 "Dr. Ajay Mathur, Director General, International Solar Alliance")
India’s presidency of the G20 provides a window for clean energy investments especially in solar, which holds the greatest technical potential among all energy sources to reduce greenhouse gas emissions. Its overall life-cycle emissions, including those from manufacturing solar panels, are estimated to be only around 6 per cent of coal emissions and 8 per cent of gas emissions, even with carbon capture and storage for fossil fuels. Solar also diminishes harmful air pollutants when it replaces power generation from coal, natural gas, diesel, and oil-fired plants.
Many developing countries have high untapped solar energy potential, which with the right policies can attract scalable business models leading to reduction in reliance on fossil fuel imports and lower associated price fluctuations. Combining grid-connected and decentralised solar technologies can enhance power supply resilience for areas with unreliable grid access, replacing diesel generators and diesel use in agriculture and rural regions. Especially in Africa and small island states, solar mini-grids offer a solution for the twin goals of energy self-sufficiency and universal energy access.
The past decade has witnessed substantial growth in solar investment and deployment. Global solar PV capacity increased 21-fold from 2010 to 2021, with annual solar investments more than doubling. The solar sector mobilised $200 billion in 2021, $250 billion in 2022, and it is expected that $350 billion will be invested in the current year, marking a remarkable shift in solar economics.
Despite solar energy's success, three key challenges impede its widespread adoption: investment disparities, a focus on large-scale projects, and manufacturing concentration. Addressing these issues requires diversifying supply chains, investing in various technologies and business models, and providing innovative financing mechanisms. In addition, regulatory changes are also necessary for creating opportunities.
Furthermore, in light of recent findings from the IPCC, ISA and IRENA, it is crucial to increase commercial capital investments in renewable projects in the Global South. The IPCC emphasises the urgent need for nations to expand their renewable energy share to limit global temperature rise. However, in 2022, only a fraction of the required capacity was added, calling for a threefold increase in investment by 2030, primarily in solar, including manufacturing and supply chain diversification.
On a positive note, solar and wind power consistently yield strong returns on investments, often exceeding 10% annually. Solar PV, in particular, is becoming the most cost-effective source of electricity in many regions, with significant cost reductions over the past decade. Increased deployment can create a virtuous cycle, lowering manufacturing and installation costs further.
In the Global South, abundant solar resources exist, but the hurdle lies in the capital-intensive nature of energy projects and high interest rates due to perceived risks like power agreement uncertainties and political instability. Reducing these risks and the cost of capital is vital for promoting renewable projects in emerging markets and accelerating their implementation.
The largest mismatch in terms of the investment required and what is actually happening on renewables’ deployment is in Africa. The continent will need to double its capacity to 497 GW between now and 2030 to meet its rising energy demand. Africa will need $200 billion of investments for ensuring universal energy access. This objective will not be met unless commercial capital kicks in.
Traditional financial instruments, such as concessional debt and grants, are widely used in the region, but create a situation in which growth is limited. These concessional debts and grants could be deployed more efficiently to target specific barriers to finance and hence result in pulling in commercial investment capital. Doing so would greatly enhance the quantum of solar investments earmarked for a region that is naturally blessed with immense solar potential.
Some initiatives are beginning to work. For instance, in Latin America, the Green Climate Fund (GCF) investment of USD 60 million to the Espejo de Tarapaca solar project in the Atacama Desert is pushing the ecosystem to attract private capital. The $60 million equity investment from GCF in the early development stage of the project allowed a major de-risking of its future, catalysed over $1 billion of private sector investments and is expected to decarbonise up to 5% of Chile’s energy mix. Such anchor investments will go a long way in unlocking additional funding to clean energy projects, ease the obtaining of permits and create a precedent for future deals.
De-risking is also why the International Solar Alliance (ISA) is designing the Global Solar Facility, a financial facility aimed at stimulating high potential solar investments by attracting private capital. The Solar Facility will crowd source investments from various international donors and small-sized projects such as solar mini-grids in Africa will be able to purchase payment guarantees or partial insurance premiums from this pool of about USD 700 million. It is expressly designed to provide investors with the confidence to take up projects in Africa and to attract around USD 10 billion in follow-on investments, which will enable clean energy access in 35–40 million African households by 2030 and benefit around 200 million people in the region.
These examples show the way forward to amplify the rollout of renewables’ deployment in the Global South and help decarbonise their power mix. As an important added benefit, it should assist the recipient countries step closer to energy self-sufficiency and security and help immensely with staving off the worst impacts of climate change. Energy transitions will help build a safer and more sustainable energy system, securing the world in its energy needs. Towards this de-risking mechanisms that are backed by political will, commensurate with the level of climate action the world needs, must be swiftly devised and implemented for tackling climate change and providing clean electricity to the populations deprived of it. India’s G20 presidency presents a major opportunity to set a bold vision and to take ambitious steps in reforming international financial systems for climate action.
The writer is director general, International Solar Alliance.
These are the personal opinions of the writer. They do not necessarily reflect the views of www.business-standard.com or the Business Standard newspaper
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
