power utility ESM by a US-South Korean consortium could be part of the solution for North Macedonia, as well as other countries in the region, to tackle the energy crisis. In an interview with Adam Cortese, CEO of UGT Renewables (UGTR), we discuss how the company and its partners can help ESM to develop and construct new solar power capacities and improve its power system flexibility with battery energy storage systems.

The energy crisis in North Macedonia is reaching dramatic proportions. In August, the government decided to extend the state of energy crisis until April 2023 in an effort to increase electricity production, avert market disturbances, and protect vulnerable groups.

Even so, a recent survey by the country’s chamber of commerce showed that a large number of companies, forced to buy electricity on the market, sometimes at over EUR 200 per MWh, may have to reduce production or even close down their plants and lay off workers.

The situation is so grave that it is uncertain whether it is possible to find a short-term solution to help ESM generate enough electricity and shield the population and industry against astronomical power prices, which have created problems even in much stronger European economies.

In an interview with Balkan Green Energy News, Adam Cortese, CEO of UGTR, says his company has a solution and is ready to implement it fast.

The model developed by UGT Renewablas for the Western Balkans’s governments and power utilities has created strong interest since the power utilities can get utility-scale solar power plants and energy storage facilities quickly

UGT Renewables, in a consortium with South Korean technology giant Hyundai Engineering Co. (HEC), offers project development, financing, and construction services for utility-scale renewable power plants and  energy storage systems.

At a recent conference in Budva, Montenegro,  partner companies UGTR and HEC presented an innovative model for cooperation with governments and power utilities in the Western Balkan region. The model attracted strong interest as a solution for state power utilities to get utility-scale solar power plants and energy storage facilities quickly.

Could you tells us more about your company, and explain the model for developing utility-scale solar power plants in the region?

 I’m the CEO of three sister companies within the same group: Sun Africa, which operates in Sub-Saharan Africa, Sun Arabia, which develops projects in the Middle East and North Africa, and UGT Renewables, whose mission is to implement projects in Europe and Central Asia, including the Western Balkan region.

After years of operations in the US market, we decided to expand to developing countries.  During this transition, we realized very quickly that the Independent Power Producer (IPP) model is not optimal for these markets for a myriad of reasons.

State power utilities in the Western Balkan region have for decades failed to invest in new production capacities and the energy crisis has only made the matters worse

To protect the living standards and competitiveness of local economies in developing economies, the governments of many countries have resorted to electricity price regulation, and state power utilities are required to supply consumers at predetermined prices. However, weakening the position of these companies inevitably leads to serious social, economic, and political crises.

State power utilities in the Western Balkan region have for decades failed to invest in new production capacities, and the energy crisis has only made the matters worse. The significant share of fossil fuels, primarily coal, in their energy mix will lead to considerable additional costs once the European Union (EU) introduces a carbon border tax (Carbon Border Adjustment Mechanism) on imports of electricity and goods from non-EU members, including from countries of the Balkan region.

The innovative model involves providing turn-key services to governments or national power utilities

In response to these challenges, we’ve developed an innovative business model that involves providing turn-key services to governments or national power utilities. The package includes project development, financing, design, equipment procurement, construction, and commissioning services for utility-scale solar power plants as well as energy storage systems, which are indispensable today. Newly built power plants would be owned and operated by power utilities. Simultaneously with the implementation of a specific project, the model involves knowledge transfer and staff training for local utilities.

Does that mean that ESM would be the owner of the project in North Macedonia?

That’s right. In North Macedonia, ESM would be the sole and full owner of solar power facilities that UGTR and HEC would build and hand over to ESM to manage. On top of this, our business model includes assuming the risk of initial project development, meaning that our company would cover the full cost of project development.

Has this model already been implemented elsewhere?

Of course. The model was verified in practice in Angola. Our sister company, Sun Africa, with local and international partners, built solar power plants there in a project worth USD$759 million. With this project, our consortium and the participating financial institutions won the TXF Perfect 10 Deals of the Year 2020 award, competing against more than 7,000 infrastructure projects worldwide.

The Biopio site developed by Sun Africa is the largest single solar PV project in Sub-Saharan Africa (solar power plant’s capacity is 189 MW) 

We have since signed a second contract in Angola which involves about USD 2 billion in investments and is a flagship project under the Biden Administrations Partnership for Global Infrastructure and Investment.  In total, through our three companies, the group is presently developing USD16 billion worth of projects using the same model.

You said your company also arranges financing for these projects. What financing model do you apply given that you are not a financial institution?

 Financing is provided in line with the rules of the Organization for Economic Co-operation and Development (OECD), involving attractive interest rates and loan tenors due to the renewable energy focus of the projects. Financing is arranged by our long-standing partner ING Bank, a global leader in renewable energy project financing.

You also mentioned partners. Could you tell us about the companies you work with?

In the region of Europe and Central Asia, we have linked up with South Korean giant Hyundai Engineering Company (HEC) to act as our consortium partner and EPC. HEC is part of Hyundai Motor Group, which has combined revenues of over USD$300 billion, so they are a very strong partner.  Under our model, however, they manage the construction process and include a great deal of local companies as subcontractors.  We believe our transformative projects must create considerable jobs in the markets in which we operate.

UGT Renewables, Sun Africa and Sun Arabi are currently developing a portfolio of USD16 billion worth of renewables projects using the same model

When it comes to equipment, our global partners are the world’s leading companies such as Hanwha Q-Cells (South Korea-US), a leading manufacturer of high-efficiency solar panels, Nextracker (US), the world’s leading producer of solar trackers and software for optimized operation, and Tesla Energy (US)  a leading battery energy storage partner, a very important element of any advanced project today given that it preforms power plant balancing and provides other system services.

Also among our partners is Shoals Technologies (US), a leading provider of electrical balance of system (EBOAS) solutions, and Hitachi Energy (Sweden-Japan), a renowned energy company, which recently acquired a part of ABB, and a leading supplier of transformers and high-voltage equipment.

Today, more than ever before, partnership is a key factor in successful project implementation. We know that investors around the world are faced with problems in equipment procurement, and long wait times, due to delays in production and deliveries.  Our projects have priority status with all our partners, and that’s a significant competitive advantage which allows us to deliver our projects swiftly and at scale.

Did you already begin with activities in North Macedonia?

The project in North Macedonia has been under development for over a year. In September 2021 the ING bank (acting as an arranging bank) has made a 100% long-term financing offer on behalf of American and International financial institutions. That same month, the US government backed the project, granting it the so-called US Advocacy status.

The project and the financing plan were officially presented to the Government of North Macedonia in October 2021 in a joint meeting of the Prime Minister and ESM representatives with our company’s team. The meeting was also attended by US Ambassador to North Macedonia. Our proposal received strong interest, after which we opened negotiations with ESM as the future owner and beneficiary of the project.

Our cooperation with ESM was solidified in May 2022, when we signed an agreement on joint project development and began technical preparations for the implementation of the project. With the Government’s support and maximum commitment of our team and the ESM team, I believe we can finalize the project’s development in six to eight months’ time. After that, within two to two-and-a-half years, our consortium would complete the construction of the power plant and hand it over to ESM.

And finally, the most important question. I’m sure you’re aware that there are initiatives in North Macedonia for projects based on different technologies and different business models. Why do you believe that what you’re offering is the best solution for North Macedonia?

 First of all, it’s about energy security. The crisis has shown how dangerous it is to be overly dependent on fuels and energy sources you don’t have in your own country. The availability of solar energy, a renewable energy source, is not and will not be subject to geopolitical turmoil.

Equally important is the question of production costs. Our estimate is that production costs of electricity generated at high-efficiency solar power plants in North Macedonia will be significantly lower than the market price of electricity, even after this energy crisis is behind us. Also, the application of this technology enables accurate forecasts of production costs of electricity during the entire lifecycle of a power plant, which isn’t the case with technologies based on fossil fuels (coal and natural gas), especially if these are imported.

The green energy transition also involves strengthening the capacities for electricity storage. Our model involves batteries sufficient to fully balance these power plants’ production and, if necessary, provide additional services to North Macedonia’s transmission system operator (MEPSO).

The issue of ecology is also very important. Our project not only supports the national greenhouse gas reduction targets, but also helps reduce the pollution of air, water, and soil.

Last but not least, North Macedonia, much like other countries in the region, is spending hundreds of millions of dollars on emergency imports of electricity. This coming winter is going to be difficult, but in all likelihood the next one will be as tough, if not even worse. That’s why the speed of the project implementation is of the essence. Our model offers readily available financing and equipment, with construction companies contracted in advance, which means that a power plant can be put into operation within 24-30 months from the day a building permit is issued. It is the swiftest possible delivery of electricity at scale and could save the country hundreds of millions of dollars over time.