Governance of Risks in Financing Concentrated Solar Power Investments in North Africa

Schinko, T. ORCID: https://orcid.org/0000-0003-1156-7574 (2015). Governance of Risks in Financing Concentrated Solar Power Investments in North Africa. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-15-002

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Abstract

A low-carbon energy transition on the basis of renewable energy sources (RES) is of crucial importance to solve the interlinked global challenges of climate change and energy security. To transform the global energy system, substantial investments will be needed and private participation will very likely be required to achieve the scale of new investment. Yet, especially developing countries are struggling to foster private RES investments. The literature argues that the economic feasibility and hence the realization of a RES investment project hinges on the availability of affordable project financing, which itself depends on perceived risks by investors. Since financing costs are found to be particularly high for capital-intensive RES projects and in developing countries, we investigate the impacts of a financial de-risking approach on electricity prices from concentrated solar power (CSP) in four North African countries and derive the following three conclusions. (1) By employing a levelized cost of electricity (LCOE) model we find that a comprehensive de-risking approach leads to a 32% reduction in the regional mean of LCOE from CSP. (2) To capture potential macroeconomic feedback effects of a de-risking strategy to CSP investments, we employ a Computable General Equilibrium (CGE) model. By considering a 5% CSP target by 2020, the model results indicate that an ambitious de-risking strategy is still not sufficient to achieve cost competitiveness between CSP and subsidized conventional electricity but has the potential to reduce the required subsidy to stimulate CSP deployment in 2020 by 0.03 USD/kWh which would increase GDP on average by 0.15% or 327 million USD. (3) By conducting expert interviews with RES investors we learn that investors are aware of different investment risks associated with RES projects in North Africa and of private risk transfer measures to mitigate these risks. Our results suggest that given the potential for substantial electricity cost reductions and overall economic benefits, financial de-risking - incorporating both public and private measures - reflects an important strategy to foster the deployment of RES.

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