A New Perspective on RE Project Development in Emerging Markets

Is it possible to accelerate renewable energy investments in emerging markets without paying high tariffs?

That is the key question being discussed by governments in many developing countries. Governments have ambitious renewable energy targets and intentions, but creating an attractive environment for long-term investors is not that easy. Having a feed-in-tariff system and a clear legislation helps, but it is not enough. Mostly, high risk takers take advantage of the immature market conditions and try to develop projects; some of those projects fail, while some of them succeed and are sold to investors for a significant amount of money, which at the end will be covered by the consumers. So, what should be the striking strategy for the governments?

Governments should develop their own projects and find the way to transfer the projects with minimum risk to long-term investors in a competitive way.

If risk could be minimized in project development and a transparent environment could be created for accredited energy companies to compete in, the cost of energy could be lowered significantly.

Project development is not an easy process. The quality of the project will be determined by the quality of the studies that are performed under the project development, and that requires serious commitment, commercial and technical experience, know-how, and visionary attitude. However, governments are not alone on this adventure. There are capable international project development companies and consulting firms that can provide their services under the coordination of the related authorities.

That approach could mitigate development risks, lower the costs and create feasible investment opportunities for long-term investors, including pension funds that prefer low-risk projects.

Institutional investors, such as pension funds and insurance companies, are increasingly investing directly in renewable energy projects, providing much needed capital to companies in the fast-growing clean energy sector. Renewable energy is considered a reliable, long-term investment. Among various different types of renewable energy sources, photovoltaics (PV) seems to have advantages as a proven technology that has relatively predictable generation. In the near future, we will see many renewable energy pension funds investing in renewable energy projects in emerging markets, as the world’s first pension fund investing solely in renewable energy was launched on Oct. 22 in London.

Another significant parameter for lowering the levelized cost of energy (LCOE) is the capacity of the project. Let’s see how solar power purchase agreement (PPA) prices are decreasing significantly and what the capacities of the projects are:

  • In 2013, First Solar signed a PPA for solar power in New Mexico at 5.8 cents per kWh, or, presumably, 8.5 cents per kWh if you added in subsidies. The name of the power plant is Macho Springs Solar Park, and it has an electricity generation capacity of 50 MW.
  • In Mid 2014, Austin Energy announced that it had awarded a PPA to Recurrent Energy under 5 cents per kWh, or under 7.1 cents per kWh with the U.S. federal solar investment tax credit (ITC) included. The location is West Texas and capacity is 150 MW.
  • In late 2014, ACWA Power landed a contract to deliver solar power to Dubai at a record-shattering low cost of 5.84 cents/kWh. The capacity was 100 MW.
  • In Austin, Texas, this year, Austin Energy announced that it had received solar PPA bids under 4 cents/kWh. With subsidies included (the solar ITC), that would still presumably be under 5.71 cents/kWh. The capacity was 600 MW.
  • Also this year, NV Energy signed a solar PPA at an initially stunning low price of $0.0387/kWh, or 5.53 cents/kWh after accounting for the solar ITC. However, that PPA came with a price escalator, so the average price across the life of the PPA will be a bit higher. The capacity was 100 MW.     

Proposing a very well-developed and sizable project by the government will attract long-term investors who can contribute to the welfare of the country. Investors are looking for feasible projects and governments are looking for long term investors. The strength of the bridge between the two sides will make things happen. The strategy of developing or co-developing renewable energy projects by the governments, according to a country’s needs shouldn’t be underestimated.

That is the question which should be discussed by politicians and energy bureaucrats in emerging markets, particularly in Africa; however, there are many capable project development companies and consulting firms which are looking for such involvement to realize untapped GW-scale potential.

So, is it safe to leave the renewable energy potential of the country only to project development companies’ motivations or is this the right time for governments to take the lead in project development and cooperate with long term renewable energy investors?

Lead image: Glass globe in hand. Credit: Shutterstock.

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