Morocco solar shows developing country trend
Give Morocco credit. It has set ambitious renewable energy goals and dropped all fossil fuel subsidies. It opened up the electric power sector to private companies and made long-term guarantees that the state will buy large amounts of power being generated.
The strategy is paying off. Earlier this month, King Mohammed VI turned on the switch to what will be the largest concentrated solar power plant in the world. The $9 billion project in the Sahara Desert is already generating 160 megawatts and as more phases are completed will eventually provide 1.1 million people with power.
This is hardly a North African anomaly. The story is being repeated the world over.
Chile, on the heels of enacting similar clean energy policies as Morocco, is on a path to quadruple renewable energy capacity – to 5,000 megawatts – in just four years. Investments in the country jumped 157 percent last year, to $3.5 billion, much of it for ever-cheaper solar, whose costs are now lower than coal-generated power.
South Africa? Same story. Clean energy investments tripled last year, to $4.5 billion, and the country hopes to produce 18,000 megawatts of renewable energy by 2030.
Developing countries are in a global race to scale clean energy. Fueled by climate change concerns, lower technology costs and the lack of energy access for more than one billion people globally, countries are scrambling to enact supportive policies that will catalyze projects and attract much-needed investment capital.
And it’s truly a race. While renewable projects are popping up everywhere – in 2015, for the first time, clean energy investments in developing countries exceeded those in developed countries – it still not nearly at the levels needed if the world is to avoid dangerous climate change.
In order to limit global temperature rise to less than 2 degrees Celsius – the goal forged by 195 countries at the recent global climate negotiations in Paris – the world will need to accelerate global clean energy investments in a big way. Right now we’re seeing a few hundred billion dollars being invested every year; that figure needs to jump by an additional $1 trillion a year, over the next three decades, to avoid catastrophic warming, according to the International Energy Agency.
So which developing countries are best positioned to attract more investors and achieve the biggest clean energy growth in the near term?
Investors and energy experts speaking at a recent UN Investor Summit on Climate Risk: Advancing the Clean Trillion – organized by Ceres and the United Nations Foundation – did not mince their words in answering these questions.
India is working hard to open its doors to become, in Prime Minister Nanendra Modi’s words, a “solar super power” in less than a decade. Transparent bidding processes for clean energy projects, use of partial loan guarantees and easy access to land for “plug-and-lay” solar parks are just a few of the steps the government has taken recently to make it easier for investors looking for clean energy deals.
Still, significant obstacles remain, including an unstable currency and high financing costs that are at least double what they are in the US and Europe – meaning that renewable power costs are far more expensive. Until these issues are resolved, achieving its mind-boggling goal of developing 100,000 megawatts of solar by 2022 is unlikely.
China, on the other hand, is widely seen as the “rock star of clean energy.” Investments in the country last year totaled $110 billion, 10 times higher than India’s $10.9 billion and fully a third of the record$329 billion invested globally, according to Bloomberg New Energy Finance’s latest annual tally. The reasons are multifold, including clear, long-term government policies, a relatively stable liquid currency and a wealth of government-controlled sovereign funds to finance projects.
And there are still ample ways for outside institutional investors to participate in China’s clean energy boom, especially in green bonds. China’s newly formed Green Finance Committee will require 2 to 4 trillion yuan of green financing every year ($325 billion to $625 billion), with less than a quarter of that being covered by the government, the rest by institutional investors. Green bonds will surely be a big part of this gargantuan effort. China’s carbon emissions trading system, which is set to go nationwide in 2017, is another big investor opportunity.
Investors should also be paying attention to smaller emerging markets.
Island nations in the Caribbean are moving aggressively to attract investors for solar grids, geothermal and other clean energy projects. A few months ago, St. Kitts and Nevis signed a power purchase agreement to develop 10 megawatts of geothermal energy as an alternative to relying on costly, high-polluting diesel fuel. A second phase of the project will boost the facility’s output to 150 megawatts. Other Caribbean islands are building solar grids for the same reason.
The 1,200 islands that make up the Maldives in the Indian Ocean are also putting strong renewable energy programs in place. Among those taking advantage is the Danish pension fund, Pension Danmark, which has invested $25 million in a water desalination project that will use solar power. The giant pension fund is also investing in a 300-megawatt wind farm in Kenya through the Danish Climate Investment Fund, which is focused entirely on climate investing in developing economies.
It’s easy to quibble that more must be done to make it easier to invest in the emerging markets, but evidence is growing that clean energy is gaining ground and opportunities exist.
But nothing will happen automatically: financing exponentially more projects will require more hard work from both sides – from developing countries, which must have the necessary supportive policies, and investors who must recognize the urgency of opening their wallets when the conditions are right.
Rachel Kyte, CEO of Sustainable Energy for All, summed it up well at last month’s Climate Investor Summit. “The real challenge from 2016 on is achieving scale. South Africa did something amazing last year. Why were they able to go to scale? Why were Chile and Morocco able to go to scale? This is the conversation that’s needed in Sub-Saharan countries, in India, in Mongolia, in Indonesia. What is it going to take for it not to be a belabouring process on a project-by-project basis.”