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2017/72

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The bottom line


What Drives the Price of Solar Photovoltaic Electricity
Over the past few years, prices
of solar photovoltaic electricity in Developing Countries?
decreased to $06.0.08/kWh in a
number of developing countries, Are recently announced prices for utility-scale This brief summarizes an analysis of 37 winning bids for utili-
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becoming competitive with ty-scale solar PV plants procured through auctions in 13 developing
solar PV realistic, sustainable, and likely to induce
conventional sources. In a few countries between 2013 and 2016. For comparison, the full report,
markets, prices significantly further market expansion? obtainable from the authors, also describes examples of a failed PV
below $0.06/kWh have been To find out, this note examines the costs of auction in Indonesia and a large, bilaterally negotiated procurement
achieved through auctions of PV capacity in Nigeria. The 37 plants were selected based on the
equipment, access to financial markets, insolation,
governed by clear, concise rules availability of plant-specific information and the desire to achieve a
and selection criteria, among and other project-related variables in 13 countries
comprehensive overview of the evolution of auction results across
other factors. Price reductions In the past few years, auctions have emerged as a popular and countries and over time, in particular in countries such as Brazil and
are expected to continue. economically advantageous way to procure power-generation South Africa that have organized multiple rounds of auctions. The 37
However, strong demand for capacity. Traditionally, prices for solar photovoltaic (PV) power were plants were chosen from a set of some 500 winning bids covering
equipment, the disappearance of administered though feed-in tariffs (FiTs). But as technology matured, more than 50 auctions in 16 countries.1 Although the sample is rela-
low interest rates, and expansion the PV market scaled up significantly, the size of plants grew, and tively small, it is large enough to explain the lowest announced prices
Public Disclosure Authorized

to countries with less abundant the number of players multiplied, creating a dynamic competitive and to indicate whether they are supported by market fundamentals.
solar resources could slow the environment of which auctions have become an important part. The analysis includes (i) a simple financial model (based on
rate of price decreases. FiTs and auctions can be used in parallel and applied to different plant-specific parameters) that explains bidding prices and (ii) a
market segments, depending on policy and deployment objectives. comparison of auction designs in the countries covered, along
Zuzana Dobrotkova is FiTs fix the tariff and act on the quantity of power procured. with descriptions of the conditions under which individual auctions
an energy specialist in the They can suffer from lack of agility as solar PV costs fall, offering took place. Interviews with stakeholders active in utility-scale solar
World Banks Energy and
unreasonably large returns to producers that are paid for by utility PV marketsincluding developers, utilities, consulting companies
Extractives Global Practice.
customers or the public purse. (Some countries have introduced advising governments, bidders, government officials, and financial
Pierre Audinet leads periodic downward adjustments of FiTs to mitigate this problem.) institutionscomplement the analysis.2 Stakeholders verified some
ESMAPs Renewable
Additionally, if the capacity eligible under FiTs is not capped, the of the assumptions and conclusions, identified business strategies of
Energy Program Team
mechanism can result in excessively rapid deployment, posing market players, provided qualitative details about auction processes,
and coordinates the Banks
RE Community of Practice. grid-integration issues. and suggested avenues for bringing more sustainability into future
Auctions fix the quantities of capacity or power to be procured solar PV development.
Gevorg Sargsyan is the
and act on prices. If not carefully designed, they can engender the
losure Authorized

global lead for clean


energy in the World Banks opposite weakness: a frenzy to submit the lowest bid possible. Very 1 An auction can procure capacity from one or multiple plants.
2 Interviews were conducted with representatives of ACWA Power, Canadian Solar, First Solar
Energy and Extractives low bids raise concerns about financial viability and technical quality India, Fourth Partner India, Iberdrola, ICF International India, Metier South Africa, National Energy
Global Practice. and can jeopardize the sustainability of the market. Commission Chile, PWC Mexico, Softbank India, and SunPower USA.
2 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

How much does solar PV electricity cost today? Winning bids in certain markets reflect market-based incentives
(such as the proceeds from sales of clean energy certificates), as well
Solar PV electricity prices vary widely, although as the practice of offering market-entry discounts (in the form of very
they are rapidly decreasing around the globe low initial returns). By placing a winning bid, companies not only gain
The reductions are a result of auctions around the world (figure 1) the right to sell electricity under the conditions of a power purchase
If not carefully designed, and of decreases in FiTs. The variation comes from differing market agreement(PPA), they also gain access to the market, affording them
auctions can engender segments and large differences in installation sizes. Even within the a measure of market power, access to information, or other benefits.
same market segment, however, prices can differ significantly. Because the bidding price can reflect these expected benefits, it can
a frenzy to submit the
differ from the sum of incurred costs and required margins. The price
lowest bid possible. Very
low bids raise concerns
about financial viability
Figure 1. Results of solar PV electricity auctions in selected countries, 201316
and technical quality
and can jeopardize the 25 18.4

Denomination of auction
sustainability of the
Local currency
20
market.
16.4 U.S. dollar (or pegged to U.S. dollar)
14.1
U.S. cents/kWh

15
8.7 10.2 11.1
10.9 10.9
10.3 8.5
10 8.8 8.2 8.5 8.5 7.6
7.5 6.4 6.1 6.0
7.0 6.5 6.5
5.9 5.9 3.6
4.8 4.9
5 3.0 2.9 2.4

0
Indonesia

India* Uttar Pradesh

Brazil Pernambuco

India* Karnataka (Phase II)

South Africa REIPPP (Round 3)

Uganda Get FiT

Guatemala 3rd Tender

India* Karnataka 500MW

El Salvador

India* JNNSM (Phase II Batch 1)

Brazil 6th Auction

UAE Dubai (Phase II)

India* Punjab

Brazil 7th Auction

Brazil 8th Auction

India* Andhra Pradesh NTPC 350MW

Chile 2015/02

South Africa REIPPP (Round 4)

Jordan (Phase II)

Peru 4th RE Auction (Round 1)

Jamaica

India* Jharkhand 1200MW

India* Rajasthan NTPC 420MW

Zambia

Argentina

Peru 4th RE Auction (Round 2)

Mexico

UAE Dubai (Phase III)

Chile 2015/01

UAE Abu Dhabi


2013 2014 2015 2016

Source: World Bank.


Note: Figures show lowest winning bid in each auction. Bars represent ranges of winning bids in auctions in which there were multiple winners. All figures are nominal. Prices in Argentina, Brazil,
Chile, Jamaica, Mexico, Peru, and South Africa are indexed.
* For India, only the auctions with the highest and lowest winning bids in a given year are shown (because of the large number of auctions in India).
3 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

Figure 2. Installed prices of solar PV electricity projects procured through auctions, before the required commissioning
negotiations, and feed-in tariffs, 201016 date. Yet construction of PV plants
typically takes just 612 months. In such
8 cases, pricing can take into account the
Auctions forward curve for the prices of solar PV
7
Solar PV electricity Feed-in tariffs equipment, thus reflecting the prices
prices reflect the fact
Other types of deals expected at the time of construction,
6
not the time of announcement of
that installed prices have

Millions of dollars/MW
5 winning bids.3 Dubais 2014 announce-
been falling steadily, ment of a winning tariff of $0.0589/kWh
reaching $1 million/MW 4 is a typical example. The plant needs to
or less, especially be in operation in 2017. One of the two
3
Zambia sites auctioned at a comparable
when procurement is
2
winning price ($0.0605/kWh) two years
competitive. 800 MW after Dubais announcement is also
50 MW
1 expected to start operations in 2017.
Prices are more consistent based
0
2010 2011 2012 2013 2014 2015 2016 on year of expected delivery than on
year of announcement. For 2017 (which
reflects mostly plants built in 2016),
Source: World Bank, based on IHS and Bloomberg New Energy Finance databases.
prices are $0.060$0.085/kWh; prices
are $0.030$0.036/kWh for most plants
will be higher if risks are priced in; lower if market benefits are taken with delivery expected in 2018 and even lower (less than $0.030/kWh)
into account. for plants that will be delivered in 2019 and beyond (figure 3).
Interviews with stakeholders confirm that strategic positioning of Observed and expected decreases in solar PV prices partly
some developers in certain markets, such as Latin America, has led reflect decreases in the prices of PV cells and modules. The costs
to prices that include very slim returns on the initial investment. Bids of semiconductor-based solar PV are falling faster than the costs of
in Mexico price in clean energy certificates, which will be offered for other power-generation technologies, which are based on steel and
every kWh of PV electricity produced, even though the market for the large generation equipment sold in small numbers. The learning
certificates will start to function only in 2018. rate for solar PV is much faster than for onshore wind, biomass, and
Solar PV electricity prices reflect the fact that installed prices geothermal technologies (IEA 2015; IRENA 2015b). Solar resources
have been falling steadily, reaching $1 million/MW or less, especially are available globally and in abundance, and technology is highly
when procurement is competitive (figure 2). Some negotiated modular, allowing a wide range of applications and contributing to
procurement has also achieved low prices. FiT-based installations are technological learning. The technology is also at a relatively early
typically reporting higher prices. Project size has become becoming stage of deployment, when learning occurs more quickly than it does
larger over time, reflecting increased confidence in PV technology
and rapid market expansion.
3 Forward pricing can be realized though equipment-purchase contracts for delivery in
Prices of PV electricity for certain plants, particularly plants with
1824 months, especially for developers that procure very large quantities of PV panels. Some
expected delivery dates after 2018, seem to include forward pricing developers are betting on decreases in equipment price and waiting to procure panels at the
of equipment. Some PPA prices are announced more than five years time of plant constructiona practice that exposes them to the risk of tight markets at the time
of purchase.
4 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

Figure 3. Results of major auctions in various countries, by date of announcement and expected year of commissioning

Brazil Pernambuco 10.3

2013
India Karnataka (Phase II) 8.7 Year of award of PPA
South Africa REIPPP (Round 3) 8.5
Nominal price per kWh
The industry expects Guatemala 3rd Tender 10.9
Above $0.08
India JNNSM (Phase II Batch 1) 8.8
that the best-in-class Uganda Get FiT 16.4
$0.06-$0.08

Below $0.06
manufacturing costs of India Telangana 10.6

2014
El Salvador 10.2
high-quality modules will India Andhra Pradesh 8.6

fall to less than $0.30/W Brazil 6th Auction 8.2


UAE Dubai (Phase II) 5.9
by the end of 2017. India Punjab 11.1
Brazil 7th Auction 8.5
Chile 2015/02 6.5
2015

South Africa REIPPP (Round 4) 6.4


Jordan (Phase II) 6.1
Peru 4th RE Auction (Round 1) 4.8
Zambia 6.0
Jamaica 8.5
Argentina 5.9
Peru 4th RE Auction (Round 2) 4.9
Mexico 3.6
2016

UAE Dubai* (Phase III 200MW) 3.0


UAE Dubai* (Phase III 300MW) 3.0
UAE Abu Dhabi 2.4
UAE Dubai* (Phase III 300MW) 3.0
Chile 2015/01 2.9
2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: World Bank.


Note: * The United Arab Emirates 800 MW plant is expected to be commissioned in three stages over three years.

later on. All of these factors have enabled PV costs to decline at a gains in the production of cells and the cells themselves, and better
much faster pace than other power-generation technologies. inventory management, among other factors, all spurred by growing
Prices of equipment typically follow cost changes closely but are demand. The costs of inverters for grid-connected systems fell about
also affected by the business cycle of the PV industry, with squeezed 40 percent between 2014 and 2016, driven by increased demand,
margins at times of oversupply. The global costs of PV modules and especially for utility-scale systems.4
inverters have fallen steadily over the past few years. In mid-2011 The industry expects that the best-in-class manufacturing costs
the manufacturing cost of high-quality modules stood at $1.32/W; by of high-quality modules will fall to less than $0.30/W by the end of
mid-2016 the price had fallen to as low as $0.40/W (BNEF 2016a). This
trend is attributed largely to the falling cost of materials, efficiency 4 Figures in this paragraph are best-in-class numbers.
5 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

2017. There is still significant cost-reduction potential in nonmodule reflecting local commercial financing and inflation. The plants studied
costs, such as installation, integration, and financing costs. In India, range from 6 MW (a plant in India) to 800 MW (Dubais mega-plant, the
which has seen larger-scale deployment than most countries covered largest auctioned to date, to be built in three stages between 2018
hereabout 7.5 GW in May 2016 (BNEF 2016b)nonmodule costs and 2020). PPA terms range from 15 to 25 years, with the longer term
fell almost 50 percent between 2012 and 2016. Similar declines can increasingly common in most countries.
Prices significantly be expected in other countries as their markets mature and scale up. Plant-specific parameters support PV electricity prices of
below $0.06/kWh are Module costs typically represent one-third of the total cost; together $0.06$0.08/kWh. Prices significantly below $0.06/kWh are not unre-
with other equipment, such as inverters and the rest of the plant alistic for PV plants with a long time to delivery, plants in locations
not unrealistic for PV
(auxiliary and supporting equipment), they represent about 60 percent with exceptional solar resources, and plants with access to long-term
plants with a long time to of total costs. The remaining 40 percent can be very specific, reflecting and low-cost financing.
delivery, plants in locations local costs of land, labor, permits, and the quality of the site. The differences in parameters of the 37 plants reflect underlying
with exceptional solar country conditionsparticularly related to financingthat can
Are the recent prices realistic? significantly affect the viability of a PV market. The depth of the
resources, and plants with
local financial market, exchange raterelated issues, local taxes and
access to long-term and If plant-specific parameters are consistent import duties, and access to low-cost financing can affect the entire
low-cost financing. with market fundamentals and logically explain market. Indias cost of capital, for example, reflects the local reality
the plants announced electricity price, the price of inflation and financing from commercial banks. Yet PV electricity
is still very viable in India, because current investment costs are
can be considered realistic
exceptionally low ($0.8/W).
The plant-specific elements of the financial model used to calculate The currency of PPAs resulting from auctions may adversely
the levelized cost of electricity (LCOE) include five groups of variables: affect developers ability to deliver PV plants in general or to deliver
net total investment costs, the cost of capital, the plant capacity factor, them in a timely manner. Currency affects PV plants through
nontariff costs and benefits (including the terms of the PPA), and other exchange rates, which are relevant for purchases of PV equipment,
parameters. As the analysis focuses on the lowest reported prices, the and through access to financial markets. In countries that lack
conclusions automatically cover the entire range of prices. their own manufacturing base and rely on imported PV equipment,
The parameters of the 37 plants in the examined bids vary widely exchange-rate movements can have a severe impact on plant eco-
but are consistent with current or expected market conditions by nomics, as in Brazil after the real began to depreciate rapidly after
the time of expected commissioning. Only about half of the plants mid-2014. The currency of the PPA affects the ability to raise debt,
in the dataset have been financed; the rest have been announced because the financial markets of certain countries lack the depth or
or permitted but not financed. For these plants the parameters are appetite for risk to finance relatively new technology such as solar
estimated based on market intelligence. For plants in the financing, PV, at least not without charging a significant premium.
construction, or commissioning stage, project-specific information Well-designed auctions should allocate risks by shifting them to
from the Bloomberg New Energy Finance (BNEF) and IHS databases the parties best equipped to manage them. In some auction designs,
was used for the estimates. guarantees are offered upfront as a part of the overall framework
Total investment costs in the dataset range from $600,000/MW to deal with residual risks. Guarantees often make PV development
(for Chiles Maria Elena plant, which will most likely start construction possible in places that would otherwise be considered too risky and
in 2019 or 2020) to $2.7 million/MW (for some plants in 2013 auctions) therefore hard to finance. They have been one of the key factors
(figure 4). For most plants, the costs of capital (in the currency of the behind the success of Zambias Scaling Solar tender, for example.
PPA) are 510 percent, reflecting the use of development financing. Guarantees can cover risks, including default of the off-taker on the
India is a notable exception; its cost of capital is 1314 percent, payments of the tariff and political risk.
6 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

Figure 4. Average total investment costs of 37 solar PV plants studied

Average total investment cost


While preparing auctions,

(millions of dollars/MW)
2
governments need to
ensure that the bidding
criteria match the policy
and fiscal environment, 1

the state and depth of the


local financial market, and
the policy objectives of PV
0
deployment.
South Africa

Brazil

India

Uganda

El Salvador

United Arab Emirates

Brazil

Guatemala

India

Chile

South Africa

Peru

Brazil

Jordan

India

Jamaica

Mexico

Zambia

United Arab Emirates

Chile
2013 2014 2015 2016

Source: World Bank.

What are the main drivers of lower prices? Auctions are not a panacea, however; flaws in their design, no
matter how minor, can lead to insufficient or low-quality competition,
Auctions have been an effective tool for disappointing prices, and low-quality plants. (A case in point is
translating the decreases in investment and Indonesia, where a failed auction in 2013 led to the reintroduction
financing costs and improvements in capacity of FiTs.) While preparing auctions, governments need to ensure
that the bidding criteria match the policy and fiscal environment,
factors to PV electricity prices
the state and depth of the local financial market (which determines
Unlike negotiated deals or FiTs with fixed tariffs, auctions follow appetite for contracts denominated in local currency), and the
precise rules, making them more transparent and reassuring for policy objectives of PV deployment. They must also define potential
financiers than negotiated deals. A well-structured auction typically risks and other market factors that can influence the design of the
attracts a certain level of competition, which forces the bids to reflect auction. IRENA (2015a) offers extensive documentation on the design
the best equipment and financing parameters possible for a given of auctions.
site. Because of market forces, auctions reflect market fundamentals The decline in PV electricity prices reflects reductions in the
better than other types of procurement. costs of equipment and of operations and maintenance, as well as
7 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

the lower costs achieved in dedicated solar parks. Interviews with Technological progress in PV cell efficiencies, sophisticated plant
stakeholders suggest that developers with large, global, solid pipe- design, and expansion of the market to countries with the best solar
lines of projects can procure modules and other equipment in bulk, resources are improving the capacity factors of plants, pushing
achieving economies of scale and lower prices, which can translate down PV prices still further. PV cell efficiencies continue to improve
into lower bids, particularly during periods of overcapacity in the (IRENA 2015b), improving the output of panels. Use of single-axis
Countries interested market for equipment. Some developers are taking advantage of tracking (which requires slightly higher initial investment costs and
in procurement on a forward contracts with manufacturers that offer quotes for delivery higher operations and maintenance costs) can increase plant output
of modules in 2018 that can be locked in today. Developers are also by up to 25 percent. It is very cost-efficient, however, for sites with
very large scale are also
increasingly integrating the whole value chainincluding the man- high insolation. Markets are opening in places like Chile and Mexico,
designing solar parks, ufacturing of modules; engineering, procurement, and construction; which are endowed with better solar resources than traditional
where power evacuation and ownership of plantsin order to optimize the delivery of plants European and U.S. markets. The combination of resources and the
lines and substations are and decrease their risks. At the same time, automation and stronger latest technologies can lead to exceptionally high capacity, allowing
local capacities are reducing operations and maintenance prices. for very low PV power prices.
built in advance to ease the
Countries interested in procurement on a very large scale are also A simple exercise of correcting for high capacity factors in
grid integration of the new designing dedicated zones (solar parks), where power evacuation certain countries explains most of the very low prices announced
capacity. lines and substations are built in advance to ease the grid integration over the last two years. To achieve a measure of comparability
of the new capacity. These areas reduce certain risks related to the across countries, we chose the lowest price per country from the
site as well as the overall investment costs needed for the plant. The 37 deals analyzed and recalculated those prices under the original
gains can be reflected in lower bidding prices. conditions of the deal but with a standardized capacity factor of 20
Factors that lower the perceived risk of PV projects reduce percent.5 Assuming a standard capacity factor of 20 percent, which
financing costs and thus drive down prices. The rigor of the auction is characteristic of many locations globally, all LCOEs (except for the
processthe fact that bidders are aware of how winners are one for the United Arab Emirates) rise above $0.06/kWh (figure 5),
selecteddecreases the perceived risks for PV plants. Some large confirming the initial assessment that prices significantly below this
market players have extremely good knowledge of certain countries level require at least one exceptional parameter. In the United Arab
from their previous involvement with other technologies in these Emirates, for example, extraordinary financing conditions (tenors
same markets; their pricing of risk in such markets is therefore likely to exceed 25 years and very low interest rates) complement
lower than that of companies that lack such sophisticated market very good insolation.
intelligence. Simultaneously, the scaling up of PV markets globally is The sensitivity of the LCOE to changes in the main parameters
giving financial institutions confidence in the technology, reducing reveals that the cost of capital has the greatest influence on
perceived risks across the board. the LCOE of PV plants. The relationship between the LCOE and
Interviews with stakeholders suggest that some companies make investments costs is linear, unlike for the other parameters, but
initial investments in PV power plants from their balance sheets, refi- the differences in the costs of capital can be much larger than
nancing once the plant is up and running. Such financing is cheaper the differences in the investments costs or capacity factors for a
than upfront debt financing, because the risks of a commissioned particular plant.
and performing power plant are lower than those of a greenfield The ability of developers to influence the two factors is more lim-
project. This strategy is available only to players with large balance ited: Capacity factors for the same site with a superior design rarely
sheets, of course. But it enables them to enter new markets where
financing of greenfield development would be prohibitively expensive 5 We did not attempt to correct for differences in auction design and underlying policy and

because of local banks lack of knowledge or confidence. market conditions.


8 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

Figure 5. Impact of solar resource differences on prices

18

Assuming a standard 16 original price

capacity factor of price assuming 20% capacity factor

20 percent, which is 14

characteristic of many
locations globally, all 12

LCOEs (except for the


10
one for the United Arab
68 U.S. cents/kWh range
Emirates) are above
U.S. cents/kWh

8
$0.06/kWh, confirming
our initial assessment that
6
prices significantly below
this level require at least
4
one exceptional parameter.
In the United Arab
2
Emirates, extraordinary
financing conditions
0
complement very good Uganda
2014
Guatemala
2014
El Salvador
2014
India
2014
Brazil
2015
Chile
2015
South Africa
2015
Peru
2015
Jamaica
2016
Jordan
2016
Zambia
2016
Mexico
2016
United
Arab
Emirates
insolation. 2016

Source: World Bank.

vary by more than 20 percent; possible investment-cost savings are Are ever-decreasing prices sustainable?
also typically relatively small for a given developer. In contrast, the
costs of capital can vary by more than 100 percent. These facts favor
The downward trend in PV electricity prices
development of solar PV even in places with relatively low insolation, demonstrates that solar PV is on track to become the
as long as financing costs can be kept down. It also means that least-expensive source of power in many places
policy makers have an important role to play by derisking projects
Plant- and country-specific factors explain the very low announced
and enabling access to low-cost capital.
prices ($0.029$0.036/kWh) for a handful of plants in Chile, Mexico,
and the United Arab Emirates. Whether other auctions will be able
9 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

to produce at these prices remains to be seen. Results of recent for guaranteeing the delivery of plants at the expected time and level
auctions significantly below $0.06/kWhin particular in Abu Dhabi of quality. Requirements that developers hold a stake in the plant for
($0.0241), Chile ($0.0291), Dubai ($0.0299), and Mexico ($0.0355)are several years create incentives to deliver better-quality plants.
raising questions about whether such prices are sustainable and The downward trend in PV electricity prices demonstrates that
whether the plants will be delivered on schedule and perform as solar PV is on track to become the least-expensive source of power
The downward trend expected. in many places. Prices of $0.024$0.036/kWh are appearing in
in PV electricity prices The model explains the parameters underlying the low prices several countries. Some places may be able to reduce generation
in Chile, Dubai, and Mexico.6 All three sites benefit from exceptional costs to $0.02/kWh in the medium term, reflecting the fact that in
demonstrates that solar PV
insolation conditions, a long lead-time for delivery of power plants the next two years module costs are expected to fall to $0.3/W, and
is on track to become the (up to five years in Chile), and exceptionally long-term and inexpen- reductions in nonmodule costs are also expected.
least-expensive source of sive financing. Promotion of the clean energy leadership of the UAE Solar PV electricity could change the economic paradigm in
power in many places. plays an especially crucial role there. many countries if integration challenges are met. For resource-poor
Market fundamentals support the possibility of prices of $0.03/ and underdeveloped countries, it can be a game-changer, granting
Solar PV electricity could
kWh in a few years in many more locations. As the utility-scale solar them access to abundant and cheap power for the first time. Large-
change the economic
PV market in many countries is still relatively small and procurement scale PV deployment will have to be either combined with batteries
paradigm in many through auctions is relatively new, almost every auction-procured (which are still expensive) or integrated with existing generation. But
countries if integration plant today (with the notable exception of those in India) exhibits proper planning of generationthat is, the choice of sites and sizes
challenges are met. at least one and typically several exceptionally good conditions of installationscan help smooth grid-integration challenges.
that positively affect its price. The plants in question are among the
first in their markets, often exploiting the best sites, with significant
What prices are reasonable in countries that
support of governments and development banks. They are built by
companies aiming to make a strategic market entry. These plants,
have not yet developed projects?
often one-of-a-kind, are typical of the early stages of development of Countries that have not started to develop
the PV power sector in the developing world. utility-scale solar PV can expect tariffs of less
As markets scale up and mature, exceptional deals will represent
than $0.10/kWh for plants to be commissioned
a smaller fraction of markets, affecting average prices. Prices need not
rise, however, because technology learning continues, driving down in the next few years
the costs of components. Financing from development banks may A simple simulation exercise was performed to project the best
not be available for every future deal, but commercial banks will price possible prices attainable based on three representative capacity
technology risk lower after several plants have been built. Lessons factors. The calculations assume a favorable policy environment and
from the first plants will improve processes that affect soft costs. international competition, no significant risk premiums, several years
Sustainable PV prices can be guaranteed by imposing very to develop the plants, no taxes, and no indexation of tariffs.
clear and nonnegotiable auction criteria and strict prequalification Under these conditions, prices will depend heavily on financing
requirementsand by requiring developers to take a stake in projects. conditions. But PV prices as low as $0.05/kWh are attainable with
Interviews with stakeholders suggest that simple and transparent auc- favorable financing (8 percent cost of capital) in places with very
tions rules and prequalification (or other ways of screening auctions good insolation. They could be as low as $0.04/kW if financing were
participants) are essential, not only for obtaining low prices but also
very low (5 percent cost of capital).
6 Abu Dhabis winning bid was announced at the time of the writing of this paper and is not Ultimately, the development of utility-scale solar PV in new
included in the analysis. markets will depend on the overall energy sector strategy and policy
10 W h a t D r i v e s t h e P r i c e o f So l a r P ho t o v o l t a i c E l e c t r i c i t y i n D e v e l opi n g Co u n t r i e s ?

environment, derisking (in some countries), and the ability to attract References
Make further a large and high-quality group of bidders. But without a conducive
Bloomberg News. 2016. Brazil to Let Developers Cancel Contracts
connections policy environment, neither FiTs nor competition through auctions
for First Solar Farms. August 24.
nor negotiated contracts will materialize.
BNEF (Bloomberg New Energy Finance). 2016a. Q3 2016 PV Market
Live Wire 2014/12. Promoting Under favorable policies, procurement choices should depend on
Outlook: Solar PowerNot Everyone Needs It Right Now.
Renewable Energy through the amount of power to be procured and the sizes of plants. Auctions
September 1.
Auctions, by Gabriela Elizondo tend to have relatively high fixed costs and are therefore more suit-
. 2016b. H1 2016 India Market Outlook: Solar Takes the Lead.
Azuela and Luiz Barroso. able for large procurement (possibly in multiple rounds over several
June 29.
years). Derisking through optimal auction design and guarantees,
Live Wire 2014/13. Promoting
. 2016c. Nigeria Agrees to Sign 1.2 GW of On-Grid Solar PPAs.
where necessary, makes financing possible in places where risks are
Renewable Energy through
Solar Europe, Middle East and Africa Analyst Reaction. July 8.
high. It also increases competition, driving down costs.
Auctions: The Case of Brazil, by
IEA (International Energy Agency). 2015. WEIO 2014-Power
FiTs are more suitable for small plants. Tariffs directly negotiated
Gabriela Elizondo Azuela, Luiz
Generation Investment Assumptions. http://www.
with developers can lead to overly generous rates of return but,
Barroso, and Gabriel Cunha
worldenergyoutlook.org/media/weowebsite/2014/weio/
in cases of a single plant, they may be the most practical way
WEIO2014PGAssumptions.xlsx.
forward. Even so, FiT laws should take into account the dynamic
Live Wire 2014/14. Promoting IRENA (International Renewable Energy Agency). 2015a. Renewable
development of PV costs over time. And careful thought should be
Renewable Energy through Energy Auctions: A Guide to Design. http://www.irena.org/
given to transitioning from one procurement scheme to another.
Auctions: The Case of China, by DocumentDownloads/Publications/Renewable_Energy_
The pipeline of projects under one scheme needs to be dealt with
Xiaodong Wang, Luiz Barroso, and Auctions_A_Guide_to_Design.pdf.
before a new scheme is adopted, as was demonstrated recently in
Gabriela Elizondo Azuela. . 2015b. Renewable Power Generation Costs in 2014. http://
Nigeria (BNEF 2016c).
www.irena.org/DocumentDownloads/Publications/IRENA_RE_
Live Wire 2014/15. Promoting Power_Costs_2014_report.pdf.
Renewable Energy through What is the proper role of multilateral . 2016. Solar PV in Africa: Costs and Markets. http://www.
Auctions: The Case of India, by development banks? irena.org/DocumentDownloads/Publications/IRENA_Solar_PV_
Ashish Khana and Luiz Barroso. Costs_Africa_2016.pdf.
Multilateral development banks can play
Live Wire 2015/49. Promoting an important role in driving solar PV electricity The study from which this Live Wire was drawn was prepared by Zuzana
Solar Energy through Auctions:
prices down Dobrotkova with significant inputs from Guido Agostinelli, Pierre Audinet,
The Case of Uganda, by Ren Abhishek Bhaskar, Esra Bozkir, Amit Jain, Krishnan Raghunathan, Gevorg
Meyer, Bernard Tenenbaum, and They can do so by reducing financing costs, providing assistance Sargsyan, and Kavita Surana. Rohit Khanna chaired the Quality Enhancement
Richard Hosier. with the structuring of procurement, and offering guarantees. Where Review of the study. The review was conducted by Debabrata Chattopadhyay,
appropriate, they can provide access to low-cost capital for solar Fernando De Sisternes, Mariano Salto, Satheesh Kumar Sundararajan, and
Efstratios Tavoulareas. Arnaud Braud, Anil Cabral, Sandra Chavez, Anton
PV power plants and for transmission, distribution, and, in certain
Eberhard, Janina Franco, Oliver Knight, Luiz Maurer, Ashok Sarkar, and Alan
circumstances, storage technologies. Their technical assistance
Townsend provided valuable comments and suggestions.
can provide policy advice and advice on right-sizing plants and can
help increase domestic capacity for installation, operations, and
maintenance.
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e Pa c i f i c 2014/28
ainable energy for all in easT asia and Th
1 Tracking Progress Toward Providing susT

TIVES GLOBAL PRACTICE


A KNOWLEDGE NOTE SERIES FOR THE ENERGY & EXTRAC

THE BOTTOM LINE


Tracking Progress Toward Providing Sustainable Energy
where does the region stand
on the quest for sustainable for All in East Asia and the Pacific
2014/29
and cenTral asia
energy for all? in 2010, eaP easTern euroPe
ainable en
s Telectrification ergy for all in databasestechnical measures. This note is based on that frame-
g s uan
v i d i n had rate of Why is this important?
ess Toward Pro work (World Bank 2014). SE4ALL will publish an updated version of
1 Tracking Progr 95 percent, and 52 percent
of the population had access
Tracking regional trends is critical to monitoring the GTF in 2015.
to nonsolid fuel for cooking. the progress of the Sustainable Energy for All The primary indicators and data sources that the GTF uses to
track progress toward the three SE4ALL goals are summarized below.
consumption of renewable (SE4ALL) initiative C T I V E S G L O B A L P R A C T I C E
ENERGY & EXTRA Energy access. Access to modern energy services is measured
T E S E R I E S F O R T H EIn declaring 2012 the International Year of Sustainable Energy for
energy decreased overall
W L E D G E N Oand
A K N Obetween 2010, though by the percentage of the population with an electricity
1990
All, the UN General Assembly established three objectives to be connection and the percentage of the population with access
Energy
modern forms grew rapidly.

d Providing Sustainable
accomplished by 2030: to ensure universal access to modern energy
energy intensity levels are high to nonsolid fuels.2 These data are collected using household

Tracking Progress Towar


services,1 to double the 2010 share of renewable energy in the global surveys and reported in the World Banks Global Electrification
but declining rapidly. overall
THE BOTTOM LINE energy mix, and to double the global rate of improvement in energy
e and Central Asia
trends are positive, but bold Database and the World Health Organizations Household Energy

for All in Eastern Europ


efficiency relative to the period 19902010 (SE4ALL 2012).
stand policy measures will be required
where does the region setting
Database.
The SE4ALL objectives are global, with individual countries on that frame-
on the quest for sustainable to sustain progress. is based share of renewable energy in the
their own national targets
databases technical in ameasures.
way that is This consistent with the overall of Renewable energy. The
note
version
energy for all? The region SE4ALL will publish an updated
their ability energy mix is measured by the percentage of total final energy
to Why is this important ? spirit of the
work initiative.
(World Bank
Because2014). countries differ greatly in
has near-universal access consumption that is derived from renewable energy resources.
of trends is critical to monitoring to pursue thethe in 2015.
GTFthree objectives, some will make more rapid progress GTF uses to Data used to calculate this indicator are obtained from energy
electricity, and 93 percent Tracking regional will excel and
othersindicators
primary
data sources that
elsewhere, depending on their
the
while
the population has access le Energy for All in one areaThe
goals are summarized below. balances published by the International Energy Agency and the
the progress of the Sustainab respective track starting
progress toward
points and the three SE4ALL
comparative advantages as well as on
services is measured
to nonsolid fuel for cooking. access. Accessthat they modern
to are able to energy
marshal. United Nations.
despite relatively abundant (SE4ALL) initiative Elisa Portale is an
the resources and support
Energy
withofan electricity connection of energy efficiency
Energy for percentage of thepopulation
forthe achievement the SE4ALL 2 Energy efficiency. The rate of improvement
l Year of Sustainable by the momentum
To sustain
access to nonsolid fuels.
hydropower, the share In declaring 2012 the Internationa energy economist
in
of the population
global progress with
to 2030 is needed. is approximated by the compound annual growth rate (CAGR)
three global objectives objectives, andathe means of charting
percentage
of renewables in energy All, the UN General Assembly
established
the Energy Sector surveys and reported
access to modernThe World
universalAssistance TheseBankdata andare thecollected
International household
usingEnergy Agency led a consor- of energy intensity, where energy intensity is the ratio of total
consumption has remained to be accomplished by
2030: to ensure Management Database and the World
of theenergy intium of 15
renewable World Banks
international
in the GlobaltoElectrification
agencies establish the SE4ALL Global primary energy consumption to gross domestic product (GDP)
energy share of
the 2010Program (ESMAP)
relatively low. very high energy services, to double Database.
measured in purchasing power parity (PPP) terms. Data used to
1
World Banks Energy
the global rate of improvemen
and Extractives t
Tracking Framework
Health (GTF), which
Organization providesEnergy
s Household a system for regular
the energy
in
intensity levels have come and to double
the global energy mix, Global Practice. (SE4ALL 2012). based on energy. of renewable
The sharepractical,
rigorousyet
energy
given available calculate energy intensity are obtained from energy balances
questions to the period 19902010 global reporting, Renewable energy consumption
down rapidly. The big in energy efficiency relative percentage of total final published by the International Energy Agency and the United
evolve Joeri
with Wit is an countries setting
deindividual mix is measured by the Data used to
are how renewables will The SE4ALL objectives
are global,
energy economist inwith the overall renewable energy resources.
on the planet has access
from published Nations.
when every person
1 derived
that isaccess
The universal goal will be achieved
when energy demand
picks up in a way that is consistent from energy balances
their own national targets through electricity, clean cooking fuels, clean heating fuels,
rates the Banks Energy and
countries differ greatly
in their ability calculate this indicator are obtained
to modern energy services provided
productive use and community services. The term modern cooking solutions
again and whether recent spirit of the initiative. Because Extractives Global
and energy for
Agency and the United Nations. Solid fuels are defined to include both traditional biomass (wood, charcoal,
agricultural
involve electricityEnergy
2

some will make more rapid progress by the


refers to solutions thatInternational or gaseous fuels (including liquefied petroleum gas),
those of efficiency
is
and forest residues, dung, and so on), processed biomass (such as
pellets and briquettes), and
of decline in energy intensity to pursue the three objectives, Practice. fuels paired with improvemen
overallofemissions
The rate
stoves exhibiting rates at or nearenergy
t of
will excel elsewhere, depending on their or solid/liquid Energy efficiency.
rate (CAGR) of other solid fuels (such as coal and lignite).
energy
will continue. in one area while others liquefied petroleum gas (www.sustainableenergyforall.org). annual growth
as well as on approximated by the compound
and comparative advantages total primary energy
respective starting points intensity is the ratio of
that they are able to marshal. intensity, where energy measured in purchas-
the resources and support domestic product (GDP)
for the achievement of the
SE4ALL consumption to gross calculate energy intensity
Elisa Portale is an To sustain momentum terms. Data used to
charting global progress
to 2030 is needed. ing power parity (PPP) the International
energy economist in objectives, a means of balances published by
the Energy Sector International Energy Agency
led a consor- are obtained from energy
The World Bank and the SE4ALL Global Energy Agency and the
United Nations.
Management Assistance agencies to establish the the GTF to provide a regional
and
tium of 15 international for regular This note uses data from
Program (ESMAP) of the which provides a system for Eastern
Tracking Framework (GTF), the three pillars of SE4ALL
World Banks Energy and
Extractives
on rigorousyet practical,
given available country perspective on
Global Practice.
global reporting, based
has access
Joeri de Wit is an will be achieved when
every person on the planet
The universal access goal heating fuels,
clean cooking fuels, clean
energy economist in
1 agricultural
provided through electricity, biomass (wood, charcoal,
to modern energy services The term modern cooking
solutions to include both traditional and briquettes), and
Solid fuels are defined
the Banks Energy and use and community services. biomass (such as pellets
2
and energy for productive petroleum gas), and so on), processed
fuels (including liquefied and forest residues, dung,
involve electricity or gaseous at or near those of
Extractives Global refers to solutions that overall emissions rates other solid fuels (such
as coal and lignite).
with stoves exhibiting
Practice. or solid/liquid fuels paired
(www.sustainableenergyforall.org).
liquefied petroleum gas
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ral asia
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where knowledge management is becoming everybodys business.


ess Toward Pro
1 Tracking Progr

TICE
IVES GLOBAL PRAC
ENERGY & EXTRACT
E SERIES FOR THE
A KNOWLEDGE NOT

rgy
Providing Sustainable Ene
Tracking Progress Toward
Or 2014/5
1 U n d e r s ta n d i n g C O 2 emissiOns frOm the glObal energy seCt
THE BOTTOM LINE

ern Euro pe and Cen tral Asia


where does the region
stand
ble for All in East based on that frame-
on the quest for sustaina measures. This note is
databasestechnical updated version of
energy for all? The region SE4ALL will publish an
has near-universal access
to WhyD is this important? ERGY PRACTICE
work (World Bank 2014).
E G E N O T E S E R I E S F O R T H E E N to
of A K N O W L is critical monitoring the GTF in 2015. that the GTF uses to
electricity, and 93 percent Tracking regional trends for All The primary indicators and data sources below.
goals are summarized
the population has access
the progres s of the Sustainable Energy progress toward the three SE4ALL

Understanding CO Emissions from the Global Energy Sector


nonsolid fuel for cooking.
track is measured
to modern energy services
THE BOTTOM LINE to

Your Name Here


t (SE4ALL) initiativ e Energy access. Access connection
despite relatively abundan 2 population with an electricity
the share Internat ional Year of Sustainable Energy
for by the percentage of the access to nonsolid fuels.2
hydropow
the energy sector contributes er, In declaring 2012 the the population with
objectives and the percentage of
of renewables in energy established three global and reported
about 40 percent of global All, the UN General Assembly access to modern using household surveys
Why is this issue important? 2030: to ensure universal These data are collected and the World

Become an author
has remained
emissions of CO2. three- consumption to be accomplished by in in the World Banks Global
Electrification Database
high energy double the 2010 share of renewable energy
of the
relatively low. very
Mitigating climate change services, toknowledge
energy requires Database.
1
quarters of those emissions ent Household Energy
rate of improvem
global Figure 1. CO2 emissions Health Organiza Figure tions
2. energy-related CO2 energy
come from six major intensity levels have come energy mix, and to double the share of renewable energy in the
sources of COs2 emissions
question
the global
to the period 1990201
0 (SE4ALL
by sector
2012). Renewab le
emissions energy. The
by country consumption
down rapidly. The big
economies. although coal-fired in energy efficiency relative setting d by the percenta ge of total final energy

of Live Wire and


countries
global, with individual mix is measure LICs
evolve
les will opportunities to cut emissions of greenhouse aregases used to
plants account for just are how renewab Identifying The SE4ALL objectives le energy resources. Data
0.5%

clearup that is consistent with


emis- the overall that is derived from renewab balances published
40percent of world energy requires apicks
when energy demand understanding ofown
their
the national targetsofinthose
main sources a way
ability are obtained from energy
80 percent of differ greatly in
Residential their Other
calculate this indicator
production, they were again and whether Carbonrates
sions.recent dioxide (CO2) accounts for more than
spirit of the initiative. Because countries 6% sectors Other MICs
Agency and the United
Nations.
will make more rapid progress by the International Energy China
10% 15%
intensity gas emissions globally, 1
primarily from the burning
s, some efficiency is

contribute to your
responsible for more than of decline in energytotal greenhouse to pursue the three objective on their Other HICs . The rate of improvement of energy
energy sectordefined elsewhere, depending
include
willtoexcel Energy efficiency 30%
of energy
will continue. of fossil fuels (IFCC 2007). The in one area while others
Energy 8%
annual growth rate (CAGR)
70percent of energy-sector as well as on 41% approximJapan
41tive advantagesIndustry ated4%by the compound energy
fuels consumed for electricity and heat generationcontributed
and compara the ratio of total primary
emissions in 2010. despite respective starting points 20%
intensity, whereRussia energy intensity is
percent of global CO emissions in 2010 (figure 1). Energy-related
support that they are able to marshal. (GDP) measure d in purchas-
the resources and
7%
improvements in some 2
gross domestic
USA product

practice and career!


an at the point of combustion make up the
m bulk
for the such
of achievem ent of the SE4ALL Other consumption to India 19%
calculate energy intensity
countries, the global CO2 CO
Elisa 2 emissions
Portale is To sustain momentu transport Road 7% EU terms. Data used to
economist by the burning
andinare generatedobjective of fossil
of fuels, industrial
charting
is needed.
global progress to 2030 6% transport ing power parity (PPP) 11% by the International
emission factor for energy emissions
energy s, a means 16% balances published
EnergyandSector
nonrenewable municipal waste to generate Internatio nal Energy Agency led
electricity a consor- are obtained from energy
The World Bank and the
thewaste,
generation has hardly changed United Nations.
ent Assistance venting and leakage to establish the
emissions SE4ALL Global Energy Agency and the sector at the point and
over the last 20 years. and heat. Black carbon and methane
Managem
tium of 15 international
agencies Notes: Energy-related CO2 emissions are CO2 emissions from the energy
from GTF to provide a regional
thedomestic
of the for regular This note usesanddata
presented in this note. which provides a system
bunkers,
Program (ESMAP) of combustion. Other Transport includes international marine aviation
for Eastern
are not included in the analysis Tracking Framework (GTF), Other Sectors on the
include three pillars of SE4ALL
commercial/public
Extractives aviationgiven available rail and pipeline transport; perspect ive
World Banks Energy and
and navigation,
on rigorousyet practical, country and heat genera-
global reporting, based services, agriculture/forestry, fishing, energy industries other than electricity
Global Practice. not specified elsewhere; Energy = fuels consumed for electricity and
Where do emissions come from? tion, and other emissions
as has in the opening paragraph. HIC, MIC, and LIC refer to high-, middle-,
access
Joeri de Wit is an will be achieved when
on the planet
heat generation,
every person defined
The universal access goal of countries heating fuels,
Emissions
energy concentrated
economistarein 1
in a handful
to modern energy services
provided through electricity,
clean cooking fuels, clean
and low-income countries.
cooking solutions to include both traditional
biomass (wood, charcoal,
agricultural
services. The term modern
Source: IEA 2012a. Solid fuels are defined and briquettes), and
the Banks Energy and biomass (such as pellets
2

and come primarily from burning


and energy coaluse and community
for productive
that involve electricity
or gaseous fuels (including
liquefied petroleum gas),
near those of
and forest residues, dung,
and so on), processed
Vivien Foster is sector Extractives Global refers to solutions overall emissions rates
at or
other solid fuels (such
as coal and lignite).
with stoves exhibiting
or solid/liquid fuels paired emissions closelyforall.org).
manager for the Sus- The geographical pattern of energy-related CO
Practice. gas 2(www.sustainableenergy
liquefied petroleum middle-income countries, and only 0.5 percent by all low-income
tainable Energy Depart- mirrors the distribution of energy consumption (figure 2). In 2010,
ment at the World Bank countries put together.
almost half of all such emissions were associated with the two
(vfoster@worldbank.org). Coal is, by far, the largest source of energy-related CO2 emissions
largest global energy consumers, and more than three-quarters
globally, accounting for more than 70 percent of the total (figure 3).
Daron Bedrosyan were associated with the top six emitting countries. Of the remaining
works for London This reflects both the widespread use of coal to generate electrical
energy-related CO2 emissions, about 8 percent were contributed
Economics in Toronto. power, as well as the exceptionally high CO2 intensity of coal-fired
by other high-income countries, another 15 percent by other
Previously, he was an power (figure 4). Per unit of energy produced, coal emits significantly
energy analyst with the more CO emissions than oil and more than twice as much as natural
2
World Banks Energy Practice. Gas Inventory
1 United Nations Framework Convention on Climate Change, Greenhouse
0.php gas.
DataComparisons By Gas (database). http://unfccc.int/ghg_data/items/380