Risk addressed: Off-taker risk, transmission risk, currency risk and lack of project pipeline

Investors generally highlight off-taker and currency risk when financing renewable power projects in emerging and developing economies. Another prominent barrier to increased investment in these markets is a pipeline of large, predictable and bankable projects, which are a critical signal to attract investors, especially large and international ones who generally enter markets only if there is enough expected growth to cover for the transaction costs.

A coordinated, generally centralised, project preparation and project development facility has proven successful to accelerate deployment of renewable projects in developing countries. This case study describes how Scaling Solar – “a one-stop shop program[me] [that] aims to make privately funded grid-connected solar projects operational within two years and at competitive tariffs”– addressed off-taker risk and helped the Zambian government successfully negotiate requests for solar power.

The Government of Zambia in 2015 announced a plan to install 600 MW of solar PV in an effort to diversify and increase its power supply capacity. That same year it decided to start by tendering up to 100 MW of capacity using the World Bank Group’s “Scaling Solar” programme. Scaling Solar applied a package of payment and loan guarantees, public debt financing and pre-negotiated template documents (e.g., for a Power Purchase Agreement [PPA] and Government Support Agreement) to encourage equity participation and competitively priced offers for power provision.1

Zambia’s first tender in 2016 under the Scaling Solar programme was a success, attracting two bids for a combined 75 MW, including at the lowest tariff for solar power in sub-Sahara Africa at the time (the West Lunga project at USD 0.0615/kWh). The power is being provided at a fixed rate for the duration of the 25-year PPAs. The timeline was also fast: the competitive tender was carried out in nine months and financing was finalised within 18 months.