2017/72 k nKonw A A weldegdeg e ol n oNtoet e s eSrei r e ise s f ofro r p r&a c t hteh e nEenregryg y Etx itcrea c t i v e s G l o b a l P r a c t i c e The bottom line What Drives the Price of Solar Photovoltaic Electricity Over the past few years, prices of solar photovoltaic electricity in Developing Countries? decreased to $06.–0.08/kWh in a number of developing countries, Are recently announced prices for utility-scale This brief summarizes an analysis of 37 winning bids for utili- becoming competitive with ty-scale solar PV plants procured through auctions in 13 developing solar PV realistic, sustainable, and likely to induce conventional sources. In a few countries between 2013 and 2016. For comparison, the full report, markets, prices significantly further market expansion? obtainable from the authors, also describes examples of a failed PV below $0.06/kWh have been To find out, this note examines the costs of auction in Indonesia and a large, bilaterally negotiated procurement achieved through auctions of PV capacity in Nigeria. The 37 plants were selected based on the equipment, access to financial markets, insolation, governed by clear, concise rules availability of plant-specific information and the desire to achieve a and selection criteria, among and other project-related variables in 13 countries comprehensive overview of the evolution of auction results across other factors. Price reductions In the past few years, auctions have emerged as a popular and countries and over time, in particular in countries such as Brazil and are expected to continue. economically advantageous way to procure power-generation South Africa that have organized multiple rounds of auctions. The 37 However, strong demand for capacity. Traditionally, prices for solar photovoltaic (PV) power were plants were chosen from a set of some 500 winning bids covering equipment, the disappearance of administered though feed-in tariffs (FiTs). But as technology matured, more than 50 auctions in 16 countries.1 Although the sample is rela- low interest rates, and expansion the PV market scaled up significantly, the size of plants grew, and tively small, it is large enough to explain the lowest announced prices to countries with less abundant the number of players multiplied, creating a dynamic competitive and to indicate whether they are supported by market fundamentals. solar resources could slow the environment of which auctions have become an important part. The analysis includes (i) a simple financial model (based on rate of price decreases. FiTs and auctions can be used in parallel and applied to different plant-specific parameters) that explains bidding prices and (ii) a market segments, depending on policy and deployment objectives. comparison of auction designs in the countries covered, along Zuzana Dobrotkova is FiTs fix the tariff and act on the quantity of power procured. with descriptions of the conditions under which individual auctions an energy specialist in the They can suffer from lack of agility as solar PV costs fall, offering took place. Interviews with stakeholders active in utility-scale solar World Bank’s Energy and unreasonably large returns to producers that are paid for by utility PV markets—including developers, utilities, consulting companies Extractives Global Practice. customers or the public purse. (Some countries have introduced advising governments, bidders, government officials, and financial Pierre Audinet leads periodic downward adjustments of FiTs to mitigate this problem.) institutions—complement the analysis.2 Stakeholders verified some ESMAP’s Renewable Additionally, if the capacity eligible under FiTs is not capped, the of the assumptions and conclusions, identified business strategies of Energy Program Team mechanism can result in excessively rapid deployment, posing market players, provided qualitative details about auction processes, and coordinates the Bank’s RE Community of Practice. grid-integration issues. and suggested avenues for bringing more sustainability into future Auctions fix the quantities of capacity or power to be procured solar PV development. Gevorg Sargsyan is the and act on prices. If not carefully designed, they can engender the global lead for clean energy in the World Bank’s opposite weakness: a frenzy to submit the lowest bid possible. Very 1 An auction can procure capacity from one or multiple plants. 2 Interviews were conducted with representatives of ACWA Power, Canadian Solar, First Solar Energy and Extractives low bids raise concerns about financial viability and technical quality India, Fourth Partner India, Iberdrola, ICF International India, Metier South Africa, National Energy Global Practice. and can jeopardize the sustainability of the market. Commission Chile, PWC Mexico, Softbank India, and SunPower USA. 2 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? How much does solar PV electricity cost today? Winning bids in certain markets reflect market-based incentives (such as the proceeds from sales of clean energy certificates), as well Solar PV electricity prices vary widely, although as the practice of offering market-entry discounts (in the form of very they are rapidly decreasing around the globe low initial returns). By placing a winning bid, companies not only gain The reductions are a result of auctions around the world (figure 1) the right to sell electricity under the conditions of a power purchase “If not carefully designed, and of decreases in FiTs. The variation comes from differing market agreement (PPA), they also gain access to the market, affording them auctions can engender segments and large differences in installation sizes. Even within the a measure of market power, access to information, or other benefits. same market segment, however, prices can differ significantly. Because the bidding price can reflect these expected benefits, it can a frenzy to submit the differ from the sum of incurred costs and required margins. The price lowest bid possible. Very low bids raise concerns about financial viability Figure 1. Results of solar PV electricity auctions in selected countries, 2013–16 and technical quality and can jeopardize the 25 18.4 Denomination of auction sustainability of the Local currency 20 market.” 16.4 U.S. dollar (or pegged to U.S. dollar) 14.1 U.S. cents/kWh 15 8.7 10.2 11.1 10.9 10.9 10.3 8.5 10 8.8 8.2 8.5 8.5 7.6 7.5 6.4 6.1 6.0 7.0 6.5 6.5 5.9 5.9 3.6 4.8 4.9 5 3.0 2.9 2.4 0 Indonesia India* Uttar Pradesh Brazil Pernambuco India* Karnataka (Phase II) South Africa REIPPP (Round 3) Uganda Get FiT Guatemala 3rd Tender India* Karnataka 500MW El Salvador India* JNNSM (Phase II Batch 1) Brazil 6th Auction UAE Dubai (Phase II) India* Punjab Brazil 7th Auction Brazil 8th Auction India* Andhra Pradesh NTPC 350MW Chile “2015/02” South Africa REIPPP (Round 4) Jordan (Phase II) Peru 4th RE Auction (Round 1) Jamaica India* Jharkhand 1200MW India* Rajasthan NTPC 420MW Zambia Argentina Peru 4th RE Auction (Round 2) Mexico UAE Dubai (Phase III) Chile “2015/01” UAE Abu Dhabi 2013 2014 2015 2016 Source: World Bank. Note: Figures show lowest winning bid in each auction. Bars represent ranges of winning bids in auctions in which there were multiple winners. All figures are nominal. Prices in Argentina, Brazil, Chile, Jamaica, Mexico, Peru, and South Africa are indexed. * For India, only the auctions with the highest and lowest winning bids in a given year are shown (because of the large number of auctions in India). 3 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? Figure 2. Installed prices of solar PV electricity projects procured through auctions, before the required commissioning negotiations, and feed-in tariffs, 2010–16 date. Yet construction of PV plants typically takes just 6–12 months. In such 8 cases, pricing can take into account the Auctions forward curve for the prices of solar PV 7 “Solar PV electricity Feed-in tariffs equipment, thus reflecting the prices prices reflect the fact Other types of deals expected at the time of construction, 6 not the time of announcement of that installed prices have Millions of dollars/MW 5 winning bids.3 Dubai’s 2014 announce- been falling steadily, ment of a winning tariff of $0.0589/kWh reaching $1 million/MW 4 is a typical example. The plant needs to or less, especially be in operation in 2017. One of the two 3 Zambia sites auctioned at a comparable when procurement is 2 winning price ($0.0605/kWh) two years competitive.” 800 MW after Dubai’s announcement is also 50 MW 1 expected to start operations in 2017. Prices are more consistent based 0 2010 2011 2012 2013 2014 2015 2016 on year of expected delivery than on year of announcement. For 2017 (which reflects mostly plants built in 2016), Source: World Bank, based on IHS and Bloomberg New Energy Finance databases. prices are $0.060–$0.085/kWh; prices are $0.030–$0.036/kWh for most plants will be higher if risks are priced in; lower if market benefits are taken with delivery expected in 2018 and even lower (less than $0.030/kWh) into account. for plants that will be delivered in 2019 and beyond (figure 3). Interviews with stakeholders confirm that strategic positioning of Observed and expected decreases in solar PV prices partly some developers in certain markets, such as Latin America, has led reflect decreases in the prices of PV cells and modules. The costs to prices that include very slim returns on the initial investment. Bids of semiconductor-based solar PV are falling faster than the costs of in Mexico price in clean energy certificates, which will be offered for other power-generation technologies, which are based on steel and every kWh of PV electricity produced, even though the market for the large generation equipment sold in small numbers. The “learning certificates will start to function only in 2018. rate” for solar PV is much faster than for onshore wind, biomass, and Solar PV electricity prices reflect the fact that installed prices geothermal technologies (IEA 2015; IRENA 2015b). Solar resources have been falling steadily, reaching $1 million/MW or less, especially are available globally and in abundance, and technology is highly when procurement is competitive (figure 2). Some negotiated modular, allowing a wide range of applications and contributing to procurement has also achieved low prices. FiT-based installations are technological learning. The technology is also at a relatively early typically reporting higher prices. Project size has become becoming stage of deployment, when learning occurs more quickly than it does larger over time, reflecting increased confidence in PV technology and rapid market expansion. 3 Forward pricing can be realized though equipment-purchase contracts for delivery in Prices of PV electricity for certain plants, particularly plants with 18–24 months, especially for developers that procure very large quantities of PV panels. Some expected delivery dates after 2018, seem to include forward pricing developers are betting on decreases in equipment price and waiting to procure panels at the of equipment. Some PPA prices are announced more than five years time of plant construction—a practice that exposes them to the risk of tight markets at the time of purchase. 4 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? Figure 3. Results of major auctions in various countries, by date of announcement and expected year of commissioning Brazil Pernambuco 10.3 2013 India Karnataka (Phase II) 8.7 Year of award of PPA South Africa REIPPP (Round 3) 8.5 Nominal price per kWh “The industry expects Guatemala 3rd Tender 10.9 Above $0.08 India JNNSM (Phase II Batch 1) 8.8 that the best-in-class Uganda Get FiT 16.4 $0.06-$0.08 Below $0.06 manufacturing costs of India Telangana 10.6 2014 El Salvador 10.2 high-quality modules will India Andhra Pradesh 8.6 fall to less than $0.30/W Brazil 6th Auction 8.2 UAE Dubai (Phase II) 5.9 by the end of 2017.” India Punjab 11.1 Brazil 7th Auction 8.5 Chile “2015/02” 6.5 2015 South Africa REIPPP (Round 4) 6.4 Jordan (Phase II) 6.1 Peru 4th RE Auction (Round 1) 4.8 Zambia 6.0 Jamaica 8.5 Argentina 5.9 Peru 4th RE Auction (Round 2) 4.9 Mexico 3.6 2016 UAE Dubai* (Phase III 200MW) 3.0 UAE Dubai* (Phase III 300MW) 3.0 UAE Abu Dhabi 2.4 UAE Dubai* (Phase III 300MW) 3.0 Chile “2015/01” 2.9 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: World Bank. Note: * The United Arab Emirates’ 800 MW plant is expected to be commissioned in three stages over three years. later on. All of these factors have enabled PV costs to decline at a gains in the production of cells and the cells themselves, and better much faster pace than other power-generation technologies. inventory management, among other factors, all spurred by growing Prices of equipment typically follow cost changes closely but are demand. The costs of inverters for grid-connected systems fell about also affected by the business cycle of the PV industry, with squeezed 40 percent between 2014 and 2016, driven by increased demand, margins at times of oversupply. The global costs of PV modules and especially for utility-scale systems.4 inverters have fallen steadily over the past few years. In mid-2011 The industry expects that the best-in-class manufacturing costs the manufacturing cost of high-quality modules stood at $1.32/W; by of high-quality modules will fall to less than $0.30/W by the end of mid-2016 the price had fallen to as low as $0.40/W (BNEF 2016a). This trend is attributed largely to the falling cost of materials, efficiency 4 Figures in this paragraph are best-in-class numbers. 5 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? 2017. There is still significant cost-reduction potential in nonmodule reflecting local commercial financing and inflation. The plants studied costs, such as installation, integration, and financing costs. In India, range from 6 MW (a plant in India) to 800 MW (Dubai’s mega-plant, the which has seen larger-scale deployment than most countries covered largest auctioned to date, to be built in three stages between 2018 here—about 7.5 GW in May 2016 (BNEF 2016b)—nonmodule costs and 2020). PPA terms range from 15 to 25 years, with the longer term fell almost 50 percent between 2012 and 2016. Similar declines can increasingly common in most countries. “Prices significantly be expected in other countries as their markets mature and scale up. Plant-specific parameters support PV electricity prices of below $0.06/kWh are Module costs typically represent one-third of the total cost; together $0.06–$0.08/kWh. Prices significantly below $0.06/kWh are not unre- with other equipment, such as inverters and the rest of the plant alistic for PV plants with a long time to delivery, plants in locations not unrealistic for PV (auxiliary and supporting equipment), they represent about 60 percent with exceptional solar resources, and plants with access to long-term plants with a long time to of total costs. The remaining 40 percent can be very specific, reflecting and low-cost financing. delivery, plants in locations local costs of land, labor, permits, and the quality of the site. The differences in parameters of the 37 plants reflect underlying with exceptional solar country conditions—particularly related to financing—that can Are the recent prices realistic? significantly affect the viability of a PV market. The depth of the resources, and plants with local financial market, exchange rate–related issues, local taxes and access to long-term and If plant-specific parameters are consistent import duties, and access to low-cost financing can affect the entire low-cost financing.” with market fundamentals and logically explain market. India’s cost of capital, for example, reflects the local reality the plant’s announced electricity price, the price of inflation and financing from commercial banks. Yet PV electricity is still very viable in India, because current investment costs are can be considered realistic exceptionally low ($0.8/W). The plant-specific elements of the financial model used to calculate The currency of PPAs resulting from auctions may adversely the levelized cost of electricity (LCOE) include five groups of variables: affect developers’ ability to deliver PV plants in general or to deliver net total investment costs, the cost of capital, the plant capacity factor, them in a timely manner. Currency affects PV plants through nontariff costs and benefits (including the terms of the PPA), and other exchange rates, which are relevant for purchases of PV equipment, parameters. As the analysis focuses on the lowest reported prices, the and through access to financial markets. In countries that lack conclusions automatically cover the entire range of prices. their own manufacturing base and rely on imported PV equipment, The parameters of the 37 plants in the examined bids vary widely exchange-rate movements can have a severe impact on plant eco- but are consistent with current or expected market conditions by nomics, as in Brazil after the real began to depreciate rapidly after the time of expected commissioning. Only about half of the plants mid-2014. The currency of the PPA affects the ability to raise debt, in the dataset have been financed; the rest have been announced because the financial markets of certain countries lack the depth or or permitted but not financed. For these plants the parameters are appetite for risk to finance relatively new technology such as solar estimated based on market intelligence. For plants in the financing, PV, at least not without charging a significant premium. construction, or commissioning stage, project-specific information Well-designed auctions should allocate risks by shifting them to from the Bloomberg New Energy Finance (BNEF) and IHS databases the parties best equipped to manage them. In some auction designs, was used for the estimates. guarantees are offered upfront as a part of the overall framework Total investment costs in the dataset range from $600,000/MW to deal with residual risks. Guarantees often make PV development (for Chile’s Maria Elena plant, which will most likely start construction possible in places that would otherwise be considered too risky and in 2019 or 2020) to $2.7 million/MW (for some plants in 2013 auctions) therefore hard to finance. They have been one of the key factors (figure 4). For most plants, the costs of capital (in the currency of the behind the success of Zambia’s Scaling Solar tender, for example. PPA) are 5–10 percent, reflecting the use of development financing. Guarantees can cover risks, including default of the off-taker on the India is a notable exception; its cost of capital is 13–14 percent, payments of the tariff and political risk. 6 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? Figure 4. Average total investment costs of 37 solar PV plants studied 3 Average total investment cost “While preparing auctions, (millions of dollars/MW) 2 governments need to ensure that the bidding criteria match the policy and fiscal environment, 1 the state and depth of the local financial market, and the policy objectives of PV 0 deployment.” South Africa Brazil India Uganda El Salvador United Arab Emirates Brazil Guatemala India Chile South Africa Peru Brazil Jordan India Jamaica Mexico Zambia United Arab Emirates Chile 2013 2014 2015 2016 Source: World Bank. What are the main drivers of lower prices? Auctions are not a panacea, however; flaws in their design, no matter how minor, can lead to insufficient or low-quality competition, Auctions have been an effective tool for disappointing prices, and low-quality plants. (A case in point is translating the decreases in investment and Indonesia, where a failed auction in 2013 led to the reintroduction financing costs and improvements in capacity of FiTs.) While preparing auctions, governments need to ensure that the bidding criteria match the policy and fiscal environment, factors to PV electricity prices the state and depth of the local financial market (which determines Unlike negotiated deals or FiTs with fixed tariffs, auctions follow appetite for contracts denominated in local currency), and the precise rules, making them more transparent and reassuring for policy objectives of PV deployment. They must also define potential financiers than negotiated deals. A well-structured auction typically risks and other market factors that can influence the design of the attracts a certain level of competition, which forces the bids to reflect auction. IRENA (2015a) offers extensive documentation on the design the best equipment and financing parameters possible for a given of auctions. site. Because of market forces, auctions reflect market fundamentals The decline in PV electricity prices reflects reductions in the better than other types of procurement. costs of equipment and of operations and maintenance, as well as 7 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? the lower costs achieved in dedicated solar parks. Interviews with Technological progress in PV cell efficiencies, sophisticated plant stakeholders suggest that developers with large, global, solid pipe- design, and expansion of the market to countries with the best solar lines of projects can procure modules and other equipment in bulk, resources are improving the capacity factors of plants, pushing achieving economies of scale and lower prices, which can translate down PV prices still further. PV cell efficiencies continue to improve into lower bids, particularly during periods of overcapacity in the (IRENA 2015b), improving the output of panels. Use of single-axis “Countries interested market for equipment. Some developers are taking advantage of tracking (which requires slightly higher initial investment costs and in procurement on a forward contracts with manufacturers that offer quotes for delivery higher operations and maintenance costs) can increase plant output of modules in 2018 that can be locked in today. Developers are also by up to 25 percent. It is very cost-efficient, however, for sites with very large scale are also increasingly integrating the whole value chain—including the man- high insolation. Markets are opening in places like Chile and Mexico, designing solar parks, ufacturing of modules; engineering, procurement, and construction; which are endowed with better solar resources than traditional where power evacuation and ownership of plants—in order to optimize the delivery of plants European and U.S. markets. The combination of resources and the lines and substations are and decrease their risks. At the same time, automation and stronger latest technologies can lead to exceptionally high capacity, allowing local capacities are reducing operations and maintenance prices. for very low PV power prices. built in advance to ease the Countries interested in procurement on a very large scale are also A simple exercise of correcting for high capacity factors in grid integration of the new designing dedicated zones (solar parks), where power evacuation certain countries explains most of the very low prices announced capacity.” lines and substations are built in advance to ease the grid integration over the last two years. To achieve a measure of comparability of the new capacity. These areas reduce certain risks related to the across countries, we chose the lowest price per country from the site as well as the overall investment costs needed for the plant. The 37 deals analyzed and recalculated those prices under the original gains can be reflected in lower bidding prices. conditions of the deal but with a standardized capacity factor of 20 Factors that lower the perceived risk of PV projects reduce percent.5 Assuming a standard capacity factor of 20 percent, which financing costs and thus drive down prices. The rigor of the auction is characteristic of many locations globally, all LCOEs (except for the process—the fact that bidders are aware of how winners are one for the United Arab Emirates) rise above $0.06/kWh (figure 5), selected—decreases the perceived risks for PV plants. Some large confirming the initial assessment that prices significantly below this market players have extremely good knowledge of certain countries level require at least one exceptional parameter. In the United Arab from their previous involvement with other technologies in these Emirates, for example, extraordinary financing conditions (tenors same markets; their pricing of risk in such markets is therefore likely to exceed 25 years and very low interest rates) complement lower than that of companies that lack such sophisticated market very good insolation. intelligence. Simultaneously, the scaling up of PV markets globally is The sensitivity of the LCOE to changes in the main parameters giving financial institutions confidence in the technology, reducing reveals that the cost of capital has the greatest influence on perceived risks across the board. the LCOE of PV plants. The relationship between the LCOE and Interviews with stakeholders suggest that some companies make investments costs is linear, unlike for the other parameters, but initial investments in PV power plants from their balance sheets, refi- the differences in the costs of capital can be much larger than nancing once the plant is up and running. Such financing is cheaper the differences in the investments costs or capacity factors for a than upfront debt financing, because the risks of a commissioned particular plant. and performing power plant are lower than those of a greenfield The ability of developers to influence the two factors is more lim- project. This strategy is available only to players with large balance ited: Capacity factors for the same site with a superior design rarely sheets, of course. But it enables them to enter new markets where financing of greenfield development would be prohibitively expensive 5 We did not attempt to correct for differences in auction design and underlying policy and because of local banks’ lack of knowledge or confidence. market conditions. 8 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? Figure 5. Impact of solar resource differences on prices 18 “Assuming a standard 16 original price capacity factor of price assuming 20% capacity factor 20 percent, which is 14 characteristic of many locations globally, all 12 LCOEs (except for the 10 one for the United Arab 6–8 U.S. cents/kWh range Emirates) are above U.S. cents/kWh 8 $0.06/kWh, confirming our initial assessment that 6 prices significantly below this level require at least 4 one exceptional parameter. In the United Arab 2 Emirates, extraordinary financing conditions 0 complement very good Uganda 2014 Guatemala 2014 El Salvador 2014 India 2014 Brazil 2015 Chile 2015 South Africa 2015 Peru 2015 Jamaica 2016 Jordan 2016 Zambia 2016 Mexico 2016 United Arab Emirates insolation.” 2016 Source: World Bank. vary by more than 20 percent; possible investment-cost savings are Are ever-decreasing prices sustainable? also typically relatively small for a given developer. In contrast, the costs of capital can vary by more than 100 percent. These facts favor The downward trend in PV electricity prices development of solar PV even in places with relatively low insolation, demonstrates that solar PV is on track to become the as long as financing costs can be kept down. It also means that least-expensive source of power in many places policy makers have an important role to play by derisking projects Plant- and country-specific factors explain the very low announced and enabling access to low-cost capital. prices ($0.029–$0.036/kWh) for a handful of plants in Chile, Mexico, and the United Arab Emirates. Whether other auctions will be able 9 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? to produce at these prices remains to be seen. Results of recent for guaranteeing the delivery of plants at the expected time and level auctions significantly below $0.06/kWh—in particular in Abu Dhabi of quality. Requirements that developers hold a stake in the plant for ($0.0241), Chile ($0.0291), Dubai ($0.0299), and Mexico ($0.0355)—are several years create incentives to deliver better-quality plants. raising questions about whether such prices are sustainable and The downward trend in PV electricity prices demonstrates that whether the plants will be delivered on schedule and perform as solar PV is on track to become the least-expensive source of power “The downward trend expected. in many places. Prices of $0.024–$0.036/kWh are appearing in in PV electricity prices The model explains the parameters underlying the low prices several countries. Some places may be able to reduce generation in Chile, Dubai, and Mexico.6 All three sites benefit from exceptional costs to $0.02/kWh in the medium term, reflecting the fact that in demonstrates that solar PV insolation conditions, a long lead-time for delivery of power plants the next two years module costs are expected to fall to $0.3/W, and is on track to become the (up to five years in Chile), and exceptionally long-term and inexpen- reductions in nonmodule costs are also expected. least-expensive source of sive financing. Promotion of the clean energy leadership of the UAE Solar PV electricity could change the economic paradigm in power in many places. … plays an especially crucial role there. many countries if integration challenges are met. For resource-poor Market fundamentals support the possibility of prices of $0.03/ and underdeveloped countries, it can be a game-changer, granting Solar PV electricity could kWh in a few years in many more locations. As the utility-scale solar them access to abundant and cheap power for the first time. Large- change the economic PV market in many countries is still relatively small and procurement scale PV deployment will have to be either combined with batteries paradigm in many through auctions is relatively new, almost every auction-procured (which are still expensive) or integrated with existing generation. But countries if integration plant today (with the notable exception of those in India) exhibits proper planning of generation—that is, the choice of sites and sizes challenges are met.” at least one and typically several exceptionally good conditions of installations—can help smooth grid-integration challenges. that positively affect its price. The plants in question are among the first in their markets, often exploiting the best sites, with significant What prices are reasonable in countries that support of governments and development banks. They are built by companies aiming to make a strategic market entry. These plants, have not yet developed projects? often one-of-a-kind, are typical of the early stages of development of Countries that have not started to develop the PV power sector in the developing world. utility-scale solar PV can expect tariffs of less As markets scale up and mature, exceptional deals will represent than $0.10/kWh for plants to be commissioned a smaller fraction of markets, affecting average prices. Prices need not rise, however, because technology learning continues, driving down in the next few years the costs of components. Financing from development banks may A simple simulation exercise was performed to project the best not be available for every future deal, but commercial banks will price possible prices attainable based on three representative capacity technology risk lower after several plants have been built. Lessons factors. The calculations assume a favorable policy environment and from the first plants will improve processes that affect soft costs. international competition, no significant risk premiums, several years Sustainable PV prices can be guaranteed by imposing very to develop the plants, no taxes, and no indexation of tariffs. clear and nonnegotiable auction criteria and strict prequalification Under these conditions, prices will depend heavily on financing requirements—and by requiring developers to take a stake in projects. conditions. But PV prices as low as $0.05/kWh are attainable with Interviews with stakeholders suggest that simple and transparent auc- favorable financing (8 percent cost of capital) in places with very tions rules and prequalification (or other ways of screening auctions good insolation. They could be as low as $0.04/kW if financing were participants) are essential, not only for obtaining low prices but also very low (5 percent cost of capital). 6 Abu Dhabi’s winning bid was announced at the time of the writing of this paper and is not Ultimately, the development of utility-scale solar PV in new included in the analysis. markets will depend on the overall energy sector strategy and policy 10 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ? environment, derisking (in some countries), and the ability to attract References Make further a large and high-quality group of bidders. But without a conducive Bloomberg News. 2016. “Brazil to Let Developers Cancel Contracts connections policy environment, neither FiTs nor competition through auctions for First Solar Farms.” August 24. nor negotiated contracts will materialize. 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Auctions: The Case of Brazil,” by IEA (International Energy Agency). 2015. “WEIO 2014-Power FiTs are more suitable for small plants. Tariffs directly negotiated Gabriela Elizondo Azuela, Luiz Generation Investment Assumptions.” http://www. with developers can lead to overly generous rates of return but, Barroso, and Gabriel Cunha worldenergyoutlook.org/media/weowebsite/2014/weio/ in cases of a single plant, they may be the most practical way WEIO2014PGAssumptions.xlsx. forward. Even so, FiT laws should take into account the dynamic Live Wire 2014/14. “Promoting IRENA (International Renewable Energy Agency). 2015a. “Renewable development of PV costs over time. And careful thought should be Renewable Energy through Energy Auctions: A Guide to Design.” http://www.irena.org/ given to transitioning from one procurement scheme to another. Auctions: The Case of China,” by DocumentDownloads/Publications/Renewable_Energy_ The pipeline of projects under one scheme needs to be dealt with Xiaodong Wang, Luiz Barroso, and Auctions_A_Guide_to_Design.pdf. before a new scheme is adopted, as was demonstrated recently in Gabriela Elizondo Azuela. ———. 2015b. “Renewable Power Generation Costs in 2014.” http:// Nigeria (BNEF 2016c). www.irena.org/DocumentDownloads/Publications/IRENA_RE_ Live Wire 2014/15. “Promoting Power_Costs_2014_report.pdf. Renewable Energy through What is the proper role of multilateral ———. 2016. “Solar PV in Africa: Costs and Markets.” http://www. Auctions: The Case of India,” by development banks? irena.org/DocumentDownloads/Publications/IRENA_Solar_PV_ Ashish Khana and Luiz Barroso. Costs_Africa_2016.pdf. Multilateral development banks can play Live Wire 2015/49. “Promoting an important role in driving solar PV electricity The study from which this Live Wire was drawn was prepared by Zuzana Solar Energy through Auctions: prices down Dobrotkova with significant inputs from Guido Agostinelli, Pierre Audinet, The Case of Uganda,” by René Abhishek Bhaskar, Esra Bozkir, Amit Jain, Krishnan Raghunathan, Gevorg Meyer, Bernard Tenenbaum, and They can do so by reducing financing costs, providing assistance Sargsyan, and Kavita Surana. Rohit Khanna chaired the Quality Enhancement Richard Hosier. with the structuring of procurement, and offering guarantees. Where Review of the study. The review was conducted by Debabrata Chattopadhyay, appropriate, they can provide access to low-cost capital for solar Fernando De Sisternes, Mariano Salto, Satheesh Kumar Sundararajan, and Efstratios Tavoulareas. Arnaud Braud, Anil Cabral, Sandra Chavez, Anton PV power plants and for transmission, distribution, and, in certain Eberhard, Janina Franco, Oliver Knight, Luiz Maurer, Ashok Sarkar, and Alan circumstances, storage technologies. Their technical assistance Townsend provided valuable comments and suggestions. can provide policy advice and advice on right-sizing plants and can help increase domestic capacity for installation, operations, and maintenance. Get Connected to Live Wire Live Wires are designed for easy reading on the screen and for downloading The Live Wire series of online knowledge notes is an initiative of the World Bank Group’s Energy and self-printing in color or “Live Wire is designed and Extractives Global Practice, reflecting the emphasis on knowledge management and solu- black and white. tions-oriented knowledge that is emerging from the ongoing change process within the Bank for practitioners inside Group. For World Bank employees: and outside the Bank. 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Once a year, the Energy and Extractives Global Practice takes stock of all notes that appeared, reviewing their quality and identifying priority areas to be covered in the following year’s pipeline. Please visit our Live Wire web page for updates: http://www.worldbank.org/energy/livewire e Pa c i f i c 2014/28 ainable energy for all in easT asia and Th 1 Tracking Progress Toward Providing susT TIVES GLOBAL PRACTICE A KNOWLEDGE NOTE SERIES FOR THE ENERGY & EXTRAC THE BOTTOM LINE Tracking Progress Toward Providing Sustainable Energy where does the region stand on the quest for sustainable for All in East Asia and the Pacific 2014/29 and cenTral asia energy for all? in 2010, eaP easTern euroPe sT ainable en ergy for all in databases—technical measures. This note is based on that frame- g su v i d i n had an electrification rate of Why is this important? ess Toward Pro work (World Bank 2014). SE4ALL will publish an updated version of 1 Tracking Progr 95 percent, and 52 percent of the population had access Tracking regional trends is critical to monitoring the GTF in 2015. to nonsolid fuel for cooking. the progress of the Sustainable Energy for All The primary indicators and data sources that the GTF uses to track progress toward the three SE4ALL goals are summarized below. consumption of renewable (SE4ALL) initiative C T I V E S G L O B A L P R A C T I C E ENERGY & EXTRA • Energy access. Access to modern energy services is measured T E S E R I E S F O R T H EIn declaring 2012 the “International Year of Sustainable Energy for energy decreased overall A KNO W L E D G E N Oand 2010, though by the percentage of the population with an electricity between 1990 All,” the UN General Assembly established three objectives to be connection and the percentage of the population with access Energy modern forms grew rapidly. d Providing Sustainable accomplished by 2030: to ensure universal access to modern energy energy intensity levels are high to nonsolid fuels.2 These data are collected using household Tracking Progress Towar services,1 to double the 2010 share of renewable energy in the global surveys and reported in the World Bank’s Global Electrification but declining rapidly. overall THE BOTTOM LINE energy mix, and to double the global rate of improvement in energy e and Central Asia trends are positive, but bold Database and the World Health Organization’s Household Energy for All in Eastern Europ efficiency relative to the period 1990–2010 (SE4ALL 2012). stand policy measures will be required where does the region setting Database. The SE4ALL objectives are global, with individual countries on that frame- on the quest for sustainable to sustain progress. is based share of renewable energy in the their own national targets databases— technical in a measures. way that is Thisconsistent with the overall of • Renewable energy. The note version energy for all? The region SE4ALL will publish an updated their ability energy mix is measured by the percentage of total final energy to Why is this important ? spirit of the work initiative. (World Bank Because2014). countries differ greatly in has near-universal access consumption that is derived from renewable energy resources. of trends is critical to monitoring to pursue thetheGTF in 2015. three objectives, some will make more rapid progress GTF uses to Data used to calculate this indicator are obtained from energy electricity, and 93 percent Tracking regional othersindicators primary will excel and data sources that elsewhere, depending on their the while the population has access le Energy for All in one areaThe goals are summarized below. balances published by the International Energy Agency and the the progress of the Sustainab respective track starting progress pointstowardand the three SE4ALL comparative advantages as well as on services is measured to nonsolid fuel for cooking. access. Accessthat they modern to are able to energy marshal. United Nations. despite relatively abundant (SE4ALL) initiative the resources and support Energy with an electricity connection Elisa Portale is an l Year of Sustainable Energy for To sustain percentage of by the momentum forthe the population achievement of the SE4ALL 2• Energy efficiency. The rate of improvement of energy efficiency hydropower, the share In declaring 2012 the “Internationa energy economist in with access to nonsolid fuels. three global objectives objectives, andathe means of charting percentage of the population global progress to 2030 is needed. is approximated by the compound annual growth rate (CAGR) of renewables in energy All,” the UN General Assembly established the Energy Sector surveys and reported access to modern universalAssistance The World TheseBank and data are the collected International using household Energy Agency led a consor- of energy intensity, where energy intensity is the ratio of total consumption has remained to be accomplished by 2030: to ensure Management Database and the World of theenergy intium of 15 renewable international in the World Bank’s Global agencies toElectrification establish the SE4ALL Global primary energy consumption to gross domestic product (GDP) energy the 2010 share of Program (ESMAP) relatively low. very high energy services, to double Database. measured in purchasing power parity (PPP) terms. Data used to 1 t ’s Household provides Energy a system for regular World Bank’s Energy the global rate of improvemen and Extractives Tracking Framework Health (GTF), which Organization in the energy intensity levels have come and to double the global energy mix, Global Practice. (SE4ALL 2012). based on energy. of renewable The sharepractical, rigorous—yet energy given available calculate energy intensity are obtained from energy balances to the period 1990–2010 global reporting, Renewable down rapidly. The big questions in energy efficiency relative setting by the percentage of total final energy consumption published by the International Energy Agency and the United evolve Joeri withde Wit is an countries individual mix is measured Data used to are how renewables will The SE4ALL objectives are global, economist in with the overall from renewable energy when every resources. person on the planet has access Nations. picks up a way energy that is consistent 1 The universal derived that isaccess goal will be achieved balances published when energy demand in from energy their own national targets through electricity, clean cooking fuels, clean heating fuels, rates the Bank’s Energy and countries differ greatly in their ability calculate this indicator are obtained to modern energy services provided productive use and community services. The term “modern solutions” cookingNations. again and whether recent spirit of the initiative. Because Extractives Global rapid progress and energy for Energy Agency and the United liquefied petroleum gas), 2 Solid fuels are defined to include both traditional biomass (wood, charcoal, agricultural will make more by the refers to solutions International that involve electricity or gaseous fuels (including is pellets and briquettes), and of decline in energy intensity some t of those of efficiency energy and forest residues, dung, and so on), processed biomass (such as to pursue the three objectives, Practice. depending on their or solid/liquid fuels paired with Energy efficiency. The rate stoves exhibiting of overall improvemen emissions rates at or near other solid fuels (such as coal and lignite). will excel elsewhere, rate (CAGR) of energy will continue. in one area while others liquefied petroleum gas (www.sustainableenergyforall.org). annual growth as well as on approximated by the compound and comparative advantages is the ratio of total primary energy respective starting points marshal. where energy intensity that they are able to intensity, measured in purchas- the resources and support domestic product (GDP) for the achievement of the SE4ALL consumption to gross calculate energy intensity Elisa Portale is an To sustain momentum terms. Data used to charting global progress to 2030 is needed. ing power parity (PPP) the International energy economist in objectives, a means of balances published by the Energy Sector International Energy Agency led a consor- are obtained from energy The World Bank and the SE4ALL Global Energy Agency and the United Nations. Management Assistance agencies to establish the the GTF to provide a regional and tium of 15 international for regular This note uses data from Program (ESMAP) of the which provides a system for Eastern Tracking Framework (GTF), the three pillars of SE4ALL World Bank’s Energy and Extractives on rigorous—yet practical, given available country perspective on Global Practice. global reporting, based has access Joeri de Wit is an will be achieved when every person on the planet The universal access goal heating fuels, clean cooking fuels, clean energy economist in 1 agricultural provided through electricity, biomass (wood, charcoal, to modern energy services The term “modern cooking solutions” to include both traditional and briquettes), and Solid fuels are defined the Bank’s Energy and use and community services. biomass (such as pellets 2 and energy for productive petroleum gas), and so on), processed fuels (including liquefied and forest residues, dung, involve electricity or gaseous at or near those of Extractives Global refers to solutions that overall emissions rates other solid fuels (such as coal and lignite). with stoves exhibiting Practice. or solid/liquid fuels paired (www.sustainableenergyforall.org). liquefied petroleum gas Contribute to If you can’t spare the time to contribute to Live Wire, but have an idea for a topic, or case we should cover, let us know! Do you have something to say? We welcome your ideas through any of the following Say it in Live Wire! channels: Via the Communities of Those working on the front lines of energy and extractives development in emerging economies Practice in which you are have a wealth of technical knowledge and case experience to share with their colleagues but active seldom have the time to write for publication. By participating in the Energy Live Wire offers prospective authors a support system to make sharing your knowledge as easy as and Extractives Global possible: Practice’s annual Live Wire • Trained writers among our staff will be assigned upon request to draft Live Wire stories with series review meeting staff active in operations. • A professional series editor ensures that the writing is punchy and accessible. By communicating directly • A professional graphic designer assures that the final product looks great—a feather in your cap! with the team (contact Morgan Bazilian, mbazilian@ Live Wire aims to raise the profile of operational staff wherever they are based; those with worldbank.org) hands-on knowledge to share. That’s your payoff! It’s a chance to model good “knowledge citizenship” and participate in the ongoing change process at the Bank, uroPe and cenT ral asia 2014/29 all in easTern e ble energy for v i d i n g s u s Ta i n a where knowledge management is becoming everybody’s business. ess Toward Pro 1 Tracking Progr TICE IVES GLOBAL PRAC ENERGY & EXTRACT E SERIES FOR THE A KNOWLEDGE NOT rgy Providing Sustainable Ene Tracking Progress Toward Or 2014/5 1 U n d e r s ta n d i n g C O 2 emissiOns frOm the glObal energy seCt THE BOTTOM LINE ern Euro pe and Cen tral Asia where does the region stand ble for All in East based on that frame- on the quest for sustaina measures. This note is databases—technical updated version of energy for all? The region SE4ALL will publish an has near-universal access to WhyD is this important? ERGY PRACTICE work (World Bank 2014). E G E N O T E S E R I E S F O R T H E E N to of A K N O W L is critical monitoring the GTF in 2015. that the GTF uses to electricity, and 93 percent Tracking regional trends for All The primary indicators and data sources below. goals are summarized the population has access the progres s of the Sustainable Energy progress toward the three SE4ALL Understanding CO Emissions from the Global Energy Sector nonsolid fuel for cooking. track is measured to modern energy services THE BOTTOM LINE to Your Name Here t (SE4ALL) initiativ e Energy access. Access connection despite relatively abundan 2 population with an electricity the share “Internat ional Year of Sustainable Energy for by the percentage of the access to nonsolid fuels.2 hydropow the energy sector contributes er, In declaring 2012 the the population with objectives and the percentage of of renewables in energy established three global and reported about 40 percent of global All,” the UN General Assembly access to modern using household surveys Why is this issue important? 2030: to ensure universal These data are collected and the World Become an author has remained emissions of CO2. three- consumption to be accomplished by in in the World Bank’s Global Electrification Database high energy double the 2010 knowledge share of renewable energy of the Database. relatively low. very Mitigating climate change energy requires services, to 1 quarters of those emissions ent Household Energy rate of improvem global Figure 1. CO2 emissions Health Organiza Figure tion’s 2. energy-related CO2 energy come from six major intensity levels have come energy mix, and to double the share of renewable energy in the of CO s2 emissions sources the global 0 (SE4ALL 2012). Renewab le energy. The question to the period 1990–201 by sector emissions by country consumption down rapidly. The big economies. although coal-fired in energy efficiency relative setting d by the percenta ge of total final energy of Live Wire and countries global, with individual mix is measure LICs evolve les will opportunities to cut emissions of greenhouse aregases used to plants account for just are how renewab Identifying The SE4ALL objectives le energy resources. Data 0.5% picks up understanding of the main sources ofin those a way that is consistent with emis- the overall that is derived from renewab balances published 40 percent of world energy when energy demand requires a clear their own national targets in their ability Other this indicator are obtained from energy 80 percent of differ greatly Residential calculate production, they were again and whether Carbonrates sions.recent dioxide (CO2) accounts for more than spirit of the initiative. Because countries 6% sectors Other MICs Agency and the United Nations. will make more rapid progress by the International Energy China 10% 15% intensity gas emissions globally, 1 primarily from the burning s, some efficiency is contribute to your responsible for more than of decline in energy total greenhouse to pursue the three objective on their Other HICs . The rate of improvement of energy energy sector—defined toexcel elsewhere, depending include Energy efficiency 30% growth rate (CAGR) of energy will continue. of fossil fuels (IFCC 2007). The will 8% in one area while others by the compound annual Energy 70 percent of energy-sector as well as on 41% approxim and heat generation—contributed and compara tive advantages 41 ated Japan 4% energy the ratio of total primary Industry emissions in 2010. despite fuels consumed for electricity respective starting points 20% Russia energy intensity is of global CO emissions in 2010 (figure 1). Energy-related that they are able to marshal. intensity, where measure d in purchas- improvements in some percent 2 the resources and support 7% USA product (GDP) gross domestic practice and career! an at the point of combustion make up the m bulk for the such of achievem ent of the SE4ALL Other consumption to India 19% calculate energy intensity countries, the global CO2 CO Elisa 2 emissions Portale is To sustain momentu transport Road 7% EU terms. Data used to andin are generated by the burning of fossil is needed. global progress to 2030 6% transport fuels, industrial ing power parity (PPP) the International economist objectives, a means of charting balances published by emissions 11% emission factor for energy energy 16% EnergyandSector nonrenewable municipal waste to generate nal Energy Agency led electricity Internatio a consor- are obtained from energy The World Bank and the the waste, generation has hardly changed United Nations. ent Assistance venting and leakage to establish the emissions SE4ALL Global Energy Agency and the sector at the point and over the last 20 years. and heat. Black carbon and methane Managem tium of 15 international agencies Notes: Energy-related CO2 emissions are CO2 emissions from the energy from the GTF to provide a regional of the for regular This note usesanddata domestic provides a system bunkers, Program (ESMAP) presented in this note. of combustion. Other Transport includes international marine aviation for Eastern are not included in the analysis and Extractives Tracking Framework (GTF), which given aviation and available navigation, Other Sectors rail and pipeline transport; perspect include ive on the three pillars of SE4ALL commercial/public World Bank’s Energy on rigorous—yet practical, country and heat genera- global reporting, based services, agriculture/forestry, fishing, energy industries other than electricity Global Practice. not specified elsewhere; Energy = fuels consumed for electricity and Where do emissions come from? tion, and other emissions as has in the opening paragraph. HIC, MIC, and LIC refer to high-, middle-, access Joeri de Wit is an will be achieved when on the planet heat generation, every person defined The universal access goal of countries heating fuels, energy economistare Emissions concentrated in 1 in a handful to modern energy services provided through electricity, fuels, clean and low-income clean cooking countries. cooking solutions” to include both traditional biomass (wood, charcoal, agricultural The term “modern Source: IEA 2012a. Solid fuels are defined and briquettes), and the Bank’s Energy and use and community services. biomass (such as pellets 2 and come primarily from burning and energy coal for productive that involve electricity or gaseous fuels (including liquefied petroleum gas), near those of and forest residues, dung, and so on), processed Vivien Foster is sector Extractives Global refers to solutions overall emissions rates at or other solid fuels (such as coal and lignite). with stoves exhibiting or solid/liquid fuels paired emissions closely manager for the Sus- The geographical pattern of energy-related CO Practice. gas 2(www.sustainableenergy forall.org). liquefied petroleum middle-income countries, and only 0.5 percent by all low-income tainable Energy Depart- mirrors the distribution of energy consumption (figure 2). In 2010, ment at the World Bank countries put together. almost half of all such emissions were associated with the two (vfoster@worldbank.org). Coal is, by far, the largest source of energy-related CO2 emissions largest global energy consumers, and more than three-quarters globally, accounting for more than 70 percent of the total (figure 3). Daron Bedrosyan were associated with the top six emitting countries. Of the remaining works for London This reflects both the widespread use of coal to generate electrical energy-related CO2 emissions, about 8 percent were contributed Economics in Toronto. power, as well as the exceptionally high CO2 intensity of coal-fired by other high-income countries, another 15 percent by other Previously, he was an power (figure 4). Per unit of energy produced, coal emits significantly energy analyst with the more CO emissions than oil and more than twice as much as natural 2 World Bank’s Energy Practice. Gas Inventory 1 United Nations Framework Convention on Climate Change, Greenhouse 0.php gas. Data—Comparisons By Gas (database). http://unfccc.int/ghg_data/items/380