Solar – still the ‘beating heart’ of the energy transition …

03/03/2018

A recent “Making Solar Bankable” conference in Amsterdamorganised by Solarplaza and FMO, brought together more than 500 project development and finance executives from 40+ countries.  Caroline Allen and FMO CIO Linda Broekhuizen (see box) reflect not just on progress to date and the different models that are emerging, but also on the further technology-driven disruptions that are coming through


The exponential growth of solar power generation places the technology at the heart of the transition to clean energy, and while there are constant challenges and shortcomings, the message to the industry from investors and consumers alike is “Just do it!”.

Opening a two-day conference on Making Solar Bankable, former UNFCCC Secretary Christiana Figueres said the solar sector should be congratulated on its significant impact so far, and described the renewable energy revolution as ‘unstoppable, irreversible and exponential’.

With the climate science behind the drive to clean energy now accepted, city authorities and corporates, in particular, are supportive of new technologies, while the rapidly evolving green bond market has given solar-focused issuers a deeper, cheaper source of capital.

Figueres said the conversation about access for off-grid rural communities ‘has not yet been won’, and she is increasingly concerned that undercutting bids at energy auctions – which have proved a highly successful market structure — might cannibalise the industry at the very point when it needs to expand quickly.

Governments also need to step up on issues of access, policy and trade, but broadly, all stakeholders were aware of the urgency to act. She told the 500 delegates: “We know concrete models have to go to scale. We know we need cross sector collaboration to attract private capital. We have endless discussions about Blended Capital. Let’s just do it!”

A dynamic approach was also encouraged by Sean Kidney, CEO of the Climate Bonds Initiative, as he described how a simple and inclusive marketing concept had helped create a large, liquid and fast-growing green bond market worldwide, accessible to both rich and poor countries, supra-national and corporate issuers.

Some US$60-90 trillion is required in climate change mitigation or resilience measures in the next 20-30 years. Kidney suggested that capital now sitting in low yielding government bonds could be switched into higher yielding ‘green’ financial instruments if investor needs for liquidity and other measures are met. “There is risk appetite out there, and there is no shortage of money. Good deals will always find funders.”

Regional differences are becoming apparent

Speakers at the Amsterdam event traced the evolution of the renewable energy sector and the increasingly evident slowdown in fossil fuel production, while noting the different regional energy priorities and preferences.

Asia leads the world in the adoption of solar technologies and generation, with exponential demand in both developed and emerging economies. In Africa, solar power is better established in some markets than others, but the continent as a whole is desperate for baseload power that will support rapid industrialisation. Rural communities, meanwhile, prefer reliable, low-cost microgrids which meet their particular needs.

Solar cedes to hydropower across much of Latin America, with growth projections in markets like Chile, Argentina and Brazil not expected to change much in coming years. An outlier is Mexico, where there is rapid take-up of solar power. Policy support and legal reforms would accelerate interest, noted Jay Gallegos, General Director of Wind and Solar at CMI ENERGÍA.

A tsunami of change is coming from yet more disruptive technologies

The future shape of both technologies and markets proved a lively area of discussion. Yuri Van Geest, Author and CEO of Exoxo, described the ‘tsunami’ of change about to descend on the solar and other energy sectors, as artificial intelligence (AI), nanotechnology and quantum computing become mainstream.

New materials like graphene and nanophotonics will render ‘structures’ like solar panels obsolete, as coatable energy generators and storage solutions evolve. “The next generation will start with AI and then build the hardware around it. AI and deep learning will be the only way to compete in five years’ time. The challenge will be how to make the technology affordable, to democratise it.”

He believes blockchain will become the operating system for energy generation, which will decentralise at the edges, and Bitcoin or another cryptocurrency will form the payment infrastructure for peer to peer trading and lending, resource management and public access. Concerns remain about the stability, scale and sustainability of blockchain, but proponents believe it already presents a viable alternative to existing payments systems.

A recurring theme throughout proceedings was the need for large-scale utilities and off-takers to modernise, reform and participate in the transition to renewable energies, while policymakers and regulators were urged to standardise requirements and enforce them consistently. “Everyone wants business in new markets but we need a reliable delivery partner,” noted one speaker. “Everyone has to take some responsibility to make the whole chain work.”

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The dynamism in the solar sector worldwide derives from the mission – to address and reverse the damaging effects of greenhouse gas emissions and man-made climate change through knowledge, partnership and leadership. There is no lack of commercial opportunity or innovation, as the technological advances are running ahead of traditional social, policy and financial structures. Public support for new, clean energy is increasing, making for a ready consumer base.

Social entrepreneur Jeremy Leggett described the solar revolution as “a great saga with dramatic storylines. The fossil fuel incumbency faces multiple existential threats because global society is waking up to the threat to civilisation.”

“My sense is that the industry is pushing at an open door,” said one delegate. “There are operational blockages, and some policy gaps, but it is clear that finance is not an issue. The message is that we just have to get out and do what we have been talking about doing for so long.”

FMO’s Chief Investment Officer Linda Broekhuizen spoke at the conference.  Here’s a digest of her remarks

We need to know and understand other industries to be able to adapt to the disruptive transformation in our own business. Airbnb, Uber and Netflix have disrupted the travel, the taxi, and the TV and video rental industry respectively.  The energy sector, water, health, education and so on, they are or will be disrupted in one way or the other. Consumers will benefit. Perhaps even more so in emerging markets.

We all know how many countries in Africa skipped the fixed telephone network and leapfrogged to mobile phones.  Now smartphone penetration is growing exponentially in emerging markets. They are even replacing PCs, laptops or tablets.

As a result, Internet usage is rising rapidly, in particular amongst the low-income population. Internet connectivity has grown from 1.8 billion people in 2010 (a quarter of the world’s 7 billion population) to 3.8 billion in 2017 or half the global population. In the coming 4 to 7  years, internet access is expected to more than double. Everybody will have access to the Internet.

At the 2018 Making Solar Bankable event: “The digital revolution spurs new technologies, products/services, and business models that are expected to follow exponential and disruptive growth patterns.”

At the same time however, there are still many people in emerging markets who are unbanked. For example, in 2017, over half of the Chinese population uses the internet, while more than one fifth is unbanked. Imagine the vast opportunities in emerging markets to increase access to financial services for people on low incomes and how this, in turn, will impact every industry?

Off-grid energy models have been growing rapidly over the past several years, and are now providing new or improved electricity access to an estimated 73 million households, or over 360 million people.  But it’s still demonstrating a penetration rate of less than 20% of the global potential market of off-grid or unreliable grid households.

We are gaining a better understanding which of these models can be scaled and how. Beyond the initial stand-alone pico solar lanterns, the off grid sector has expanded its offerings with Solar Home Systems, often distributed based on Pay-as-you-Go business models, as well as with energy efficient appliances for residential or, increasingly, productive use.

Distributed energy solutions for both households and businesses are literally becoming more and more powerful, in some cases even offering a credible and permanent alternative to on-grid power. This presents challenges to the traditional on grid models and project finance structures in the market but also opportunities, as the boundaries between what were two very distinct worlds before seem to be blurring these days and a gradual convergence seems increasingly real.

 

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