The Case For Solar Energy Investments

The Case for Solar Energy Investments

World Bank Technical Paper Number 279
Energy Series
Dennis Anderson
and Kulsum Ahmed
Copyright 1995
The International Bank for Reconstruction
and Development/THE WORLD BANK
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First printing February 1995
Second printing July 1996
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ISSN: 02537494
The Case for Solar Energy Investments 1
Dennis Anderson is an adviser to the Industry and Energy Department of the World Bank. Kulsum Ahmed is a
consultant to the same department.
This printing incorporates some minor typographical changes and updates Figure 2, on page 3, and Box 2, on
page 7.
Library of Congress CataloginginPublication Data
Anderson, Dennis, 1937
The case for solar energy investments/ Dennis Anderson and Kulsum
Ahmed.
p. cm. (World Bank technical paper; ISSN 02537494; no.
no. 279. Energy series)
ISBN 0821331965
1. Solar energy. 2. Energy policy. I. Ahmed, Kulsum, 1964
II. Title. III. Series: World Bank technical paper; no. 279.
IV. Series: World Bank technical paper. Energy series.
TJ810.A533 1995
333.792'3dc20 951466
CIP
Energy Series
No. 240 Ahmed, Renewable Energy Technologies: A Review of the Status and Costs of Selected Technologies
No. 242 Barnes, Openshaw, Smith, and van der Plas, What Makes People Cook with Improved Biomass
Stoves? A Comparative International Review of Stove Programs
No. 243 Menke, and Fazzari, Improving Electric Power Utility Efficiency: Issues and Recommendations
No. 244 Liebenthal, Mathur, and Wade, Solar Energy: The Pacific Island Experience
No. 271 Ahmed, Technological Development and Pollution Abatement: A Case Study of How Enterprises are
Finding Alternatives to Chlorofluorocarbons
No. 278 Wijetilleke and Karunaratne, Air Quality Management: Considerations for Developing Countries
No. 279 Anderson and Ahmed, The Case for Solar Energy Investments
No. 286 Tavoulareas and Charpentier, Clean Coal Technologies for Developing Countries
No. 296 Stassen, Biomass Gasifiers for Heat and Power: A Global Review
No. 304 Foley, Photovoltaic Applications in Rural Areas of the Developing World
No. 308 Adamson and others, Energy Use, Air Pollution, and Environmental Policy in Krakow: Can
Economic Incentives Really Help?
No. 325 Bacon, BesantJones, and Heidarian, Estimating Construction Costs and Schedules: Experience
with Power Generation Projects in Developing Countries
The Case for Solar Energy Investments 2
Contents
Foreword link
Abstract link
Acknowledgments link
Introduction link
Abundance of the Solar Resource link
Costs and Operational Performance link
A Solar Initiative link
Preparation and Finance of Commercial and NearCommercial
Applications
link
Sources of Finance link
Building a Project Pipeline link
Prepipeline Activities: Education and Training link
Pricing Policies and Openness to Private Investment link
Pitfalls in Implementation link
Research and Development link
National Efforts in the Industrial Countries link
International R&D link
Components of a Program link
Costs link
Organization link
Conclusions and Next Steps link
Notes link
Foreword
Several recent publications in the World Bank technical papers, energy series, have reviewed in detail the status
and costs of renewable energy technologies and reported on their progress and prospects for use in developing
countries. The present paper summarizes the status of four of the technologiesphotovolatics, solarthermal,
wind, and biomassand argues that the case for further encouraging their development and use is a good one, for
several reasons: first, the abundance of the solar resource; second, the progress in costs and operational
performance; third, the economic prospects; and fourth, the need to preserve the environment.
Based on the status and prospects of the technologies and on economic and environmental criteria, the paper
proposes a concerted international initiative to accelerate the commercialization of solar technologies. The
proposal was developed by Dennis Anderson and Kulsum Ahmed of the Industry and Energy Department. The
material was first prepared as a presentation to a donors' roundtable organized in connection with the April 1994
ESMAP donors' meeting. The paper presented here also incorporates comments from an international group of
scientists and economists working in the fields of energy and development who gathered to discuss it at a
Contents 3
"brainstorming session" held at Princeton University's School of Engineering and Applied Science in September
1994, under the chairmanship of Professor Robert Socolow.
The proposal is intended to encourage further discussion. It reflects the recent thinking of World Bank staff on the
subject and signals the Bank Group's willingness to work with its member countries to see an abundant and
environmenally attractive resource more widely harnessed.
RICHARD STERN
DIRECTOR
INDUSTRY AND ENERGY DEPARTMENT
Abstract
After summarizing the technical and economic prospects for solar energy technologies, the paper outlines a
twopart program that would help to commercialize solar energy use in developing countries.
The first part of the program is to establish a "pipeline" of investments drawing on financial resources that are
already available for wellprepared investmentsthe multinational development banks, commercial banks, the
Global Environment Facility, and direct investment by electric utilities, private investors, and others. Because
solar energy technologies are in their infancy, establishing a pipeline of such investments will require much work
to bring them to maturity. And it will be exacting work in all phases of the "project cycle," not least during
implementation, requiring the efforts of many people in industry, government, finance, management
organizations, and the research community. It will require education and training, dissemination of information in
the industry on technical progress and costs, and surveys of the solar resource. Once the technical skills are
available and the opportunities are better known, work will also be required to identify specific investment
opportunities and to undertake technical and financial feasibility studies, including plans to avoid new
environmental problems, from which renewable energy sources are not immune. Finally, the development process
for solar energy will require preparing and appraising projects, supervising progress, and ensuring that
maintenance and postinvestment services are in place so that the projects function well after they are installed
(this last point is particularly important, as failure to follow up has been a frequent problem in renewable energy
projects to date).
The second part concerns the need to expand public research and development at the national and international
levels in support of private initiative. Public R&D programs are quite small and unfortunately have waned at
precisely the time when solar energy is becoming an attractive prospect on economic and environmental grounds.
Solar technologies are a fertile area for R&D, and because they are modular and can be quickly built and tested,
they would require quite modest expenditures for R&D relative to those in all other energy fields. It is argued that
R&D merits expansion in both industrial and developing countries and that an international R&D program would
facilitate cooperation and technology transfer between countries.
Abstract 4
Acknowledgments
A draft of this paper was discussed at the ESMAP donors' meeting in April 1994. A brainstorming session was
later hosted by the Princeton University Center for Energy and the Environment in September, under the
chairmanship of Professor Robert Socolow; many valuable comments and suggestions were made by Professors
Socolow, Williams, Kammen, and Lewis (Princeton); Professor Goldemberg (University of So Paulo); Christine
Ervin and Allan Hoffman (U.S. Department of Energy); Ken Prewitt (Rockefeller Foundation); Phil LaRocco;
Carl Weinberg; Pascal De Laquil (Bechtel); David Fairman (Harvard); and several others. Further written
comments were kindly supplied by Christine Ervin and Allan Hoffman, who rightly suggested that a renewable
energy initiative would also need to give special attention to geothermal energy; this will be the subject of a
separate paper. Finally, thanks are expressed to the representatives of the ESMAP donors and to all those who
attended the Princeton meeting for their contributions.
Introduction
Solar energy technologiesphotovoltaics, solarthermal, wind, and biomassare being used successfully in
smallscale applications on a commercial basis and for some largerscale power generation projects. For
developing countries in particular, solar energy is an abundant and environmentally attractive resource, with
enormous economic promise. Some solar projects, mainly for smallscale applications, have already been
financed in developing countriessometimes with the support of bilateral and multilateral development agencies
and the Global Environment Facility (GEF) in its pilot phase, and often through independent public and private
initiatives. In the last 10 years in particular, the industrial countries have gained significant operational experience
with solar technologies that is relevant for developing countries.
Following a brief discussion of the extent of the solar resource and the costs and performance of the technologies,
this paper outlines a twopart initiative to accelerate the commercialization of solar energy technologies in
developing countries.
The first part of the initiative involves the development of a "pipeline" of projects suitable for finance for
commercial and nearcommercial applications using conventional and GEF resources. This would require the
efforts of several parties, most of all the energy community in developing countries, to survey the solar resource;
identify potential applications and market opportunities; perform technical, economic, and financial feasibility
studies; and, more generally, undertake project preparation such that good projectscapable of meeting the
investment criteria of the GEF and conventional finance, depending on the financial resource being applied
forcan be financed. So that existing technologies are not "frozen" through such programs, some research,
developmental, and demonstration projects using advanced solar energy concepts should be included in the
pipeline.
The second part of the initiative concerns the need for scaling up of investment in R&D and demonstration
projects in both industrial and developing countries to promote advances in solar energy concepts for large and
smallscale commercial applications. Inevitably, some R&D will be associated with the "pipeline" of projects
noted above, but for a successful program, national and international R&D programs merit expansion. It may
appear that solar technologies have attained a momentum of their own: many new approaches are being
developed and tested; unit costs have declined and technical performance improved impressively; the lead times
for R&D are short relative to those in most other energy sectors, as are the lead times for operating investments,
such that there is prompt feedback of results and experience and learningbydoing is facilitated; private
manufacturers and financial institutions have shown much interest in the solar resource; and the field is fertile for
R&D. Yet commercial applications of the technologies are barely a decade old, and solar R&D is now
approaching a crisis, as public support in the majority of OECD countries has waned precisely when the
Acknowledgments 5
technologies are emerging on the scene. On both environmental and commercial grounds, then, there is an
excellent case for strengthening national R&D programs andbearing in mind the promising applications in
developing countriesfor fostering international collaboration.
Thanks to the establishment of the GEF, work has begun already on the first part of the initiative, developing a
project pipeline. For the second part, defining the appropriate R&D policies, the process is just beginning.
Abundance of the Solar Resource
Each year, the earth receives an energy input from the sun equal to 15,000 times the world's commercial energy
consumption and more than 100 times the world's proven coal, gas, and oil reserves. Modern solar electric
schemes, such as the photovoltaic and solarthermal power stations in California, today are capable of converting
7 to 15 percentwith further development, 15 to 30 percentof the incident energy into a form useful for
consumption, and in theory would need less than 1 percent of the world's land area to meet all its commercial
energy needs.
The abundance of the solar resource can be illustrated by comparison of the land requirements of solarthermal
and PV projects with those of hydro projects (Figure 1). Except for runofriver projects and for a few favorable
highhead sites in deep gorges, the land requirements of hydro range from roughly ten to several hundred times
those of solar projects at today's conversion efficiencies, averaging around 25 to 50 times. This means that solar
energy is capable, in principle, of supplying five to ten times the total electricity demands of developing countries
today while occupying land areas less than are currently used by hydroelectric projects. (The land requirements of
biomass projects for electric power generation are larger, however, and are comparable with those of
hydroelectricity.)
It is also worth comparing land requirements of solarthermal and PV projects with those of agriculture.
Electricity generating capacity in developing countries is currently about 600,000 MW and with demand growth
could well rise to 5 million MW over the next 30 or 40 years. In theory, even assuming presentday conversion
efficiencies, such electrical requirements could be met by solar projects occupying an area equal to about 1.3
percent of the area now under crops and 0.3 percent of the area under crops and pasture, or 100,000 square
kilometers (km2 ) as compared, respectively, with 8.5 million km2 under crops and 30 million km2 under crops
and pasture.
Such calculations are, of course, hypothetical and are only intended to illustrate an elementary point: that, when
taken together with the technical developments now discussed, technologies are clearly emerging to harness a
virtually unlimited resource.1
Costs and Operational Performance
Recent technical developments and reductions in the costs of all major categories of solar energy technologies
have been substantial.2 First, consider PVs, for which historical and projected costs (in 1990 prices) are shown in
Figure 2. In the early 1970s the costs of PV modules were several hundred thousand dollars per peak kilowatt
(kWp), and applications were largely confined to aerospace and other specialized uses. By the early 1980s costs
had fallen tenfold to around $25,000 to $50,000/ kWp, and by 1990 to $6,000/kWp, and PVs had become
commercially viable for a wide range of small
Abundance of the Solar Resource 6
Figure 1.
Land Use by SolarThermal and Photovoltaics Versus Land Inundated for Hydropower
KEY: SolarThermal and PVs: 1. Eurelios central receiver plant; 2. Solar One central receiver;
3. PV concentrator scheme; 4. CESA1 central receiver; 5. PV concentrator scheme; 6. PV
concentrator scheme; 7. Luz parabolic trough.
Hydropower: 8. Nathpa Jhakri, India; 9. Marsyangdi, Nepal; 10. Berke, Turkey;
11. Xingo, Brazil; 12. Kulekhani, Nepal; 13. Zimapan, Mexico; 14. Itapu, Brazil;
15, Aguamilpa, Mexico; 16. Machinadinho, Brazil; 17. Daguangba, China;
18. Yacyreta, Argentina; 19. Tres Irmaos, Brazil; 20. Aswan, Egypt; 21. Samuel, Brazil;
22. Akosombo, Ghana; 23. Balbina, Brazil; 24. Nangbeto, Togo.
Source: K. Ahmed.
scale uses. In the industrial countries, PVs are often used for telecommunications, cathodic protection of oil and
gas pipelines, and as a source of electricity in homes and buildings; and in various ''luxury" applications.
Experiments with PVs as a source of supplementary grid power are also being conducted in several OECD
countries with positive results. In developing countries, common applications are for village and domestic
lighting, water pumping, battery charging, and supplies to rural health clinics and schools. The effectiveness of
applications in developing countries is well illustrated in a recent report by van der Plas, who notes that 20,000
rural households in Kenya have been provided with electricity from PVs in the past five yearsmore than were
newly supplied from the grid.3 An interesting point about this development was that the PVs were supplied by
market vendors at cost (the systems were also taxed), whereas gridsupplied electricity was subsidized. The
engineering and economic data suggest that further progress can be expected on at least two fronts:
Scale economies and technical progress in production. World output grew from 1 MW per year 15 years ago to
more than 60 MW today, a growth rate greater than 30 percent per year, albeit from a small base. This is still a
small market, but the technologies are modular, and the economies of scale and the technical possibilities for
batch production have barely been exploited.
Further developments in cell, module, and systems design, along with improvements in conversion efficiencies.
Development of improved materials, use of multijunction devices and novel cell designs to capture a higher
proportion of the solar spectrum, and use of concentrator (Fresnel) lenses to focus the sunlight onto high
efficiency cells are further areas of rapid development.
The U.S. Department of Energy has projected that with market expansion, costs should eventually decline to
about $2,000 or less per peak kilowatt (including balanceofsystems costs).4 If this were to happen, which is
quite plausible, PVs would become economical for use in gridconnected applications in the distribution
networks of countries with good solar insola
Figure 2.
Photovoltaic Module Costs, Actual and Projected, 19702015
Note: The range of costs marked on the graph show PV module costs required to compete
with smallscale applications and with decentralized power generation (assuming supply costs
of 8 to 10 per kWh (at base load) and 16.5 per kWh (at peak load), which include generation,
transmission, and distribution). The ranges are approximate and assume balanceofsystem costs
will come down commensurately with module costs. (Balanceofsystem costs are not shown, but
are assumed to be roughly the same as module costs.) The "spread" in points reflects the spread in
costs of different technologies, which are at different stages of development. The size of the module
used also affects cost, as does the size of the order.
Source: K. Ahmed, Renewable Energy Technologies: A Review of the Status and Costs of
Selected Technologies, World Bank Technical Paper 240, Energy Series (Washington, D.C., 1994),
p. 69 and Annex 10.
tions; this level of performance would also favor the emergence of independent or "distributed" utilities.
Progress in solarthermal schemes has also been noteworthy (Figure 3). They have already been technically
proven for largescale generation, with costs of $3,000 per kW and 12 to 20 US/kWh. Steam conditions
compare well with those of fossil and nuclear stations, typically 1,000 psi and 700 F, and operational
performance is very good. (The availability of the solar fields in the Kramer Junction plants in California is 99
percent.) Costs are still high in comparison with fossilfired power stations, though appreciably lower than the ex
post costs of nuclear power plants commissioned in the United States in the 1980s, and they compare favorably
with the costs of some hydro schemes in developing countries. Further, as with PVs, scale economies in
manufacture and technical possibilities have barely been exploited. For example, the central receiver technologies
offer prospects of major efficiency gains and reductions in costs through a significant increase in steam pressures
and temperatures. Experience with solarthermal power stations dates only to the mid1980s, with only 350 MW
having been built.
Research on a range of materials and design concepts is proving fertile, and ample scope remains for further gains
in conversion efficiencies, from the present 7 to 15 percent range to the 15 to 30 percent range for both PVs and
solarthermal stations. The potential is especially large in developing countries, where solar insolations are
usually high and energy markets are growing rapidly. Significant progress has also been made in secondary
sources of solar energy, such as the use of wind and biomass resources for power generation.5
The above developments in solar technologies were much stimulated by high oil prices in the period 197385 and
attracted the interest of several major companies. The collapse of oil prices in the mid1980s led some companies
to scale back their investment plans, and in some cases to shelve them, but those that continued their programs
reduced costs by amounts comparable with the fall in oil prices. Thus, as real oil prices fell by 75 percent between
1980 and 1992 (from $60 to under $20 per barrel), those of PV modules fell by roughly 80 percent. For wind
technologies, costs have declined roughly 60 to 70 percent since 1985 (Figure 4), and for solarthermal by about
50
Figure 3.
Cost of Electricity from LargeScale SolarThermal Technologies
Note: Costs for years up to and including 1992 are based on the technology of the time and
include data from actual plants as well as results of engineering studies; costs for years after
1992 are projected.
Source: Ahmed, Renewable Energy Technologies, p. 39.
Figure 4.
Cost of Electricity from Wind Turbines in California, 19851995
Source: Alfred J. Cavallo and others, "Wind Energy: Technology
and Economics," in Johansson and others, eds., Renewable Energy:
Sources for Fuel and Electricity (Washington, D.C.: Island Press, 1993).
percent over the same period. Nevertheless, low oil and gas prices make it difficult for solar energy projects to
compete commercially with fossil fuels, and presently their main attractions to private investors and users are for
smallscale applications, the possibility of a commercial surprise, and their promise as an alternative to fossil
fuels should the need arise for environmental or other reasons.
Several other features related to the costs and performance of solar technologies are worth noting. One is the short
lead times, notably for PVs, solarthermal schemes, and wind power. Construction times for some of the
solarthermal plants in California were as low as 9 months, and PV systems can be installed in yet shorter times.
The times typically quoted for wind are similar to those for solarthermal. The lead times of biomassfired power
generation projects are likely to be longer unless they are based on residues or highyielding crops (an area of
much research interest).6 Another feature will likely be the comparative ease and speed of decommissioning once
a plant has completed its useful operational life. For practical purposes, we are dealing with a "reversible"
technology. Finally, solar installations may allow for "live" maintenance (maintenance while the plant is
operating) owing to the modularity of the plant; this too should help to improve operational performance and
reduce maintenance costs.
A Solar Initiative
Despite its recent progress and its substantial potential, solar technology is not fully commercial, except for
smallscale, "off grid" applications, and costs are still higher than those of supplying peak and offpeak power
for grid supplies using fossil fuels. Nor is it certain that it will become commercial for largescale applications, or
(given the widespread subsidies for gridsupplied electricity in many countries) that it will be as widely used for
smallscale applications as would be economically desirable.
What can be said is that technical progress and reductions in costs have been impressive and that analyses of the
possibilities for further progressin the technologies themselves, and in their manufacture, and of the potential
for economies of scale in manufactureshow that the prospects for solar power are very promising, given good
economic and environmental policies.
A Solar Initiative 10
Were it not for concerns about global warming, further progress could be achieved through pursuing moderate
increases in R&D funding, removing deformities in energy prices, and otherwise relying on markets to develop
autonomously. According to projections by the U.S. Department of Energy, this would probably be sufficient to
see more commercial applications emerge gradually over the next two to three decades.7 Yet given that the global
environment is a public concernas evidenced by the fact that 160 countries have now signed the Climate
Change Convention (90 have ratified it, of which 60 are developing countries)the case is compelling for more
active policies to hasten the commercialization of solar energy. In highinsolation areas, solar energy is currently
emerging as the most promising option for stabilizing carbon emissions and accumulations, should the need arise
(see Box 1).
Whether it is necessary to go furtherthat is, to embark on a program for stabilizing carbon accumulations, or
even to move toward a program for reducing the accumulationsmust await the results of more definitive
research on longterm climate change. What can be concluded at present is that support for the development and
use of solar technologies is a necessary part of any precautionary policy for addressing global warming. This is
why the GEF financed several renewable energy projects in its pilot phase and why it is to give priority to such
projects in future operations. As it happens, prospects are good that such initiatives may also contain the seeds of
a pleasant economic surprise.
Box 1. Carbon Emissions and Solar Scenarios
The top figure shows two scenarios of carbon emissions
summarized in the World Development Report 1992. 8 The fossil
fuels scenario (dotted line shows) the expected growth of
emissions with continuing use of fossil fuels (assuming continued
progress in energy production and enduse efficiency). Emissions
grow in this scenario because of the growth of energy demands in
developing countries, where per capita consumption is only 5
percent of that in the rich countries, and more than 2 billion people
are still without access to commercial fuels. The renewables
scenario (solid line) makes the same assumptions about energy
efficiency but also assumes a gradual substitution of solar energy
forms for fossil fuels. The use of renewables would enable
stabilization of emissions and accumulations over the long term.
The bottom figure shows the shift in shares of primary energy
demand required to stabilize CO2 emissions. Although solar
energy will be a small share of the market for some years,
substitution of solar energy for fossil fuels, along with economic
efficiency in energy production and use, are at present the most
promising longterm options for stabilizing carbon emissions and
accumulations.
A Solar Initiative 11
Carbon Emissions, Reliance on Fossil Fuels
Versus Shift Toward Renewables, 19902050
Shift in Share of Primary Energy Demand Required
to Stabilize CO2 Emissions, 19902050 (%)
Preparation and Finance of Commercial and NearCommercial Applications
Sources of Finance
An important step to commercialize solar energy use has already been taken, which was the decision (in March
1994) to establish the GEF on a permanent footing. The GEF has now moved from its pilot phase to an
operational phase, is well placed to support an expanded program of nearcommercial applications of tested
technologies, and can attract significant amounts of finance from public and private resources. In its pilot phase,
the GEF's leveragethe amount of conventional finance raised for each dollar of the GEF's own resourcesfor
renewable energy projects was roughly 3:1; indeed, for applications that have good economic rates of return,
excluding the premium (shadow price) placed on the reduction of carbon emissions, the GEF's role is mainly
catalytic, such as to absorb transactions costs and reduce the risks of investments in essentially "pioneering"
technologies, and in these cases the leverage can be much larger. Wind projects, for example, have now reached
the point where the leverage can be as high as 10:1. In sum, the following sources of finance are available:
The GEF, for such programs as photovoltaics for rural electrification and for solarthermal, wind, and
biomassfired power projects using technologies already in use and under further development
Conventional development finance from the Multilateral Development Banks (MDBs) and the International
Development Association (IDA) where the projects are demonstrably economic
Preparation and Finance of Commercial and NearCommercial Applications 12
Equity and loan finance from the International Finance Corporation (IFC), in conjunction with the GEF (see
Box 2)
Direct investment by the utilities
Commercial finance (local and foreign)
Private direct investment (local and foreign)
Blends of the above.
Taking into account the resources arising from the replenishment of the GEF, it is possible in principle to finance,
over a threeyear period, an overall program of the following composition:
3 x 100 MW of solarthermal plants (e.g., of the parabolic trough type)
20 to 50 MW of PVs for smallscale usesrural electrification, water pumping, rural health clinics, street
lighting, school buildings, etc.
Box 2. The IFC and Renewable Energy
The International Finance Corporation (IFC) is the privatesector
arm of the World Bank Group and the largest multilateral source
of equity and private sector investments in developing countries. It
lends directly to private companies and makes equity investments
in them, without guarantees from governments, and attracts other
sources of funds for privatesector projects.
Since 1956, the IFC has provided more than $14 billion in
financing for 1,290 companies in 109 developing countries. In July
1992, the IFC created its Infrastructure Department in response to
the growing demand for its services in this area. The Power
Division handles electric power generation projects, including
projects using renewable energy resources such as hydro,
geothermal, and biomass and new technologies such as wind
energy, as well as conventional thermal generation projects and
transmission and distribution projects, including national and
international grids and metropolitan and local utilities.
The IFC has recently financed hydro projects in Belize (25 MW),
Chile (450 MW and 80 MW), Costa Rica (11 MW), and
Guatemala (10 MW), as well as a biomass cogeneration plant in
Guatemala (70 MW). Geothermal projects are under review in
Guatemala, Indonesia, and Nicaragua. Wind power funding
proposals have been received for projects in Argentina, Chile,
China/Mongolia, Costa Rica, Egypt, Guatemala, Honduras,
Mexico, Morocco, Ukraine, and Uruguay. Biomass or PV projects
have been considered in Belize, Brazil, Colombia, Costa Rica,
India, and Jamaica. The IFC has also invested in PV
manufacturing in China.
The IFC has made the environment one of its most urgent
priorities and is encouraging private sector involvement in the
development of GEF assistance strategies for the private sector. As
part of these efforts, as well as in relation to its power investments,
the IFC is actively pursuing potential investments in renewable
energy (biomass, wind, solar thermal, and PVs). The IFC can
provide nonrecourse project finance services, namely:
Debt/equity investments in commercial technologies in
developing countries
GEF grants or concessional financing to buy down capital cost
differences for qualifying technologies alongside conventional IFC
project financing.
The IFC can also provide services for manufacturing, investment,
and corporate finance as follows:
Debt/equity investments in manufacture and assembly of
commercial technologies in developing countries
GEF grants supporting manufacture and assembly investments
for precommercial technologies.
The IFC is also considering establishing a $100 to $200 million
fund for renewable energy and energy efficiency that could
provide equity (and possibly debt) financing for smaller ongrid
renewable energy projects (5 to 20 MW) and for promising new
offgrid applications using solar energy and other renewables and
for energy efficiency projects. The GEF Council recently approved
a $30 million cofinancing facility to supplement the Fund's
resources to promote less mature commercial technologies and to
reduce risks associated with these types of investments.
Several hundred MW of wind power projects
One or two biomass power generation schemes ( 50 MW), building on the experience gained with the Brazil
project 9
Several programs of smallscale investments ( 50 MW equivalent; e.g., for rural electrification)
Programs of special uses for agriculture and industry (e.g., solar crop dryers, industrial cooling and heating,
waste treatment, and many other applications).
This list is not exhaustive and is not a proposal. It is intended only to indicate the emerging possibilities and to
encourage various parties to search for investment opportunities. The types, scales, and quality of investments that
are actually financed will likely be much different from this, and the overall level of investment could be much
higher or much lower, depending on the work done in project identification and preparation over the next three
years.
Such a program would only represent a starting point for international assistance for the development of solar
energy, even allowing for programs already in place. Solar energy would not likely be fully commercial at the end
of it, and a full program of commercialization will require a longerterm commitment from the development
community (and various national energy programs) and a willingness to take risks; with the possible exception of
wind turbines, this is true for all the key technologies used for electricity productionPVs, which aside from
smallscale applications need a substantive 10year program to move them into the cost ranges indicated,
solarthermal, and biomass for power production.
In addition, with research and development (discussed below), new approaches will be emerging that will also
merit support as they move to the operational phasefor example, central receiver solarthermal systems, new
PV concepts for gridconnected applications, and other approaches (including fuel cells) to introduce storage and
make solar energy less intermittent and better suited for grid system dispatch. For these reasons, it has been
suggested that the various agencies should outline and publish their longterm plans for solar development,
outlining investment targets for the period, say, 199620002005. The aim would be to persuade investors that
significant investment opportunities lie ahead; that development finance institutions are committed to seeing the
technologies developed and used; and that these institutions are working on raising the financial resources
required.
Building a Project Pipeline
Developing countries have expressed much interest in the applications of solar energy, and some project
preparation activity can be found in most countries, albeit on a small scale. Favored areas are the use of wind as a
supplementary power source, PVs for lighting, pumping, and electricity supplies for clinics and schools in rural
areas. Such applications can be found in several countries in Africa, Latin America, and Asia. Preparatory work
has also been done for solarthermal projects, for example, in Mexico, Morocco, Jordan, and India. In Indonesia,
a recent project to electrify remote communities using hybrid schemes based on wind and PVs has also been
recently prepared. A pipeline of projects is thus beginning to emerge.
Nevertheless, the amount of preparatory work currently being undertaken still falls short of what is needed to
draw effectively on the abovementioned sources of finance and in ways consistent with their investment criteria.
This is less because of neglect than because of the tacit assumptionprevalent until recently, but now no longer
validthat the financial resources were not available or that key financing institutions were uninterested in
financing solar technologies.
Whereas substantive resources are devoted to the preparation of hydro and fossilfuel projectsin the case of
hydro, the resource surveys and preparatory studies often date back several decadesfew such studies exist for
exploiting the solar resource base. The extent of the solar resource sometimes may be known, but the engineering,
costing, financial, and institutional studies that form the basis of a good proposal, before appraisal can begin, are
virtually nonexistent. Hence, the "solar alternatives," unlike the fossil and the hydro alternatives that are routinely
evaluated during an appraisal, are invariably not put forward when conventional finance is being sought for want
of good project identification and preparatory studies. In many cases, the solar alternative exists only in theory.
The GEF is providing the industry and its financial community the inducement of new investment opportunities to
correct the situation.
The resources needed for project preparation are typically 1 to 3 percent of total project costs. Resources for such
work are often available through the following sources:
The project preparation facilities of the multilateral development banks (MDBs) and UNDP
The GEF, which can make grant contributions for the preparation of promising projects
Building a Project Pipeline 15
Bilateral grant aid (much goodwill exists in the donor community to develop applications of solar energy in
developing countries)
The developing countries themselves, several of which have a declared commitment to develop solar energy
Private investors and the electric utilities.
In addition, financing institutions and donors are willing to commit "in kind" resources to developing solar energy
alternatives. For example, the staff of the Energy Sector Management Assistance Programme (ESMAP) has done
much work on identifying smallscale solar energy projects over the past 10 years, and bilateral donors frequently
finance technical people and organizations with a particular expertise to work on investments in this area.
Resources are therefore available for all phases of the project cycle for investments in solar energy. However,
financiers tend to favor projects that have already been identified and that have passed a preliminary screening,
when the chances of a proposal going to appraisal are much higher, and consequently they tend to neglect the
prefeasibility phase, when the chances are naturally much greater that an idea will be weeded out and dropped.
Yet the costs of prefeasibility work are a small percentage of total project costs; they can range from $50,000, or
less than 0.01 percent of the costs of projects that eventually emerge, to 0.5 to 1.0 percent of project costs where
reconnaissance and preliminary site surveys and engineering analysis are needed before the full survey and
engineering analysis of project preparation. Good projects and good investment programs have small beginnings.
For this reason, the following two proposals10 have been put forward:
1. The provision of "minimum hassle" grants by development agencies, foundations, and others for
identifying solar energy investments and programs. Such grants are needed to encourage business and others
to conduct project identification and prefeasibility studies. Presently only private foundations supply such
resources, generally as small grants. (It was one such grant from the Rockefeller Foundation that permitted Brazil
to undertake a preliminary study that led to the preparation of a biomassgasification, combinedcycle power
plant later financed by the GEF; another grant by the same foundation has facilitated a revival of interest in
thermalsolar technologies in Mexico.) The processing of applications needs to be expeditious and simple, and it
is necessary to work on the assumption that only a minorityperhaps a small minorityof pro
posals so financed will later pass the screening tests and progress to fullblown project preparation studies and
appraisal.
Discussions between the Bank's staff and others on how such facilities might best be made more widely available
led to two conclusions.11 First, several sources of such finance are needednot one or two. It is neither possible
nor desirable for one or two institutions to administer such facilities themselves. Although screening procedures
can be simplified, and paper work kept to a minimum, knowledge of local researchers, businesses and others
applying for the finance is required if the approval process is to be fair and efficient (not all applications can be
approved). Supervision of progress with the work is also required, not only to ensure that the funds are being used
for the purposes intended but to provide further assistance if a promising investment is emerging.
Second, related to this, translating an investment possibility into an attractive proposal such that it can move from
the identification to the preparation stage is not simple. It requires, among other things, knowledge of the many
institutions capable of providing further finance and technical support and guidance, and expertise on the criteria
and conditions to be met if the proposal is to be taken forward and the investments financed. Again, providing
administrative support and guidance to a large number of individuals and organizations attempting to identify and
develop projects is not something one or two institutions alone can provide efficiently.
Building a Project Pipeline 16
For these reasons, while the World Bank and the GEF will be giving attention to the problem of funding the work
of identification (and also of education and training, discussed below), staff will be encouraging other institutions
involved in energy and development to look at the matter as well.
2. Research into both short and longterm investment opportunities in solar energy. These might involve
the following:
Applications of PVs for distributed electricity generation on power grids. The benefits are greater when used for
this purpose because of the savings in distribution and transmission as well as generation costs. Also, such
investments may be attractive to very large numbers of smallscale independent power producers (0.1 or less to
about 10.0 MW), as well as to some larger producers.
Quantification of the land potentially available for biomass plantations, with strategies for restoring degraded
lands to plantation quality suited either for supplying biomass power plant or for being used for other purposes .
(Afforestation of degraded lands has been one of the most common proposals for reducing the net emissions of
carbon from human activity, and it has been recommended by the U.S. National Academy of Sciences and the
Intergovernmental Panel on Climate Change; the amount that could reasonably be afforested has still not been
estimated reliably.) More generally:
Country and regional assessments of renewable energy resources. Better resource data will both help to reduce
project risk and provide engineers a better basis for sizing renewable energy investments and storage systems.
Preparation and publication by various agencies of their longterm strategiesthat is, of indicative plansfor
investments in solar energy would also facilitate further market research and investment, as discussed above.
PrePipeline Activities:
Education and Training
One further set of activities is required to begin the process of developing a project pipeline: this involves
widening awareness in the industry of the possibilities being opened by the new solar technologies and providing
education and training to people in the electricity industry and its financiers and regulators. Much uncertainty
remains about costs, technical performance, and even the scale of the solar resource in many developing regions.
This confusion arises as much from misperception (and often lack of awareness of what has been accomplished)
as from any other factor. The predisposition of institutionsnot least in the field of development finance and in
the electric utilitiesto "stay with the familiar" is also a factor.
Expanded education and training through workshops and visits to operating projects may contribute greatly to
developing an investment program. Some of this work has already begun in some countries; it merits further
attention. Universities in several countries are also offering advanced studies in renewable energy technologies
that will help to prepare the ground for investments by training new generations of engineers.
It has rightly been proposed that relatively small amounts of finance for technical assistance from the donor
community (including the GEF) could be well used for education and training as a prelude to the preparation and
finance of investments. This was the approach used in developing the apparently very success
ful PV program in Kenya, referred to earlier, which, following the initial investments in skills training, developed
wholly on the private initiative and investments of the trainees.12 As the U.S. DOE has commented, along with
technology transfer, an effort must be made to build the necessary institutions and skills for the development of
renewable energy; included in the solar initiative should be training and education such that domestic capabilities
for research, investment, maintenance, and operation keep up with technological developments.13 We agree with
PrePipeline Activities: Education and Training 17
this.
Pricing Policies and Openness to Private Investment
The move in many countries to establish more commercial arrangements for electricity supply and to be open to
private investment should also help improve the returns to solar energy investments. The marginal costs of
electricity supply are typically 4/kWh at offpeak and 15 to 20/kWh at peak in urban areas; the marginal costs
at peak are sometimes higher in the developing countries because demands are spikier. Average costs are about
10/kWh in urban areas and may range from 20 to 40/kWh in rural areas.
Yet until recently average prices fell far short of these levels (around 4 to 5/kWh in 1990), and peakload
pricing was rarely applied, notwithstanding many attempts to introduce it over the past 20 years.14 If the reforms
now ongoing in many countries are successful, they will move prices toward marginal costs, and this in turn will
favor the use of solar energy in both urban and rural areas and for large and smallscale applications. Peakload
pricing would also stimulate the development of technologies for shortterm storage, thus making some of the
renewable technologies better equipped to supply dispatchable power.
Pitfalls in Implementation
The biggest danger to the success of an investment program may not lie in the preparation and finance of the
program at the outset but rather in the provision of adequate maintenance and support services once investments
are in place.
A recent review of photovoltaic programs in the Pacific Islands, for example, shows that once the appropriate
technologies were installed, the success of programs was highly correlated with the adequacy of services such as
training of technicians, timely maintenance, regular fee collection and proper autonomy of the enterprise to
prevent diversion of revenues to other projects, and prompt feedback on needs from local user communities to the
supplying utility.15 An analysis of the PV program in Kenya leads to the same conclusions.16
Another PV program review (in this case for the government of India) shows how badly wrong things can go (see
Box 3).17 The results of this study are especially troubling because PVs are relatively simple, durable, and
inexpensive to maintain relative to other energy technologies. The study evaluated the approximately 3.3 MW of
PV devices installed by the Ministry of NonConventional Energy Resources by 1993 and found failure rates of
PV street lighting and water pumping systems as high as 100 percent. The same admirably selfcritical report also
provides an evaluation of the pro
Box 3. A PV Program in India: A Worrying Experience
"PV systems are easy to transport and install, require no fuel for
operation, have no moving parts, are noise and pollution free and
require very little maintenance. They are thus ideally suited for
applications in rural areas, remote and isolated locations, and other
places where conventional electricity is not available or is
unreliable. The programme has four major applications viz. Street
Lighting system, Domestic Lighting System, Community Light
and TV System, and Water pumping system for drinking water and
micro irrigation.
Rs.69.11 crores was spent on the Solar PhotoVoltaic Programme,
during the period 198692, constituting 62% of the total
Pricing Policies and Openness to Private Investment 18
expenditure of the Solar Energy Programme. But there were
substantial shortfalls in achievements of the systems installed.
Most of them were not working due to lack of proper maintenance,
subquality performance of the systems and apathy of the local
users. Out of the 5,496 street lighting systems surveyed 56.5%
were not working. The average failure rate ranged from 33 to
100% in various states. In the case of domestic lighting systems
the failure rate ranged from 25 to 94% in four states. In six states
not a single community TV system had been installed. In the case
of water pumps, 1,181 pumps had been installed till 31st Dec. 91.
The failure rates of the pumps ranged from 41 to 100% in the five
states surveyed. There were many cases of these systems having
been installed at offices and residences of high officials contrary to
the guidelines for the programme.
Coordination between receipt and issue in the inventory was
wanting resulting in overstocking, nonavailability of closing
stock and materials. Systems costing Rs. 1.28 crores could not be
utilised in two States due to coordination problems."
From "Report of the Comptroller and Auditor General of India
for Year Ending March 1993" (typescript).
grams to develop solarthermal power, solar cookers, small hydro and biogas plants, wind, and other renewable
energy technologies. Here again the results were often disappointing.
Nonetheless, the report is highly supportive of renewable energy and takes pains to distinguish between the
promise and value of the technologies, on the one hand, and the shortcomings of some of the programs devised to
support them, on the other. The report notes that the problems did not arise from any demerits in the idea of a
renewable energy program and the technologies supported, nor did it stem from a lack of motivation in the
agencies concerned. They arose because the resources allocated to the development of the program and to the
provision of maintenance services were meager in absolute terms and relative to the resources allocated to the
development and use of nuclear power and fossil fuels. The results were commensurate with official commitment,
measured not in terms of public pronouncements as to the desirability of such programs but in terms of resources
actually allocated to them.
Such experiences could easily discredit (or even be fatal) to a solar initiative if they were often repeated. How
then can they be avoided? Two lessons emerge from experiences to date. The first is the importance of public
commitment measured in terms of a government's willingness to support a program both in the investment and
implementation phases. As discussed above, the technologies are not yet commercial, and both the transactions
and the investment costs of developing and implementing a program are still large in relation to its output (in
kilowatt hours or other energy units, say). It is unlikely that the programs will succeed unless they are provided,
as they are in the industrial countries, with some public financial support.
The second lesson is that there is no substitute for working with companies and organizations with a good track
record for providing good maintenance and customer services. Commitment of public resources to solar energy
providers should be contingent on whether the companies can demonstrate that they have the wherewithal to
provide such services or to subcontract them to responsible organizations. In the case of PVs, the providers may
be manufacturers willing to move "downstream" into retailing and customer services, retailers of solar
Pricing Policies and Openness to Private Investment 19
technologies, electric utilities using PVs (say, for regional electrification programs), or small or largescale
independent energy producers. In the case of wind, solarthermal, or biomassfired projects for generating
electricity, the providers of maintenance and services may be the electric utilities or independent producers.
Whatever the arrangement, the ability and commitment to provide maintenance services and replace faulty
equipment will be crucial.
Because solar energy projects are a new area for investment, project monitoring and evaluation are also needed
(again, this is a laudable feature of the Kenya PV program). These activities might be undertaken by the
companies themselves, if only to learn from their initial investments, or depending on the case, subcontracted to
research organization, auditors, or NGOs. Indeed, NGOs worldwide have shown much commitment to the
development and use of renewable energy technologies, and they are ideally placed to report on a program's
impact and to seek ways of addressing problems that may arise during its implementation. Monitoring and
evaluation are required at two levels. First is the technical level, which would include recording the solar devices'
output and operating characteristics (kWh, kWp , voltage levels, losses, and ambient conditions such as
temperatures, insolation, winds, and rainfall). Second is the social level; particularly for smallscale applications,
surveys should be made on the actual use of the devices and people's experiences with them. Both types of
monitoring and evaluation will not only help improve the implementation of ongoing programs but will also
provide guidance for the preparation of new programs.
Last, a cautionary note must be sounded on the environmental aspects of renewable energy technologies. Already,
for example, wind energy is being subjected to much criticism on the grounds that it visually despoils the
landscape and interferes with wildlife. For this reason, many have argued for the development of "offshore" wind
systems, where the generally better wind regimes may also help to offset the larger costs. Biomass plantations
have also raised similar concerns.18 Solarthermal and photovoltaic investments pose less of a problem because
they are not landintensive and because they allow greater flexibility in the choice of sites. Generally, the
environmental problems associated with the use of renewable energy can be addressed through proper attention to
design and siting, though the task will rarely be a trivial one.
Research and Development
The boundaries between R&D and "operational" investments are not strictly drawn, and, given the rapid rate of
development of solar energy technologies as well as the relative newness of the industry itself, most investments
will have new or developmental features. These could include improvements in the design of the
balanceofsystems components of PVs; new materials and cell designs for PVs; improvements in operating
temperatures and in the thermal cycles of combined gasfired, solarthermal power plant; use of highyielding
annual crops and advanced gasification technologies for biomassfired power plant; use of PVs for
gridconnected applications; more advanced designs of windpower projects; use of thermalsolar and wind
projects to complement hydropower in the dry seasons; application of new storage technologies for PVs, wind,
and solarthermal power; and in other areas. Any operational program of the type discussed above therefore
would be bound to have a technologically innovative element and would provide a stimulus to R&D and an outlet
for the use of more advanced solar energy concepts. Indeed, the program would fail in its responsibilities if it did
not, and it would be fatal to a solar initiative if it were to "freeze" technical progress by concentrating only on
wellproven technologies.
Nevertheless, given the developments and results to date, and the promise of the technologies, the time has come
for an increased R&D effort at the national and international levels.
Research and Development 20
National Efforts in the Industrial Countries
Most solar energy R&D has been undertaken in the industrial countries, although some developing countries such
as India, Brazil, and China have begun work. About 7 percent of energy R&D budgets in the countries of the
International Energy Association (IEA) are allocated to solar power development. Yet IEA government budgets
for renewables have fallen to about half their levels of the early 1980s (see Figure 5). Although some good
programs are in place, and funding increased in 1993, a current study concludes that present levels of R&D are
still perilously low.19 It is remarkable that so much has been accomplished nonetheless, largely because of
private investment and partly because the scale of applications was generally quite small; aside from the
solarthermal projects introduced in California in the mid1980s, practical applications for electricity generation
ranged from 0.01 kW or less to a few MW.
With the developments just noted, the range of applications has expanded by nearly three orders of magnitude in
the past 15 years, from 0.01 kW or less (smallscale applications continue to have excellent prospects for further
progress), to the 1 to 5 MW range for PVs for gridconnected applications, to several hundred MW for
solarthermal, wind, and biomass power generation projects, which either did not exist or amounted to a only a
few pilot ventures in 1980. There is consequently a good case for expanding the programs while continuing R&D
on smallscale applications, for example, to develop and demonstrate the following (the list is not
comprehensive):
PVs based on more advanced materials and design concepts for both grid and offgrid applications.
Advanced solarthermal power plants (e.g., direct steam generation and higher temperature cycles).
Storage technologies (including fuel cells) in support of the above, and also for wind generation. As many have
noted, the "intermittent" nature of renewable energy is a disadvantage, and developments in storage technologies
will be important.
Advanced biomass power plants and research into highyield, lowfertilizer, lowtillage crops
Solar heating and cooling systems for buildings, a subject that has many synergies with R&D into efficient
enduse technologies and practices
National Efforts in the Industrial Countries 21
Figure 5.
R&D Expenditures for Renewables by
OECD Governments, 19821993
Source: Energy Policies of IEA Countries (Paris: IEA,
1993), Annex II, Tables B11 and B12, pp. 58283.
"Renewables" in the above graph include solar (heating, PV,
thermal); wind; ocean; biomass; and geothermal
(IEA hydro data are excluded).
Solar energy and architecture (e.g., the use of PVs as building materials). Not last, and not least
R&D into efficient enduse technologies, which in lighting, heating, and cooling frequently make solar energy
more economically attractive. A common example is lighting with highefficiency lamps; another is the
experiments with dishStirling systems for cooling and refrigeration. Another example is the use of solarthermal
systems for the treatment of toxic wastes.
Special mention should also be made of R&D in transport technologies. This was not discussed above, partly
because solar energy is currently much closer to becoming commercial in the electricity than in the transport
markets. However, oil fuels, mostly for transport, account for more than 40 percent of the primary energy market
in developing countries, as in industrial countries, and demands are growing rapidly. Much research is taking
place in the industrial countries on electric vehicles powered by batteries, fuel cells, and hybrid systems. It is
possible that this research is presently best left to national programs, most of which are in the industrial countries;
the question is still open, however, and will be discussed in a future paper.
International R&D
There is an economic argument for energy R&D to have an international dimension. From 1945 to 1990, the
energy R&D programs of the industrial countries were largely tied to national markets and, in the case of nuclear
power, to national security interests. The situation has changed greatly recently, and collaboration on energy R&D
between the industrial and developing countries is now merited for at least two reasons. First, global warming is
now seen as a significant problem. If developing countries are to participate over the long term in policies to
reduce carbon emissions , then, given their burgeoning demands for commercial energyprospectively five or
more times those of the industrial countries todaythey will need to draw on a supply of noncarbon technologies
with lower costs and improved performance, which in turn need to be tested and demonstrated locally. The GEF
and conventional finance will be able to support the application of tested technologies, but these institutions are
likely to make a greater contribution if they also have the backing of ''outward looking" R&D programs capable of
putting new and improved technologies into the pipeline.
Second, commercial logic points in the same direction; the energy markets of the industrial countries have
matured and may decline in the long run with progress in energy efficiency. But those of the developing
countrieswhere per capita consumption levels range from 1/100th to 1/5th those of the industrial countriesare
expanding rapidly (they are doubling every 15 to 20 years, and, in the case of electricity, every 8 to 10 years).
Components of a Program
An international R&D program would initially best be based on projects aimed at providing power supplies. It
would serve to demonstrate various technologies in situ, provide operational experience and training, and make
the R&D commercially oriented, while the revenues from the electricity produced would contribute to operating
expenses. In addition, R&D in smallscale applications would need to be nurtured; a review of the proceedings of
International R&D 22
the World Solar Energy and World Renewable Energy Congresses reveals a broad range of research interests in
both small and largescale applications of solar energy among architects, engineers, and scientists in developing
countries. The actual design and content of a program is a subject needing further analysis and discussion. To
encourage discussion, however, we have completed an indicative exercise to assess likely costs. A 10year
program of the following form was considered.
1. SolarThermal Technologies. A series of gridconnected projects, initially about 50 MW per year and rising
to 200 MW, would be included. The logical starting point would be new generations of parabolic trough
technologies. Development activities might include new heat collection fluids in the receivers; new materials and
designs for the troughs; new thermal cycles to improve conversion efficiencies and reduce costs; and the
introduction of thermal storage systems to improve flexibility in the dispatch of power. The use of the
solarthermal stations as a "thermal complement" to existing hydro schemes is another potentially attractive
option, as they would reduce the drawdown of the reservoirs in the dry season, when water is scarce and sunlight
is plentiful. For the middle and later years of the program, some recognition would be needed in the program for
the possibility of parabolic dish and central receiver technologies moving into demonstration.
Returning to the overlap between "operational" investments and R&D, discussed above, it has been commented
that with respect to solarthermal schemes, it would sometimes be possible to economize on R&D costs, if an
R&D component were to be included in an "operational" investment.20 For example, 80 percent of
the troughs of a solarthermal plant would generally be a development of an already proven type; the other 20
percent could be of a new design with their thermal output being fed to the same heat exchanger and turbines,
leading to a major savings in investments in the latter.
Similar possibilities arise with respect to the use of PVs for grid supplies, where the savings would stem from
lowered transactions cost of developing the projects. For biomass projects, too, small portions of the land areas
could be reserved for experiments with new crop varieties and feedstocks, again supplying a common power
plant. Such possibilities obviously depend on the case, but when available and taken advantage of would not only
reduce costs and help to test and demonstrate an approach but would bring about a more productive relationship
between R&D and investment.
2. Photovoltaics. This would involve a series of gridconnected PV schemes. These would initially be
smallscale projects of less than 1 MW, connected to the distribution systems, and aggregating in amount to 2 to
5 MW initially; as the technology develops, a rapidly rising number of such applications could be demonstrated in
several countries, and the average size of the schemes could be much larger. A range of approaches can be
developed and demonstrated, as noted above: new thinfilm technologies, highgrade materials, concentrator
systems, multijunction devices, and others.
3. BiomassFired Power Plants. This could comprise a series of investments of about 25 MW per year initially,
building on the initiative of the GEF project in Brazil, the only project in the GEF pilotphase energy investment
portfolio that could be classified as an R&D project. The project is capable of replication as it stands, but it is also
capable of further developmentfor example, by using higheryielding energy crops and by improving
combustion efficiencies yet further.
4. Storage Technologies. Promising prospects include fuel cells, thermal storage, and compressedair storage
(e.g., for wind generators).
5. More Basic Research. The above types of projects would be more at the development and demonstration end
of R&D than at the research end. Nevertheless, they would greatly interest the research community in industry
and elsewhere and could stimulate research on approaches that might be suited for testing and demonstration in
International R&D 23
the later years of the program. Thus, what might be basic research one year could become a development activity
five years later and ready for demonstration in another two years. The lead times between laboratory work on PVs
and field applications were as low as seven years in the 1980sand much less for wind and solarthermal
technologies. There would therefore be some frustration in the research community if ideas that could be suitable
for development and demonstration in the second half of a program were not supported because of a toointensive
focus on development and demonstration. For this reason, a provision for research financing and networking
among research centers was considered important, including a smallgrants facility that could be used for
smallscale research activities.
Costs
Such a program would cost, net, about $300 million per year initially, rising to $500 to 600 million per year in the
later years depending on scale and technologies chosen. A good program would also include R&D into efficient
enduse technologies, a subject that merits further analysis (this would add to the costs). As noted, the program
was outlined less to make a detailed proposal now than to indicate what might be expected and achieved by an
international initiative and at what cost.
These calculations of costs are consistent with those of others21 who have independently concluded that in
absolute terms (and for electricity generation and related technologies) the total financial requirements of
expanded national and international R&D programs to support commercialization within the next 10 years would
not be small, but in relative terms would constitute no more than 15 to 20 percent of the current energy R&D
budgets of the IEA countries. (Current allocations for renewables R&D are about 7 percent of these budgets.) In
addition, significant counterpart funding could come from private industry, which has shouldered much of the
R&D effort in recent years.
The financial requirements are relatively low for three principal reasons. The first is modularity of the
technologies, which means that relevant results and operating experience can be gained from small projects. The
second is the short lead times for most kinds of R&D except basic research, something that, as noted earlier, also
facilitates correspondingly early feedback of results and experience and learningbydoing. The third, as
discussed, is that the modularity of the technologies also makes it possible to associate some R&D with
"productive" projects such that they can share common facilities.
Organization
Further analysis is needed to identify the best organizational arrangements. Bank staff have been discussing the
idea with people in industry, government, and the universities; future papers will report on the outcome
if the case is accepted. One possibility often raised is a consultancy group modeled on the very successful
Consultative Group for International Agricultural Research (CGIAR). Another would be to have a forum to
facilitate bilateral collaborations. Whatever arrangements are adopted, however, the following features would be
desirable:
A commitment fromand the involvement ofthe electricity generation industry and the research community
in the participating countries.
A durable program, built on welldefined projects, to which commitments are made for several years. This
would be necessary to develop backward linkages to the R&D programs of the manufacturers.
Flexibility in the choice of technologies in light of technical developments.
Costs 24
Networking between leading R&D establishments in the participating countries, both industrial and developing.
An administrative arrangement for private manufacturers and public and private electricity producers to bring
their experience to the program.
The Bank is willing to play a catalytic role in defining R&D policies. The next steps will be to decide on the
appropriate arrangements forand the precise content and scale ofan R&D program of the type outlined above.
This paper is intended to encourage further discussion and analysis. To this end, in collaboration with others, the
Bank is willing to (a) initiate an evaluation of ongoing R&D programs in member countries; and (b) organize
workshops to help build public support for refocusing energy R&D in the directions outlined.
Conclusions and Next Steps
The development of solar energy technologies so far has rested on the efforts of people and organizations in many
countriesin the research communities in industry and the universities, in government laboratories, in the
willingness of public and private industry to test approaches and implement demonstration projects, and in private
investments undertaken in response to the tax and other incentives that several governments have provided for
innovation and for reducing pollution. The outcome has been significant reductions in costs and steady
improvements in the efficiencies and operating performance of the technologies. The chances are good that these
applications will become suitable for commercial use where insolations are high (most of the developing world)
and where opportunities for the use of wind and biomass energy are favorable.
The case for a solar initiative was made on two groundseconomics and the environmentand it was noted that
the GEF presents an important new opportunity. However, the economic case is sufficiently strong for an
initiative to be taken even if global environmental concerns turn out to be less serious than many people now
think they are. This is why the paper was also concerned with ways of attracting nonGEF finance and R&D
resources to the development and use of solar energy technologies.
Immediate priorities for organizations interested in the further development and use of the technologies in
developing countries are as follows:
Widening awareness of developments through education, training, and seminars, and sharing of the results of
experience in existing projects.
Providing financial assistance and grants for surveys of the solar resource base and for identifying investment
opportunities. This lowbudget item should require (a) a modicum of paperwork and processing and (b) the
funders to take risks and work on the assumption that only a minority of activities supported will progress to the
next phases of the investment cycle, namely:
Preparing and appraising investments.
Preparing longerterm strategies for developing and using solar energy given ongoing technical and economic
progress and its longterm potential.
Refocusing energy R&D efforts and fostering international collaboration as discussed above.
The World Bank Group has already financed some solar energy projects, most recently in association with the
GEF,22 which is offering a major new opportunity for the finance of wellprepared projects responsive to
concerns about the global environment. In the pilot phase of the GEF, each dollar of GEF finance raised three
dollars of conventional finance for solar projects, and this "gearing ratio" should increase as costs decline. With
Conclusions and Next Steps 25
the developments discussed, opportunities should also emerge for the finance of some projects independently of
the GEF. Aside from investment finance, Bank staff are willing to promote a dialogue between the industrial and
developing countries on solar energy development and R&D priorities.
Notes
1 The potential of the solar resource has of course been known to generations of scientists, and none of the
estimates just made are original. For an earlier review of the literature in the technologies and the potential of
solar energy, see James R. Bolton and David O. Hall, "Photochemical Conversion and Storage of Solar Energy."
Annual Review of Energy 4 (1979): 353406.
2 See T. B. Johansson and others, eds., Renewable Energy: Sources for Fuel and Electricity (Washington, D.C.,
1993) and Kulsum Ahmed, Renewable Energy Technologies: A Review of the Status and Costs of Selected
Technologies , World Bank Technical Paper 240, Energy Series (Washington, D.C., 1993). Impressive cost
reductions have made wind technologies commercial. Wind and biomass are here included in the definition of
solar energy.
3 Robert van der Plas, "Solar Energy Answer to Rural Power in Africa," FPD Note 6, World Bank Vice
Presidency for Finance and Private Sector Development, Washington, D.C., April 1993.
4 R. H. Annan, "Photovoltaic Energy, Economics and the Environment," in B. Abeles and others, eds., Energy
and the Environment (Singapore: World Scientific, 1992).
5 Johansson and others; and Ahmed, cited above.
6 Proposal by researchers in New Zealand (nitrogenfixing crops).
7 Annan, "Photovoltaic Energy."
8 See also Dennis Anderson and Catherine D. Bird, "Carbon Accumulations and Technical Progress: A
Simulation Study of Costs," Oxford Bulletin of Economics and Statistics 54 (February 1992).
9 See Philip Elliott and Roger Booth, Brazilian Biomass Power Demonstration Project, Special Project Brief,
Shell Group of Companies (London: Shell Centre, 1993), for additional information.
10 By Professors Goldemberg, Socolow, and Williams.
Notes 26
11 Jos Goldemberg drew the importance of such facilities to our attention, and Ken Prewitt and Phil LaRocco
informed us on the nontrivial problems of their administration.
12 Richard H. Acker and Daniel M. Kammen, "The Quiet Energy Revolution: Analyzing the Dissemination of
Photovoltaic Systems in Kenya," Energy Policy, forthcoming.
13 Correspondence from Christine Ervin and Allan Hoffman, U.S. Department of Energy, November 1994.
14 The World Bank's Role in the Electric Power Sector: Policies for Effective Institutional, Regulatory, and
Financial Reform, A World Bank Policy Paper (Washington, D.C.: World Bank, 1993).
15 Andres Liebenthal and others, Solar Energy: Lessons from the Pacific Island Experience. World Bank
Technical Paper 244, Energy Series (Washington, D.C., 1994).
16 Acker and Kammen, "The Quiet Energy Revolution."
17 "Report of the Comptroller and Auditor General of India for Year Ending March 1993" (typescript).
18 See James H. Cook and others, "Potential Impacts of Biomass Production in the United States on Biological
Diversity," Annual Review of Energy and the Environment 16 (1991): 40131, for a fuller discussion. The paper
includes several positive proposals for addressing environmental problems associated with biomass energy
projects.
19 Keith Kozloff and Roger Dower, A New Power Base: Renewable Energy Technologies for the Nineties and
Beyond (Washington, D.C. :World Resources Institute, December 1993).
20 By Professor Socolow.
21 Correspondence and discussions with Carl Weinberg, Bob Williams, Jos Goldemberg, and Pascal De Laquil,
who arrived at the same conclusions independently.
22 See the Quarterly Operational Reports of the GEF. In its pilot phase, the GEF financed renewable energy
projects in eight countries including PVs (India); wind (India and Costa Rica); biomass (Mauritius, Brazil, and
Cte d'Ivoire); solar water heaters (Tunisia); urban wastetoenergy (Pakistan); and a "nonsolar" renewable
energy project (the Philippines geothermal project).
Recent World Bank Technical Papers (continued )
No. 226 Bindlish, Evenson, and Gbetibouo, Evaluation of T&VBased Extension in Burkina Faso
Notes 27
No. 227 Cook, editor, Involuntary Resettlement in Africa: Selected Papers from a Conference on Environment
and
Settlement Issues in Africa
No. 228 Webster and Charap, The Emergence of Private Sector Manufacturing in St. Petersburg: A Survey of
Firms
No. 229 Webster, The Emergence of Private Sector Manufacturing in Hungary: A Survey of Firms
No. 230 Webster and Swanson, The Emergence of Private Sector Manufacturing in the Former Czech and Slovak
Federal
Republic: A Survey of Firms
No. 231 Eisa, Barghouti, Gillham, and AlSaffy, Cotton Production Prospects for the Decade to 2005: A Global
Overview
No. 232 Creightney, Transport and Economic Performance: A Survey of Developing Countries
No. 233 Frederiksen, Berkoff, and Barber, Principles and Practices for Dealing with Water Resources Issues
No. 234 ArchondoCallao and Faiz, Estimating Vehicle Operating Costs
No. 235 Claessens, Risk Management in Developing Countries
No. 236 Bennett and Goldberg, Providing Enterprise Development and Financial Services to Women: A Decade
of Bank
Experience in Asia
No. 237 Webster, The Emergence of Private Sector Manufacturing in Poland: A Survey of Firms
No. 238 Heath, Land Rights in Cte d'Ivoire: Survey and Prospects for Project Intervention
No. 239 Kirmani and Rangeley, International Inland Waters: Concepts for a More Active World Bank Role
No. 240 Ahmed, Renewable Energy Technologies: A Review of the Status and Costs of Selected Technologies
No. 241 Webster, Newly Privatized Russian Enterprises
No. 242 Barnes, Openshaw, Smith, and van der Plas, What Makes People Cook with Improved Biomass Stoves?:
A Comparative International Review of Stove Programs
No. 243 Menke and Fazzari, Improving Electric Power Utility Efficiency: Issues and Recommendations
No. 244 Liebenthal, Mathur, and Wade, Solar Energy: Lessons from the Pacific Island Experience
No. 245 Klein, External Debt Management: An Introduction
No. 246 Plusquellec, Burt, and Wolter, Modern Water Control in Irrigation: Concepts, Issues, and Applications
No. 247 Ameur, Agricultural Extension: A Step beyond the Next Step
Notes 28
No. 248 Malhotra, Koenig, and Sinsukprasert, A Survey of Asia's Energy Prices
No. 249 Le Moigne, Easter, Ochs, and Giltner, Water Policy and Water Markets: Selected Papers and
Proceedings from the
World Bank's Annual Irrigation and Drainage Seminar, Annapolis, Maryland, December 810, 1992
No. 250 Rangeley, Thiam, Andersen, and Lyle, International River Basin Organizations in SubSaharan Africa
No. 251 Sharma, Rietbergen, Heimo, and Patel, A Strategy for the Forest Sector in SubSaharan Africa
No. 252 The World Bank/FAO/UNIDO/Industry Fertilizer Working Group, World and Regional Supply and
Demand
Balances for Nitrogen, Phosphate, and Potash, 1992/931998/99
No. 253 Jensen and Malter, A Global Review of Protected Agriculture
No. 254 Frischtak, Governance Capacity and Economic Reform in Developing Countries
No. 255 Mohan, editor, Bibliography of Publications: Technical Department, Africa Region, July 1987 to April
1994
No. 256 Campbell, Design and Operation of Smallholder Irrigation in South Asia
No. 257 Malhotra, Sinsukprasert, and Eglington, The Performance of Asia's Energy Sector
No. 258 Willy De Geyndt, Managing the Quality of Health Care in Developing Countries
No. 259 Chaudry, Reid, and Malik, editors, Civil Service Reform in Latin America and the Caribbean:
Proceedings of a Conference
No. 260 Humphrey, Payment Systems: Principles, Practice, and Improvements
No. 261 Lynch, Provision for Children with Special Educational Needs in the Asia Region
No. 262 Lee and Bobadilla, Health Statistics for the Americas
Notes 29

The Case For Solar Energy Investments

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