Hope to raise $50 million for solar in next few months; focus on Africa: ISA chief

The International Solar Alliance (ISA) is training 20 startups in Africa to build up their capacity in raising finance, in getting technological partnerships and in enhancing their brand images

As India attempts to position itself as the voice of Global South, ISA is working on building capacity and setting up guarantee mechanisms to attract investments in the Least Developed Countries (LDCs) and Small Island Developing States (SIDS). CarbonCopy spoke to Ajay Mathur, Director General, ISA, during the sixth session of the annual ISA assembly currently underway in Delhi. 

Edited excerpts from the interview below:

How is ISA looking at promoting decarbonisation of industry in the Global South ?

Typically industry uses much more thermal energy than solar power from solar parks and rooftops. The world seems to be converging around green hydrogen to be used  instead of thermal energy. ISA has created a Green Hydrogen Incubation Centre which has links to information on various initiatives launched so far.  

We are using this to build up local capacity and initially, we’ll provide training too. We also plan to do matchmaking  between green hydrogen developers and green hydrogen financiers to change the ecosystem as far as green energy for industry is concerned. 

Yesterday, at the assembly we saw many ministers from LDCs and SIDS asking to share Indian insights to build markets for RE back in their countries. What learning is ISA going to share?  

The Indian learnings have been particularly effective when you’re talking of solar farms. We have done three things. First is allocating land. So, if you look at the existing power plants in Pavagada, Karnataka or in Rajasthan or in Gujarat, all of these are identified pieces of land that have been acquired. The transmission lines have been built and it’s almost a plug-in place. Somebody comes in to set up a plant, land within that is allocated to them and they are given connectivity to start off immediately.

Second, we figured out how to fund these parks. We have gone through a process that started with feed-in tariffs. If somebody will provide solar electricity, we’ll give ₹18/kwh. Once that was developed, we started with the process of doing an auction. And prices came down to ₹7/kwh and then ₹3.50/kwh. We also started a reverse auction to drive prices down even further. So the person who came first lowered his bid, followed by others. 

Third, we figured out how to get the investors to put in money. The payment guarantee mechanism was created several years ago in the Solar Energy Corporation of India (SECI) and now it’s hardly used. 

And all of this has happened because they’ve been accompanied by regulatory changes. The changes that kept happening on the regulatory side to enable these three things gave confidence to investors. We believe that parts of this are applicable across the world, the details may differ but the big picture is the same.

We developed a lighthouse project with the World Bank to share learnings from India and then provide the regulatory support needed to make regulations in their own countries. To build up their capacity, we have identified 20 startups in Africa. These selected start-ups are now undergoing bootstrapping camps to build up their capacity in raising finance, in getting technological partnerships and in enhancing their brand images. 

The MDB annual meeting concluded a fortnight ago. From the perspective of ISA, did any fruitful developments emerge with regards to funding renewable energy in underdeveloped nations or is much left to desire?

I’d like to talk about the changes we want. Today, it is possible to have firm renewable electricity 24 hours a day. But solar plus wind plus storage costs twice as much as a 100MG coal power plant. The price of electricity is 80% of what the price will be from coal power. This, therefore, is very sensitive to the cost of capital. As far as the MDBs are concerned, their job is to make loans available to developing countries at the least cost of interest.

The problem is that when they start lending for projects the market thinks are risky, the rates of interest increase. So we would like the MDBs to say that “this is the kind of project we will finance” or “this is the kind of amount of money that we will invest in the projects”. Banks recognise that they have to finance development and transition at the same time. The only people who lend for energy access are MDBs and you’re saying I want to do it through solar. That adds a layer of complexity. So, what I think it’s important for the MDBs to do is to set aside a portion of profits for projects that the market thinks are more risky.

Whether it’s the Asian Development Bank or the World Bank, they have created expertise for financing renewable electricity in developing countries and to de-risk it. They need to get more people and make it broader, which they have agreed to in the MDB reforms. 

ISA launched the Global Solar Facility (GSF) last year to attract investments in underdeveloped and developing countries. What has been the progress so far?

We worked on the structure first. A mainstream finance consultant has developed a structure for us. Right now, we are talking of Africa, but later we are looking at Asia and Latin America, so we’ll have three legs to this.

What the finance consultancy is looking for is a parent company that will be the owner of these three legs. This parent company will be managed by ISA. And then, for example, a leg for Africa, could be managed by a private sector investment manager who is found to be competitive. These are decentralised solar projects and they see what is the kind of resources they need for the partial guarantee mechanism, insurance mechanism, low cost seed capital and they blend it together on a project basis.

Right now, the structuring is complete. Now, we are raising money. India has, in principle, decided to give an anchor contribution to this. There are two other philanthropies that have committed to providing sources for this. There are three countries with whom discussions are at an advanced stage and with six other countries discussions are at various stages.

We have set a benchmark of $50 million for ourselves. We hope that this happens in the next few months and following that we are able to raise $100 million for the payments guarantee facility, $20 million for the insurance fund facility and $50 million for the seed capital facility by June 2024.

One concern for investors is the political instability in the region. How does ISA plan to play a role to ensure that people are still willing to invest in countries that may have a track record of political instability?

We feel that this is reflected in the cost of political insurance. The Multilateral Investment Guarantee Agency (MIGA) at the World Bank provides political insurance. And one of the three elements of the global solar facility is an insurance premium fund. So, for example, the country signs an agreement with MIGA and we sign an agreement with the company that we will pay X% of your premium, to make solar viable. It’s given to them as an interest-free loan if the insurance is not called for. MIGA provides the insurance and we’ll provide the resources to meet the part of that insurance costs.

China, with the largest manufacturing capacity, is not a member of the ISA. Is the ISA looking to be a diversification vehicle to de-risk from China? Or ISA doesn’t mind China joining? 

First is, we would love China to join. The second is, there is a problem with concentration of manufacturing facilities because supply chains become extremely taut. Two years ago, supply chains were so taut that the price of solar, which had been declining over the years, started increasing. 

We are looking at demand which will be at the minimum three times the current demand by 2030. It could be as high as 8 times if solar hydrogen and electric vehicles come into picture. Then can we have a supply chain which is so heavily concentrated? Our answer is that you need to ensure that there is a more geographically diversified manufacturing picture.

Is ISA working on developing any global guidelines to take care of solar waste?

We have produced the first report together with the United Nations Environment Programme (UNEP) on handling solar waste. We look forward to producing country specific reports on how to deal with solar waste. The greatest issue is the level to which the recycling is done and what are the kinds of regulatory requirements that are in place for this kind of recycling to be done. We hope that as solar panels reach their end of life, countries would have in place the regulatory requirements which take them to recycling plants instead of taking them to landfills.

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Vandita Sariya

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