The power of sunlight: incentivizing private investment in solar PV


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Photo: Pixabay Creative Commons

Solar power is experiencing a surge in popularity across the globe. It prevents carbon emissions, helps diversify the power generation mix, reduces dependence on fossil fuels, and can increase off-grid energy access.
With falling costs of solar photovoltaic (PV) technology, advancing storage technology, and grid integration, prices for solar PV electricity have been falling rapidly around the world and solar is now in many countries price competitive with traditional energy sources and has become particularly attractive for developing countries.

In recent years, global cumulative installed solar PV capacity has grown exponentially and grid-connected utility-scale solar PV systems, often financed through public-private partnerships (PPPs), have played a major role in PV’s growth.  

In addition to direct or indirect government support through public financing or fiscal incentives, many countries have introduced regulatory and pricing policies such as targets and quotas, feed-in tariffs (FiTs), and competitive auctions, which have spurred some of these developments:

1. Renewable energy (RE) targets have been used by almost all countries to scale up the RE share in the energy mix. They are a crucial policy signal for investment and are increasingly included in nationally determined contributions (NDCs) submitted under the Paris Agreement.

2. To achieve RE targets many countries require utilities to get specific amounts or percentages of their electricity sales from RE. These quota systems exist in many different variations worldwide and are often supported by tradable RE certificates. The RE support system in Chile—a solar PV leader in Latin America with 2.11 GW installed capacity in 2017—uses this approach alongside with auctions and other incentive mechanisms, and mandates severe penalties for non-compliance by utilities.

3. Feed-in tariffs (FiTs) set by the regulator and similar instruments used to be the preferred regulatory mechanism globally to boost deployment of solar PV through private investment as they provide a stable and predictable policy environment. FiT guarantee the purchase of generated RE under long-term contracts at a tariff set by the regulator and are often combined with facilitated grid access and dispatch. In Germany, FiTs were a key element of the RE incentive scheme for many years and led to the major growth of solar PV (42.39 GW installed solar capacity in 2017). Based on the German Renewable Energy Law, the system guarantees RE producers an attractive fixed return on investment that now decreases at regular intervals over a period of 20 years. It mandates priority grid access and dispatch and is financed by consumers through their electricity bill.

4. With solar PV maturing and markets growing, price discovery through competitive auctions with long-term contracts has become the most rapidly expanding way to procure utility-scale solar PV for fixed quantities.   

Here are some trends related to solar auctions:
  • Competitive solar tenders have decisively contributed to rapidly declining solar PV prices across the globe. In Saudi Arabia, an October 2017 auction resulted in a new record low for solar PV with one bid at 1.79 US cent/kWh. Solar prices are, however, not fully comparable because of country-specific factors and different parameters of each auction.
  • While tender schemes open up flexible and innovative design options (e.g. time blocks, storage components), the quality of the design and implementation is crucial to the success of competitive tenders. In Chile, an energy auction in November 2017 received the lowest price for solar in the region with 2.15 US cent/kWh after the tender process was amended in 2015 (Law 20,805) and a longer contract term (20 years) and different sized hourly blocks of energy supply (day, peak, night, 24 hours) were introduced.
  • Many countries have adopted parallel “price-finding” mechanisms for different market segments. Germany has kept its FiT scheme for smaller PV installations and recently introduced competitive bidding for projects above 750 kW to reduce costs, control speed of deployment, and dovetail grid-expansion.
  • Many successful solar PV programs—tender-based support schemes and others —are also combined with standardized project documents that ensure a speedy and transparent process and bring down transaction costs.
Experience from one country cannot simply be replicated in another country. A careful analysis of international best practice samples can, however, be an important step in designing regulatory and pricing policies and the respective project documentation that are conducive to a sound development of large solar PV projects. 
The RE section of the PPP in Infrastructure Resource Center for Contracts, Laws and Regulations (PPPIRC) offers links to best practice examples for solar policies and legislation, bidding documents, as well as sample and standard contracts. This section is currently being updated and feedback or suggestions are welcome at [email protected].

This blog is the first in a series that will discuss and explore legal and regulatory issues around PPPs and Climate Change.

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Susanne Foerster

Lawyer, Public-Private Partnership Group, the World Bank Group

Join the Conversation

Ifeanyi Asogwa
April 27, 2018

The information given here are quite interesting, but may still not be enough to stimulate small scale investors in Renewable Energy in a country like mine, Nigeria. People like me are eager to to read about the World Bank's programmes in trainings, courses projects etc where Africans can gain experience to start up business through investments in RE. It is such that can help in creating the needed revolution both in business and in RE

Engr Peter Ikpemu
April 27, 2018

Yes the world is moving and growing in technology and i wish to part of world class engrs

Dr. Mohamed Taher Abdelrazik Hamada, Ph.D
April 28, 2018

Solar energy is increasing in it's usage in both the developed and the developing countries , but it
is still growing because it's generating prices are still high . The World Bank is doing his part in solar
energy development and it is clear from the above diagram in the above blog that solar energy will be cheaper than coal in few years
Yours Very Respectfully,
Dr. Mohamed Taher Abdelrazik Hamada, Ph.D
Senior American Citizen
Retired Professor at Strayer University, USA

Mac Watson
May 03, 2018

Nice Post..
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May 15, 2018

Great Post..Yes Solar Energy is attractive popularity all over the globe because of its utilities and low cost..
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Mukesh Pawar
June 19, 2018

Heyy Great post! The world is improving and we do need to accept solar technologies which help us to save on energy and helps in the green environment as compared to the carbon-emitting technology that is caused by generating electricity. And of course, due to more of competition in the market for solar technology installations, there will be a fall in price for the same. There are many companies around the world who provides solar solutions. Check these to get one installed:

Cindy Hung
June 25, 2018

Great Post..Yes Solar Energy is attractive popularity all over the globe because of its utilities and low

July 03, 2018

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Your Energy Solution
July 17, 2018

Heyy Great post! The world is enhancing and we do need to acknowledge sun based advancements which assist us with saving on vitality and aides in the green condition when contrasted with the carbon-emanating innovation that is caused by producing power.
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reeper clay
July 18, 2018

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Agni Solar Systems Pvt Ltd
July 22, 2018

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Nikita Sawant
July 28, 2018

Great article! Solar energy has many benefits for residential, commercial and industrial establishments such as:
-Reducing power bills
-Reducing the carbon foorprint
-Give great return on investment
-provide freedom from power cuts
With a solar EPC company such as Insolergy, you can properly reap the benefits of solar energy through the hassle-free installation as well as solar finance options.
August 02, 2018

Very beneficial information! good job. best part of solar system is give energy without harming nature.