Mobilizing US$ 850 million of concessional finance to unlock 8 GW of renewables in over 20 developing countries by 2025
Context
Solar and wind technologies are revolutionizing the power sector. They can become a game changer for many developing countries as solar and wind are (i) wide-spread promoting energy security, (ii) among the cheaper source of electricity and cost-competitive with fossil fuel in many countries, (iii) supporting universal access to electricity, (iv) enabling a short construction timeline, and (v) when combined with battery storage, providing firm power. While the proportion of solar and wind generation is rising every year, it is still far from the scale needed to reach the sustainable development goals (SDGs) and to stay below the Climate Change Paris Agreement 2oC scenario.
According to the World Bank’s estimates, based on the International Energy Agency’s (IEA) Sustainable Development Scenario, 950 gigawatts (GW) of solar photovoltaic (PV) and 580 GW of wind need to be installed in developing countries by 2025.3 Those targets represent increases of 690 GW of solar PV and 330 GW of wind from today’s current installed capacity—to be built within six years and an investment of over US$500 billion in solar PV and US$400 billion in wind.
Challenge
To reach this objective, large amounts of private funding will have to be unlocked to complement the limited public financing available. Yet most developing countries still lack a pipeline of bankable solar and wind projects for consideration by the private sector. Renewable energy deployment at the necessary scale is hindered by critical challenges such as grid integration technical constraints, off-taker risk, and weak procurement and planning capacity. These barriers prevent countries from attracting the private investments needed for accelerating its deployment. To develop one, countries must take a series of key steps to tackle critical risks perceived by the private sector while also minimizing risks for the public sector.
An Integrated Initiative
The World Bank-Energy Sector Management Assistance Program (WB-ESMAP), in partnership with, Agence Française de Développement (AFD), International Renewable Energy Agency (IRENA) and International Solar Alliance (ISA) developed the Sustainable Renewables Risk Mitigation Initiative (SRMI or "the Initiative") to address these challenges. This unique approach offers development and climate financing for: (i) technical assistance to help countries develop evidence-based solar targets, implement a sustainable solar program, and maintain robust procurement processes with transaction advisors; (ii) critical public investments to enable integration of variable renewable energy (VRE), finance solar park infrastructure, and increase access to electricity; and (iii) risk mitigation instruments to cover residual risks perceived by private investors. SRMI aims at supporting governments to develop, finance and implement sustainable solar and wind programs to: (i) attract affordable private investments in optimized conditions for grid-connected and off-grid projects; (ii) reduce reliance on public finances — limited to critical public investments; and (iii) maximize socio-economic benefits triggered by the projects launched in the country. The Sustainable Solar Guidelines is the guiding document presenting the SRMI methodology and key steps to be implemented from the government’s perspective.
Risk Mitigation Approach
SRMI has three components to mitigate the risk of solar and wind deployment:
a. Upstream and Downstream Technical Assistance (via WB-ESMAP) to support countries (i) develop evidence-based VRE targets based on sound generation/transmission planning, (ii) design and implement sustainable medium-term VRE programs including legal support, domestic lending and local socio-economic development, and (iii) have robust procurement processes which can be under the World Bank Group (WBG) Scaling Solar when client countries are interested;
b. Public Sector Investments (World Bank financing blended with climate finance) for critical investments such as (i) grid upgrades and battery storage to unlock VRE, (ii) solar/wind park public infrastructures, and (iii) electrification, i.e. off-grid green mini-grids and solar home systems (SHS); and
c. Risk Mitigation Instruments (WBG’s guarantees and political risk insurance, and climate finance instruments) to propose tailored risk mitigation instruments to private investors to cover the residual risks for grid-connected projects, green mini-grids and SHS.
Financing and Expected Results
Dedicated climate financing is being raised to support a technical assistance program, investment lending and risk mitigation coverage to implement the roadmaps. Early results are:
- Five projects with the Clean Technology Fund (CTF): SRMI leveraged US$ 255 million from the CTF (and direct donor contribution) to support US$ 1 billion of public investments in solar with storage projects and SHS in Burkina Faso, Maldives, Uganda and Tanzania as well as a regional West Africa program for privately-financed SHS deployment (ROGEP). Together the projects are expected to unlock 900 MW of privately-financed solar generation and 600 MWh of storage, mobilizing US$ 1.3 billion of private investment and providing access to affordable and clean electricity to around 5 million people.
- Seven countries under the SRMI Facility with the Green Climate Fund: March 17, 2021, the GCF Board approved the SRMI Facility (Phase 1) for US$ 280 million of grants/highly concessional loans/risk mitigation instruments blended with US$ 1.3 billion in IDA/IBRD financing and leveraging US$ 3.3 billion in private investments. Phase 1 focuses on Botswana, CAR, DRC, Mali, Kenya, Namibia and Uzbekistan. SRMI Facility (Phase 1) expected main results are: 2.5 GW of new VRE projects built, 1 GWh of battery storage and 4.2 million people provided with access to reliable electricity.
By the end of 2021, US$ 850 million in climate finance aims to be mobilized by the SRMI team on a consolidated basis and should the SRMI Facility (Phase 2) be approved by the GCF. This climate financing is expected to be blended with US$ 4.5 billion in IDA/IBRD financing, and leverage US$ 9 billion in private investments to finance 8 GW of VRE projects, 2.2 GWh of battery storage and 11 million people provided with access to electricity.