It's time to invest in developing countries where solar energy has yet to be tapped in scale.
There are still more than 1 billion people in the world without access to electricity, of which more than 430 million people are in developing Asia. We urgently need innovative ways to provide energy services and end-use applications in a socially, economically, and environmentally sustainable manner.
Solar is the world’s most available energy resource, much larger than all other resources combined. The amount of solar radiation hitting the earth every hour is more than the total global energy consumption per year. Moreover, solar resources are widely available between the Tropic of Cancer and Tropic of Capricorn, home to most of the world’s population lacking modern energy services.
As the cost of solar technologies continues to decline substantially, solar applications are becoming a more promising solution. These observations have underpinned the creation of the International Solar Alliance (ISA), initiated by the Government of India with the objective of mobilizing $1 trillion to deploy 1 trillion watts (1 terawatt) of solar energy systems in the developing world by 2030.
ISA’s target is unprecedented in the realm of clean energy deployment, but not beyond the realm of possibility. In fact, the target of $1 trillion cumulative investments in solar energy globally within the next 12 years is not that ambitious given that in 2018 alone the world’s total investments in solar amounted to $130 billion.
However, most of these investments were concentrated in the People’s Republic of China, India, the US, Japan, and Europe, and have been very limited in the rest of the world. The real challenge is to mobilize $1 trillion in developing countries where solar energy resources have not yet been tapped in scale.
So where will the $1 trillion come from?
We know that there is plenty of liquidity in global financial markets. Investors often ask, where’s the project for our money? But more often, we also hear developers ask, where is the money for our project?
The missing link is bankability. Financiers will put their money into projects that can generate adequate returns, and such returns will depend on a sound regulatory framework, strong institutional capacity, and innovative business models.
But first, a sound policy framework is essential to attract investment in solar energy. Policies and regulations—including feed-in-tariffs, renewable energy purchase obligations, tax credits, and carbon pricing—can create the market for solar and ensure its stability, increasing the confidence of investors. For solar energy investors, the biggest risk is not intermittent sunshine but rather intermittent policies that sometimes unexpectedly change the rules of the game.
Mobilizing $1 trillion also requires strengthening developing countries’ capacity to absorb investments, as well as to create and manage solar assets. If these countries have to import every piece of their solar systems, how is it different from importing fossil fuels like crude oil?
It is therefore crucial for these developing countries to develop their manufacturing capacity so that some solar system parts can be made and serviced locally, at affordable costs.
Finally, deploying solar energy in developing countries often involves small scale and distributed systems, such as micro-grids, to meet the demand of rural populations.
A successful B business model for such systems includes two key elements: A and C. A is for Anchor load, meaning a bigger electricity load for multiple applications such as water pumping, irrigation, and agricultural processing. C is for Community participation, meaning consumers become “prosumers” as they produce electricity from distributed solar systems for their own consumption and support productive use of electricity in the community.
The $1 trillion will ultimately have to emanate from banks and investors, including ADB. ADB has committed $80 billion in climate finance for the period 2019 to 2030. Although this support is only a very small fraction of the total needed, ADB can provide technical assistance for regulatory reforms and capacity development, which, combined with policy reforms, will create the certainty, longevity, and transparency needed to crowd in commercial investment.
ADB, along with other development banks, has signed a memorandum of cooperation with ISA to support the creation of sound policy frameworks, capacity building, and innovative business models which are necessary for mobilizing financial resources from commercial banks and private investors. We are hopeful that $1 trillion for building 1 trillion watts of solar power by 2030 is within reach for the rest of the world.