A tipping point for solar energy?


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Manik, a solar pump operator for Nusra works near the solar panels in Rohertek, Bangladesh. © Dominic Chavez/World Bank
Manik, a solar pump operator for Nusra works near the solar panels in Rohertek, Bangladesh. © Dominic Chavez/World Bank

​Solar energy is poised to transform low-income economies, many of which are in the world’s sunniest regions.  Solar’s growing share of the energy mix is being driven by better storage capacity and attractive generation costs. Large solar parks are now competitive with most alternatives; their average cost is below 5 cents per kilowatt-hour in some developing countries. Smaller-scale solar grids are also getting more competitive, opening new paths to financing this clean energy source. With rapid improvements in energy efficient lighting, refrigeration, water pumps, and other technologies for households, solar may soon be as game-changing as mobile phones have been in the last decade.

Solar’s potential is evident from its quick growth in India, where installed capacity recently topped 20 gigawatts (GW), putting the country closer to its ambitious target of 100 GW from clean energy by 2022 (an amount comparable to total installed capacity in the United Kingdom). Solar offers key advantages: facilities can be built quickly, do not need fuel to be transported to power plants, and can eliminate transmission costs where mini-grids or off-grid units are built to serve local communities.  

Solar can reach people in areas that are poorly served by the national grid or electric utilities. Mini-grids and off-grid generation are well suited to low-income countries where much of the population lives in rural areas; they can also increase access in urban areas. This relieves pressure on traditional energy companies, which are often unable to provide adequate service because consumer tariffs are not enough to cover their costs. They have had to rely on government transfers, which have become more and more precarious. Inadequate service, in turn, makes customers less willing to pay for an expensive and erratic power supply. In a vicious cycle, large physical and commercial losses have further weakened the financial capacity of these companies and their ability to invest.

Technology trends in solar power are changing the supply and demand equation, making it easier to align incentives for producers and consumers, particularly in smaller communities.  With costs falling and effective pay-as-you-go sales plans being introduced, the landscape is becoming like mobile communications, where consumers are ready to pre-pay if they value a service and find it affordable.  This scenario already applies to small grids, especially in communities where users can easily verify each other’s behavior and help install and maintain equipment. It may soon apply to rooftop units, especially if storage costs drop further. The flexibility of deploying solar power can also make the provision of electricity subject to price competition that benefits consumers.

Solar offers a new financing equation in part because it does not face the price volatility associated with fuel costs for traditional power plants. Together with the ability to charge more effectively for the service, lower volatility makes it easier for investors to hedge their income streams and helps compensate for the higher capital intensity of solar. Less uncertainty also simplifies the design of contracts, the ex-ante determination of the subsidies needed, and budgeting over the lifetime of a project. 

In this new environment, the regulatory burden to protect rights and align expectations of investors and consumers becomes lighter and easier to standardize. This can reduce transaction costs and the need for credit enhancement.  The main risk becomes macroeconomic, from the impact of currency fluctuations on the cost of hard currency financing. This can largely be addressed by government guarantees to top off the debt service when the currency goes beyond a certain threshold. The liquidity can be repaid by the electricity provider as the impact of depreciation wears off or is absorbed by gradual tariff adjustments that permit the pass-through of currency fluctuations while keeping the service affordable. In these conditions, the macroeconomic risk becomes a liquidity risk rather than a solvency risk. The guarantees can be efficiently backed by contingent loans from multilateral development banks (MDBs), helping reduce the risk premium on commercial financing. 

In some cases, MDBs can also help provide low-cost finance; blending it with commercial finance would help defray some investment costs and reduce the payback period to investors. This could address some of the obsolescence risks in the solar industry. In specific cases, the overall financing equation could benefit from treating solar energy as a potential export resource from low-income countries to mature economies.  One early example is a new transmission link between Italy and Tunisia’s electricity grids, a project being prepared by the Global Infrastructure Facility (GIF), housed at the World Bank. 

To make the most of solar power’s potential for profound transformation in many countries, it will be important to introduce low-cost, efficient energy storage at scale and understand better what’s possible in the new financial equation. It will also be essential to coordinate efforts globally. To help jump-start cooperation, the International Solar Alliance, supported by France and India and headquartered in India, is bringing together more than 120 countries to accelerate the deployment of solar energy.  The alliance is helping realize a global vision in which solar plays a crucial role in mitigating climate change and ensuring a cleaner energy future. 



Joaquim Levy

Former Managing Director and World Bank Group Chief Financial Officer

Ricardo Tejada
April 17, 2018

Excellent Article! Solar generation, paired with an effective national or regional energy conversation program at a commercial and household level, should help World Bank client countries achieve their poverty reduction goals while at the same time ensuring a sustainable future for the next generation.

May 04, 2018

Thanks for sharing the blog with us and would like to know more with this

Lex Reyes
May 25, 2018

Renewable energy are a hit lately, it's just sad that they realized it later

August 30, 2018

This blog is great at highlighting how solar power can help to rectify some of the biggest economic imbalances in the world. It outlines how the form of power can benefit those who are "poorly served" by the electrical grid, and those who live in low income countries, and I think this is a morally though-provoking point to make when trying to convince people of the benefits of solar power.

Sujit Kumar Datta
September 07, 2018

It's a beautiful program for the South Asian countries. I think it will help the rural people as well as generate employment for the youth. Urban people also get the opportunity to research and can develop the system. Populous country like India will get more ways with minimum expenditure. I hope World Bank will come forward in broader and popular way, so that rural people can understand the Eco friendly system.

September 28, 2018

Every big MNC'S now a day doing solar sysytem on their roof. bcoz of it they gets lot of electricity. thanks for sharing this apple's informations with us. our Solar panel system company will also trying to do this better.

October 30, 2018

This is a very accurate article! We here at Rhode Island Renewable are finding more and more opportunity in the residential areas, and by working with the lower income families we are getting more and more approvals. Great article!

December 11, 2018

There is no single tipping point for the economics of solar, but rather it is when solar is less expensive to the competing source of generation - all other things equal.

James Brook
February 21, 2019

Thanks for sharing this wonderful blog! This blog correctly conveys the information that how solar power can emerge in the world! It is also a great help for poor areas as it reduces the expenses of electricity. Even in an urban area, there are many benefits. It’s a wise decision when a person decides to get solar energy as the main source for heat and electricity in their house, office, cafes etc. If you are looking to install solar Panels in your place in Australia, then GCC Business Finance offers a good rate and easy payment plans! Installing solar power can reduce your carbon footprint by tones each year. Solar panels are also becoming more popular because they provide a backup supply of energy when the power supply is off.

Mukesh Pawar
September 10, 2018

Heyy great post. Solar solutions are high on installation cost but would surely help you in your near future. But with the help of government subsidies, you will able to save on the costs as well. We recently got a solar solution installed through Cleanmax Solar. They have the best solutions with rooftop solars and net metering technology. You can also one through: https://bit.ly/2tLBeHY

Robert Stone
November 22, 2018

This is quite interesting. I personally own a renewable energy system and I even acquire a monthly solar panel maintenance from this provider:https://www.revolution-care.co.uk/solar-panel-maintenance . And I definitely agree with what you said that “solar may soon be as game-changing as mobile phones have been in the last decade”. Well, I actually think that the demand and development for this kind of technology are slowly thriving. I guess we just have to wait and see.

Cristina Cathy
September 10, 2021

Hi, Joaquim Levy
Your Blog is really very wonderful & informative. Your article about 'Solar panel' is greate. I' m also interested in solar panels. thanks for sharing your great idea.