De-risking concentrated solar power in emerging markets: The role of policies and international finance institutions. (July 2015) - Frisari, Gianleo
Abstract: Concentrated solar power (CSP) is a promising technology for low-carbon energy systems, as combined with thermal storage it can store solar energy as heat, and deliver power more flexibly and when most needed by the grid. However, its high cost prevents its rapid deployment and affects its affordability in emerging economies. International financial institutions (IFIs) have emerged as key players to enable CSP in emerging economies, especially when cooperating with national policymakers. Through the analysis of two CSP plants in India and Morocco where IFIs provided the lion's share of finance, this paper aims to assess the effectiveness of their support and estimate the impact of IFIs financing on electricity production costs and mobilization of private investments. The two case studies show that public financial institutions can play a leading role in reducing the cost of CSP support on public budgets by providing concessional loans in countries where public and/or private finance would be too expensive, or extending maturities where commercial investors are present but poorly suited for project finance. Finally, we show that, combined with competitive tariff setting mechanism (tenders and auctions), public financial support can also be a cost-effective tool to engage private investors in CSP. Highlights: We analyze the financial model of two large-scale concentrated solar power (CSP) plants in two emerging markets (India and Morocco). We focus on the role of policies and public finance in reducing investment risks and generation costs. Development banks' concessional loans can reduce the weight of CSP support on public budgets. Even when non-concessional, development banks' loans can reduce investment costs by extending debt maturities. Competitive tariff setting mechanisms can ensure cost-effectiveness of public financial support.