Need for an alliance to reap the solar potential
Mr. Prahalathan Iyer, Chief General Manager

Despite the significant potential and opportunities for reaping the solar energy potential, and the geographic and socio-economic advantages, there exists an anomaly amongst countries in harnessing solar power. This situation runs the risk of a ‘solar divide’, where developing and less developed countries are not able to participate in the fruits of green growth that developed countries are pursuing, creating a paradoxical situation where the countries rich in solar resources are not in a position to harness their resources, while the countries with relatively less solar resources are in a position to do so.

The Government of India took the initiative to bridge the ‘solar divide’ by launching the International Solar Alliance (ISA), along with France, in November 2015, at the sidelines of COP21 in Paris. The ISA has been conceived as a coalition of 121 solar resources rich countries endowed with almost 300 days of sunlight a year, located between the Tropic of Cancer and the Tropic of Capricorn. The initiative was to create a platform to collaborate on addressing the identified gaps through a common, agreed approach besides addressing the special energy needs. The Alliance through its Charter, intends to mobilize more than US$ 1000 billion of investments by 2030 for the massive deployment of affordable solar energy.

An important aspect that this Alliance will look forward to achieving will be setting up of more off-grid solar. A large part of the African countries are devout of transmission lines and accessing power hence becomes a challenge.

The ISA has also proposed setting up a US$ 300 billion Global Solar Fund over 10 years with contributions from the World Bank, Overseas Development Assurances and from the Green Climate Fund to leverage US$ 3,000 billion in investment from the corporate sector.

A concept document is being developed to create a common guarantee fund and develop guarantee investments with a clear scope, delimitation of risk coverage and recourse options. The objective is to reduce transaction costs to mobilise the investment volumes necessary for scaling up solar energy projects.

The solar energy sector is in a transformatory phase. The solar installations in the last 10 years have increased at a substantial pace. In 2007, the share of solar energy in global portfolio of energy was just 0.8%, which has increased to 13.9% in 2016. This exponential growth provides significant opportunities for the ISA members to augment its production capabilities from solar energy. Germany, China, Japan, USA, and Italy were amongst the major countries producing energy from solar technologies. India ranked tenth in the world with a share of 1.8% in global solar energy installed capacity, while its share in India’s energy portfolio mix is around 18%.

The drivers towards harnessing solar energy are also gradually changing. The historical drivers like direct incentives, renewable energy targets, and environmental concerns have resulted in a significant growth in solar installations in the last few years. However, this growth in future will largely be determined through other new drivers including falling costs of solar installations, global PV deployment, emergence of decentralized system, downstream innovation and expansion, greater concern about energy security, and supportive policy framework from the Governments across the globe.

Exim Bank Study

Exim Bank’s analysis of data for the 121 member countries of this Alliance reveals that only 23 countries had 100% of their population having access to electricity, while 54 countries had less than 66% of their population having access to electricity. This provides ample reason for forging collaboration in the solar space among the ISA constituents can potentially bearing significant results.

The Study appreciates the fact that 121 ISA member countries are in different stages of economic development, and hence their propensity to adapt to solar technologies remains varied.

Taking cognizance of this heterogeneous nature, an ‘ISA Cooperation Matrix’ for the ISA members has been designed by the Exim Bank Study. The Matrix envisages classification of countries so as to work in tandem with each other in achieving the objectives of ISA, by drawing upon each other’s strengths. The matrix can be divided into four quadrants.

>> The first quadrant comprises the technologically sound advanced countries which are at the upper end of technology and are continuously undertaking R&D activities to bring out more efficient and effective means to tap energy from solar rays. This is largely so because innovation is costly and risky and hence most innovation activities are concentrated in a few advanced countries.

>> The second quadrant focuses on the manufacturing of solar equipment where emerging countries have made significant progress. These are the countries which have the capability to produce solar equipment and cater not only to their domestic demand but also to exports. These countries also have been making significant progress in terms of technology adoption.

>> The third quadrant envisages the potential of many ISA member countries that are at the lower end of the value chain. These ISA countries are essentially the new manufacturing and assembly centers. With the growth in demand and increasing manufacturing capabilities these centers are expected to move up the value chain.

>> The last quadrant is significant in the ISA Matrix, given its capability to cater to the huge and growing energy demand. These countries are those that are either deprived of electricity and are mostly less developed countries, or are those where there is a huge requirement for alternative sources of energy to plug the existing energy deficit. Such characteristics are typically evident in developing member countries of ISA.

Promoting Solar Projects

It will not be out of place to assert that the success of the usage and the proliferation of solar energy technologies will only be possible through a two-pronged strategy – a sound financial support mechanism coupled with constructive policy initiatives which catalyses investments into the sector, both of which need to exist in tandem. These could include accelerated depreciation, production based incentives, mandated market share, grants, and investment incentives.

The Exim Bank Study has drawn various possible financial structures that would help fulfill the objectives of ISA. These financial structures seek collaboration among the development financial institutions of the countries involved, concessional financing from multilateral/regional development banks with the provision of sovereign guarantee from the borrower country.

The Government of India has also set aside US$ 2 billion for solar projects in Africa out of India's US$ 10 billion concessional line of credit (LoC) committed for Africa in the next five years.

Way forward

Climate change presents humanity with a significant challenge. However, investments in clean energy and low carbon alternatives, presents business and capital with an opportunity, which may become one of the largest commercial opportunities of the current era.

Going forward the need will be to spread awareness about solar energy, enhancing local capacity for setting up mini, micro and nano grids, building skilled workforce and promoting mini grid policies – all amongst the members of this Alliance.

The ISA member economies can potentially harness solar energy in a cost effective manner, if a concerted and coordinated effort is made to share the experiences with eavh other, apart from exploring multiple avenues for funding the objective of ISA.

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