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Attracting private investment for solar

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Private investment can be key for developing economies wanting to realize their solar potential, says CPCS study author.

Since 2010, the global installed capacity of solar energy has increased from 39 GW to more than 600 GW. In the same time span, costs have fallen from US $0.37 to $0.02 per kilowatt hour (kWh).

As solar power emerges as a prominent source of renewable energy, learning how to secure private investment in solar development has become a premium. Emerging economies are especially interested in this knowledge.

Private participation in solar power projects is particularly desirable. Indeed, it can mobilize technical skills, provide the government with an alternative font of resources and help drive costs down by generating competition.

“But the main appeal is to free up the government’s financial resources so that it can invest in sectors that normally attract lower private interest,” argues Clara Kayser-Bril, an independent renewable energy expert at CPCS.

CPCS probes what private investors want

In light of investment challenges in many developing countries, the World Bank commissioned CPCS to come up with solutions.

CPCS looked at solar power development in seven emerging countries with different economic realities, diverse political climates and distinct solar procurement methods.

“The variety of our cases ensures that common findings have a better chance to be applicable to most emerging countries,” she says.

Main findings

The collaboration between CPCS and the World Bank led to a 2019 publication.

The research shows that private investors, above all, seek bankable project agreements and payment guarantees for power purchased.

“It’s mostly about getting paid,” says Clara. “But that should be obvious.”

The second most important thing for private investors is grid integration. They’re concerned about operational and technical specifications such as grid stability and congestion.

“In other words, will the solar power project operate as intended? If not, it’s a poor investment.”

To catch a private investor

Given these concerns, what are some recourses governments can consider to make their country’s solar power industry more attractive to private investment?

For starters, the study highlights the importance of cultivating an “enabling environment” that instills confidence in the investor. Research shows that stable macroeconomic policies, investment protection mechanisms and a record of honouring contractual obligations all work toward increasing investment opportunities.

It also helps for governments to have a detailed strategy in developing solar power. Ideally, this strategy is supported by a set of sector laws, regulations and policies. 

The Moroccan model, in conjunction with the country’s political stability, resulted in one of the fastest-growing solar power industries and some of the world’s lowest energy prices.

In respect to investors’ financial anxieties, the study suggests exploring guarantees from commercial banks, export credit agencies and insurance companies. Financial risk mitigation is particularly important for countries that can’t afford to publically finance their projects.

Finally, the study identifies many options to ensure the proper working of grid systems.

“The main challenge here is to play around PV-generated power’s volatility,” says Clara. “This requires modernizing transmission and dispatch. Batteries too, are now becoming an affordable option. Decentralized generation – whereby smaller-scale solar facilities are installed close to the load centers – is also a must.”

Getting there is the hard part

The road ahead for emerging economies won’t be easy.

Many of them will have to make changes to their power sector to capture the benefits of private investments. Some will even have to revamp everything from the ground up.

The good news? CPCS has a rich history doing exactly that. 

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