Financial innovation may help in improving solar bankability in emerging markets. But it can only ever provide part of the answer to greater solar deployment given the commitments on climate change being made in Paris, insiders told Solarplaza.
The Intended Nationally Determined Contributions of the European Union, US, China and India alone amount to around 1,000 GW of clean energy generation by 2030, said Assaad Razzouk, chief executive of Sindicatum Sustainable Resources.
Using a “back-of-the-envelope” calculation of a million dollars per megawatt leads to an investment requirement of around a trillion dollars.
“No amount of financial innovation is going to mobilise trillions of dollars between now and 2030,” Razzouk said. “What we need are some macro factors for this to happen.”
Most importantly, he said, financial markets need to decouple the value of renewables from the price of fossil fuels so variations in the latter do not affect the former, as happened this summer with the US yieldco market.
Another key step requirement for large-scale solar industry growth is the removal of “the inherent bias towards fossil fuels” across financial markets, said Razzouk, a speaker at the upcoming Making Solar Bankable Emerging Markets event.
Fossil fuels currently benefit from subsidies worth more than USD$5 trillion worldwide and have benefits embedded “in the minds of politicians, in the tax system and in consumers’ behavioural decisions,” he said.
The final macro shift required for renewables to fully enter the mainstream is for “the externalities of oil, gas and coal to be priced, which they are not at the moment,” Razzouk noted. “The maths are skewed.”
In addition, within emerging markets there are often structural issues around solar bankability that financial innovation cannot address.
Another Making Solar Bankable speaker, IFC global renewable energy principal investment officer Jamie Fergusson, said:
“Low-cost capital is a positive thing but it in itself does not open up markets.”
Structuring projects to reduce off-taker and regulatory risk is often the first concern for project developers in emerging markets, he believes.
“That’s not to undermine the importance of low-cost capital, because it can lower the tariff and ultimately lower the risk,” he said, “but I don’t perceive liquidity as the most important factor.”
The comments follow research showing how new finance options are increasingly becoming available in emerging markets.
A PwC report called ‘Disruptive technologies: Strategies for identifying emerging market opportunities’, from December 2014, claimed: “Innovative financing is … another factor that opens up markets.”
“Due to improved risk assessment, diversification of assets, and increased asset liquidity, the cost of capital has the potential to be reduced by 8% - 16%.”
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Find out more about emerging market solar bankability at Making Solar Bankable Emerging Markets, in Amsterdam, the Netherlands, on February 18 and 19. Early Bird prices expire on 18 December 2015. Join now.