The solar photovoltaic (PV) market has grown dramatically, with cumulative installed capacity now reaching over 500 GW, up from only 15 GW in 2008, according to the Renewables 2019 Global Status Report. The need to enhance energy security, reduce exposure to rising fossil fuel prices, reduce carbon emissions and protect the natural environment are just some of the drivers of the billions of dollars invested. The scale of this deployment has both driven and caused a huge cost reduction in solar PV, with prices of installation falling by 80 per cent in 10 years, according to International Renewable Energy Agency statistics.
This deployment has required extensive financing from both public and private sectors. Whereas solar PV has previously been subsidized by public sector funding to be a competitive class for investment, specific actions taken by public sector agents have helped mobilize commercial finance and unlock the large-scale PV market on a global scale.
A recent report for the World Bank analyzes the experience of seven countries to investigate how public sector support worked to de-risk the large-scale solar PV market and make it attractive for private investment. The report highlights how public sector actions mobilized the private renewable energy investment market. Here are its main lessons:
The role of direct and indirect financing
Direct public sector financing in the early stages of research and development of solar PV technology assisted improvements in efficiency and also helped build research capacity and networks of expertise across countries.
Direct financing also supported solar PV deployment in Morocco through the provision of grants, concessional debt and non-concessional debt to co-invest alongside private developers. However, indirect financing tools (fiscal incentives and direct tax benefits) seem more attractive to commercial investors than direct financial support.
Maintain a clear and coherent legal, policy and regulatory framework
The presence of transparent legal, policy and regulatory frameworks for renewable energy de-risks investment for commercial parties by providing security and reliability of returns. Required frameworks include technical standards relating to PV technology, or electricity grid connection requirements such as grid codes.
Implementing and maintaining stable renewable energy capacity targets, coherent sector laws and policies and general support for private sector investment also make investment attractive for commercial parties. In Chile for example, the stable regulatory framework supporting private investment in the electricity sector as well as the presence of strong off-takers enabled the rapid scaling up of the PV market.
Invest in planning, technical and operational capacity over the long-term
Public sector actions can reduce grid congestion (which can deter private investment) and de-risk investment through transmission and integration planning, solar development zoning and demand-side management.
Provide government- sponsored guarantees where necessary
Uncertainties over whether the government and utilities are able to meet power payment commitments can make investors hesitant to jump on board. Where the major utilities are state-owned, providing sovereign guarantees, indemnity and even comfort letters can allay the fears of commercial financiers. Countries such as Maldives, Morocco, Senegal and South Africa all backstopped financial obligations of state-owned off-takers to mobilize finance for solar projects and mitigate fears of non-payment.
Invest in enabling infrastructure
Other factors that make investment attractive for commercial and private financiers include the availability of land and power evacuation lines (to ensure that generated power can be effectively transferred to demand areas). In Chile, congestion in the transmission system meant that solar developments were put on hold for some time as investors were unsure if they could deliver generated power to demand areas. Public sector investments in transmission systems can create new market opportunities, reduce bottlenecks and stabilize the overall power system and security of supply.
Read the report here.