The global solar alliance must catalyse innovation
Lack of lowcost finance is now the principal barrier to rapid deployment of clean energy technologies
The world’s newest intergovernmental organisation — the International Solar Alliance (ISA) — was born on December 6, 2017. First announced during the Paris climate meetings in 2015, so far 61 countries have signed the ISA Framework Agreement, and 32 have ratified it. At the ISA Founding Conference in New Delhi on March 11, representatives of 46 countries converged along with the senior members of 10 development banks. India and France, ISA’s co-sponsors, should be congratulated for their commitment to the cause.
The alliance now needs concrete actions to follow through on its promise. It has three aims: to aggregate demand to reduce solar technology costs, to lower the cost of finance for rapid solar deployment, and to pool resources for next generation of solar R&D. What would that mean in practice? Any ISA programme should be respectful of national sovereignty, applicable in various regulatory environments, and yield maximum returns on limited amounts of public funds. These ideas could demonstrate that ISA is truly an action-oriented organisation.
In principle, if solar-rich but capital-poor developing countries plan for solar power, a big global market would emerge. ISA could work with its members towards a coordinated tender for large-scale solar deployment. For instance, one of its programmes plans to deploy 500,000 solar irrigation pumps, amounting to as much as 2,500 MW of capacity. But since ISA is not a power utility, it can’t sign power purchase agreements. Technology suppliers and project developers do not respond to political announcements as well as they do to enforceable contracts. For a synchronised pumps programme to be credible, it has to be backed by business and financial models that generate maximum returns on invest- ment. ISA should bring together policymakers, rural enterprises, pump manufacturers, and commercial lenders to respond to this call for products and services for scaling solar applications in agriculture.
But money does not flow sufficiently into the regions where the sun shines the most. Lack of low-cost finance is now the main barrier to rapid deployment of solar technologies. A chunk of global power sector investment has been in renewables in recent years. Yet, the biggest pots of international institutional capital are not being shifted to solar projects in the sunny tropics. ISA seeks to unlock up to $1,000 billion of solar investment by 2030. But how?
Institutional investors remain wary of high-risk renewable energy projects in poor countries. A multi-country risk insurance is needed to reduce the high cost of finance. For this, a Common Risk Mitigation Mechanism is being designed to pool offtaker, foreign exchange, and policy risks and pool projects across participating countries, in order to lower the premiums paid for insuring against these risks.
Keeping in mind that ISA is not a multilateral bank, its role would be best demonstrated if it facilitated market-ready financial instruments, which crowded in large volumes of private investment. ISA members should politically signal their readiness to work with existing public and private institutions. Together they could build a platform that works as an efficient clearing house for portfolios of pooled projects.
Developing countries cannot afford to invest vast sums in solar R&D. Pooling resources, in cash and kind, makes eminent sense, but for what? Targeted innovation is needed for technology challenges specific to developing countries. These include: efficiency of solar cells in dusty environments; solar applications in income generating activities in the rural economy; renewables for small and medium industries; sturdy batteries for rough ambient conditions.
Rather than act like a laboratory, ISA should design targeted and time-bound innovation prizes for the developing world. Participating countries should contribute initial funds with co-financing from private research consortia. Advanced market commitments to procure products meeting defined parameters would give added incentives for private investment. In fulfilling niche but strategic roles, ISA must work closely with industry, investors and civil society. As a nimble newbie on the international block, ISA could chart a new course.
THE ALLIANCE HAS THREE AIMS: AGGREGATE DEMAND TO REDUCE SOLAR TECHNOLOGY COSTS, LOWER THE COST OF FINANCE FOR RAPID SOLAR DEPLOYMENT, AND POOL RESOURCES FOR NEXT GENERATION OF R&D