Scaling Solar: A World Bank Group solution to rapidly expand

Scaling Solar: A World Bank Group solution to rapidly expand private investment in utility-scale solar PV

Solar power generation has reached a tipping point The economics of utility-scale solar PV power have reached a tipping point Price of crystalline silicon PV cells, /W Solar power can be built in 3-6 months vs. 3-10 years for thermal, hydro & geothermal Typical construction periods (months) Solar 36 Wind 69 Thermal 100MW 30 24 Large thermal 30 Small hydropower 36 Large hydropower 40 Evolution of oil, gas and coal prices since 2004 60 60 20 .and many countries need to diversify away from a dependency on HFO and fossil fuels 60 Geothermal 0 and many IFC markets benefit from some of the best irradiation levels on the planet 60 84 120 84 80 100 120 140 2

But investment in solar PV is slow Lack of market scale Lack of competition High transaction costs High perceived risk and cost of capital Limited institutional capacity 3

Scale, standardization & competition are needed Case Study: Dramatic tariff reductions have been achieved in South Africa Large, repeat allocation Strong competition Tariff decrease Capacity build-up Capacity allocated per round (MW) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Tariffs per round (ZAR/kWh) 3.5 1,900 MW of solar PV power 60% 50% 53% 40% 60 2 30% 40 1.5 1 20 0.5 0 0 PV Number of received bids and success rate (includes wind) 80 2.5 4 3 2 1 High investor interest 100 3 Round Round Round Round Program expansion Inclusive Framework Proven bankable Round 1 Round 2 Round 3 Round 4 Tariff drop of -76% for PV projects over the 4 rounds 24% 20% 18% 17% Round 1 Round 2 Round 3 Round 4 10% 0% # of bids received Success rate Surge in investor interest and increasing selectivity in bidders afforded 4

The WBG solution: A “One-StopShop” offering Scaling Solar is a “one-stop-shop” for Governments to rapidly mobilize competitive privately funded grid connected solar projects within 2 years of engaging our team. Scaling Solar brings together several World Bank Group services under a single engagement: Advice to assess the right size and location for power plants in grid. Simple and rapid tendering to ensure strong competition from committed industry players. Standardized, balanced project documents to eliminate drafting and negotiation delays. Competitive financing and insurance attached to tender and available to all bidders. Risk management and credit enhancement products to lower financing costs and deliver lower tariffs. 5

What’s new about this? The ‘One-StopShop’ Approach Whole WBG in one packaged solution A single mandate Designed with both Government and Developers in mind A focus on standardization Fully developed documentation quickly tailored to local needs drives speed Standardization across countries creates a single, ‘virtual’, large scale market Likelihood of quick wins Coordinated delivery to address both public and private sector constraints The WBG has the expertise to make it work Lessons embedded from successful and unsuccessful precedents Þ Standardization delivers speed, efficiency, programmatic scale and competition to reduce tariffs and entice top tier developers to participate Þ Coordinated, collaborative and rapid delivery 6

Developers that have participated in Scaling Solar tenders 7

Scaling Solar tender results in Zambia Projects were developed and tender was prepared and executed to conclusion in 9 months West lunga Mosi-oa Tunya Site Site Neoen / First Solar 6.0150 6.1350 ENEL Green Power 7.7989 7.8390 Access / EREN Zambia 1 8.2879 8.9509 MULILO Zambia PV1 Consortium EDF Energies Nouvelles 8.4000 10.0400 8.4000 9.9850 6.0c/kWh non-indexed is equivalent to an SEP / AVIC Intl 10.6000 10.6000 average in current dollars over contract life of 4.7c/kWh 8

How Scaling Solar in Zambia stacks up relative to regional benchmarks 9

How will it work? Scaling Solar’s 5 steps Several WBG instruments brought together under a single product offering Client governments would engage in a single mandate to access the “one-stop-shop” 5 Constructi 4 3 1 2 Tender Project Bid on Financial Process & Preparatio Preparatio Close & Award n n Operation Technical and economic analysis for optimal size and location of PV plants Site investigation Legal & regulatory analysis Template tender documents Request for qualification Template project documents Bidder consultation Finalization of equipment, construction and operation contracts Attachment of stapled financing, insurance and credit enhancement Request for proposals Final project approvals Proposal review and award Finalization of loan agreements, insurance and risk management Signing of project documents 8 months 6 months Construction Commissioning Operation 10 months 10

The tendering process: What are the “template documents”? Engagemen t Letter & ToRs for specialized Consultants Power Purchase Agreement & Governmen t Support Agreement PreQualificatio n Document & Request for Proposals Government signs a Letter of Engagement with IFC’s Advisory Services Documents designed as fair, balanced & bankable Tendering documents are ready and have been designed to attract top tier developers and investors Prepared by World A World Bank Group Bank Group with team is put in place support of Linklaters & Norton Specialized Rose independent consultants are review hired based on existing Terms of References Letter of Interest and Indicative financing terms Indicative terms for debt financing as well as terms for Partial Risk Guarantees are available and have been through preliminary internal Þ Critical for this set ofapprovals documents to be utilized in their template forms to achieve scaled, competitive solar power within 2 years 11

What are the benefits? 1. For Governments: Speed Customized process Certainty Competitive fixed-rate tariffs 2. For Project Developers: Market creation Reduced development time Level playing field Regional scale 3. For Donors*: Reach Leverage Transparency Impact * Opportunities for donors include: funding transaction advisory (steps 1-3) or provision of capital grants to all bidders to lower tariffs and improve affordability 12

The World Bank Group is well-positioned to deliver The World Bank Group has a long track record working across power sectors, key stakeholders and unique challenges. IDA and IBRD support client country governments with financing and advice to extend access to electricity, expand least-cost generation, create sustainable regulation and leverage the private sector. IFC is experienced in developing bankable private power projects and has a substantial track record in both tendering and financing solar power plants. MIGA provides a range of political risk insurance products to attract private capital into emerging markets. Regulatory reform Working to introduce sector reform and achieve sector sustainability Strengthening utilities’ performance Project structuring Setting the conditions to attract private investment Advising governments on PPPs Negotiating key contracts Project Developmen t The 150m IFC InfraVentures fund helps cover essential earlystage costs of frontier market projects IFC’s Advisory Services advise Governments in Project structuring and helps balanced deals to be struck Investment Monitoring Financing projects through debt, equity and mobilization of resources from other sources Assessing projects’ consistency with IFC’s Performance Standards on environmental and social issues Obtaining concessional financing from multi-donor sources Tracking projects’ results and sharing the lessons for wider replication and impact Together, the World Bank Group is uniquely positioned to deliver the Scaling Solar solution. 13

World Bank Group research on tender design DESIGN AND PERFORMANCE OF ECONOMIC INCENTIVES TO SUPPORT RENEWABLE ENERGY DEVELOPMENT Gabriela Elizondo and Luiz Maurer IFC ESMAP RENEWABLE ENERGY TRAINING PROGRAM; June 17th, 2014 The World Bank Group 14

Next Steps – Expressions of Interest Receipt of an Expression of Interest from Government Discussions to confirm and agree: Suitability of Scaling Solar in country context Sufficiency of stakeholder support (MoE, MoF, Utility, Regulator) Identification of a government champion to drive the project A timeline from mandate to selection of a Preferred Bidder Signing of a mandate with the World Bank Group to: Conduct technical studies Run a competitive tendering process complete with standardized documents and stapled financing Make initial payment for advisory services as per the engagement letter WBG team to run due diligence process and, after consultation and agreement from Government, tendering process Þ Expected timeline from mandate to selection of Preferred Bidder: 6 to 12 months 15

Questions or Interest? Please contact us Webpage: www.scalingsolar.org Contact: [email protected] 16