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International Solar Alliance (ISA) – Background Note

What is the ISA?

Launched by India and France in November 2015 as an inter-governmental organization, the International Solar Alliance (ISA) is Indian Prime Minister Narendra Modi’s flagship solar energy project on the world stage. Its three-point objective is to:

  • Mobilize $1 trillion in finance by 2030 – to install 1000GW of solar power and lower the costs for solar-powered projects (electricity access and agricultural pumps) in its member nations
  • Enable the exchange of technical expertise, and
  • Capacity building of local populace for long-term operational viability of its projects

The ISA is headquartered at Gwalpahari, Haryana, India and was formally recognized as an international organization in December 2017. It has been signed by 68 countries (a majority of them from Africa) and ratified by 44. Any country is welcome to join the list of member nations, but voting rights are proposed to be reserved for the “solar rich” countries that lie between the Tropic of Cancer (23°N) and the Tropic of Capricorn (23°S).

India and Brazil are the only two BRICS nations that have so far signed the ISA treaty, while China and South Africa are currently listed as Prospective Member Countries.

 

Assessing the solar potential of ISA member nations

ISA – along with the World Bank – launched Global Solar Atlas in 2017. It is a free online tool that displays annual average solar power potential at any location in the world, and thus helps assess potential sites for solar power generation.

Countries closer to the Equator tend to have greater annual solar potential than those further north or south. For example, Canada and Russia each have solar potential below 2.0 kWh/m2 per day, whereas South America and Africa have average potentials above 7.5 kWh/m2 per day. Nevertheless, many of these countries have tapped very little of their plentiful resource.

For instance, In 2016, the Middle East and Africa’s total installed solar PV capacity stood at just over 4 GW – which was less than 2% of the total global solar installation of 300 GW. IRENA estimates that with the right enabling policies, Africa could set up more than 70 GW of solar PV capacity by 2030. The Middle East is targeting for 60 GW by 2032.

Even so, Africa’s potential has been estimated at about 10,000 GW of solar power by Oxfam America. The distribution of solar resources across Africa is also fairly uniform, with more than 85% of the continent’s landscape annually receiving a global solar horizontal irradiation (GHI) of over 2,000 kWh/m2.

On the other hand the cumulative solar capacity of ISA member countries stood at around 175 GW at end of 2017 – around 44% of global capacity. However, 90% of this capacity was concentrated in China, India and Australia with 130 GW, 20 GW and 7 GW of installations respectively.

 

India’s progress on its own solar targets

Even though India is currently recognized as the third largest emitter of CO2 in the world (behind China and USA), its incumbent govt. is steadfastly pro-renewables and is likely to exceed its own target to install 100GW of solar capacity by 2022 (175GW of RE in total). India’s solar capacity at the end of September 2018 stood is reported to have touched 25GW.

Solar was also the largest source of India’s power capacity addition in 2017-18 (adding 9.1GW), and attracted $10 billion in investments (up from $4billion in 2016). Japan’s SoftBank Group has even announced its intention to invest up to $100billion in India’s solar market.

However, the government has also imposed a stiff 25% duty on imported solar modules – in an attempt to spur domestic manufacturing. There is also a debate on whether to tax solar power projects at 18% or 5% GST (Goods and Services Tax).

Regardless, India continues to aggressively push for more solar power, with bids for 77GW of solar power to be called for by March 2020 (and 23GW for wind). Additionally, the Indian govt. has instituted a policy to promote grid connected solar PV systems that are installed over irrigation canals and along their banks.

 

ISA’s channels of financing  

The ISA has entered into strategic and financial partnerships with the UNDP, the World Bank and the Climate Parliament to further the mandate of ISA. Financial partnerships have also been entered into with the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).

Also, the Alliance has approached various multilateral and bilateral funding agencies for earmarking a certain percentage of their overall credit portfolio for solar power generation. Other possible sources of funds – such as sovereign wealth funds and pension funds – are also being approached.

And most importantly, the ISA is working towards establishing a Common Risk Mitigation Mechanism (CRMM) by December 2018. The CRMM will act as an insurance pool for the Alliance’s financiers, and is targeting a quantum of $1 billion – $250 million of which have already been raised. It also expects to channel $350 million through the Green Climate Fund, $300-million from the India-French fund and $250 million from private investors.

The $1 billion guarantee could attract up to $15 billion of investments for 20 GW of solar PV capacity in more than 20 countries.

For its part, India has offered to meet ISA Secretariat expenses for its first five years, and has earmarked $2 billion for solar projects in Africa. India’s is also likely to extend a $1 billion Line of Credit for non-African countries.

France has also announced a €300 million soft loan for solar projects in the ISA member countries.

 

Bringing down the cost of solar

The cost of capital for solar projects in several member countries exceeds 10% of total project costs. Therefore the ISA aims to reduce this cost by:

  • Setting up large project portfolios
  • Setting up common credit enhancement mechanisms, and
  • Developing channels to help member nations access international financial markets

A key principle for the ISA will be that by aggregating solar demand, the Alliance will allow project buyers to have stronger bargaining power. This is built on India’s own experience with solar, where solar tariffs fell by over 80% from 2010 to 2017 due to:

  • Competitive reverse auctions
  • The introduction of solar parks
  • The availability of cheaper finance
  • Falling solar module prices, and
  • The entry of large power companies with access to low cost capital.

India has also demostrated the principle through its campaign on promoting the use of LED lights across the nation (under the UJALA scheme). The government’s bulk orders for LED lights caused the price for a 7 Watt LED lamp to fall from Rs. 310 to about Rs. 73 in 2015. By 2016 the price of a higher power, 9 Watt LED lamp had dropped to Rs. 38.

 

ISA in agriculture

ISA will also attempt to replace diesel-fueled agricultural pumps used by its member nations (for irrigation) with solar pumps to curb carbon emissions. So far demand for 500,000 pumps across India, Bangladesh and some African nations has been identified, with the number expected to swell several times over by 2030.

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