FEATURE: CDKN project unlocks solar power investment in Bangladesh
In 2017, CDKN, SouthSouthNorth and LEDS-GP launched the Mobilising Investment (MI) for NDC Implementation programme supported by the German International Climate Initiative (IKI) in multiple countries. The project – led by PwC UK and delivered by Vivid Economics and NACOM – began working with Sustainable Renewable Energy Development Authority (SREDA) in Bangladesh to mobilise investment for Nationally Determined Contributions (NDC) implementation in three phases. Areej Riaz reports.
Scoping the potential for climate-smart investment
Climate action through NDC implementation is integral to Bangladesh’s national development goal of achieving a middle income status by 2021. In its NDC submitted to UNFCCC in 2016, Bangladesh projected an annual loss of 2% GDP by 2050 and 9.4% of GDP by 2100 due to climatic impacts. While there has been good progress on integrating climate action in national development, there is tremendous potential going unexplored due to limited finances.
Bangladesh targeted three economic sectors in its NDC: Power, Transport and Industry. These three not only have the most mitigation potential, they also offer opportunity for climate proofing sectoral development planning. The MI project began the first phase by studying the market development circumstances and challenges for five sub sectors from the three aforementioned sectors, to assess their potential for investment mobilisation. This scoping phase which ran from June 2017 till March 2018 helped the government in choosing one sector i.e. off-grid solar sector which could benefit from an improved enabling environment.
In the off grid solar sector, to date, 22 solar mini grid projects and 1,131 solar irrigation pumps have been made operational in Bangladesh, with targets of deploying 200 solar mini grids and between 25,000 to 50,000 solar irrigation pumps over the next seven to ten years. However, solar mini grid and solar irrigation pump projects are primarily financed by government, with rare cases of private investments. Solar boats is a nascent technology that is in its infancy in Bangladesh and around the world but that too holds potential for upscale.
The financial and investment community presents a massive untapped opportunity for Bangladesh’s climate and energy financing needs. With the governments’ focus on achieving NDC targets by 2030, involving the private sector is imperative especially to implement NDC mitigation targets that are subject to the provision of financial resources. Private investors aren’t aware of the investment opportunity, and there are various market and policy barriers that deter investors and hinder market upscaling.
Attracting private capital to solar power investments
The MI project in Bangladesh worked with SREDA on the second phase between June 2018 until March 2019 to identify options for public sector to support private investment and to increase private sector awareness of investment opportunities and incentives in the off-grid solar energy sector, on solar mini grids, solar irrigation pumps and solar boats. The off-grid solar sector offers a massive window of opportunity for SREDA to achieve its target of producing 10% of electricity using renewable energy sources by 2021 however, investments from private sector are needed to boost market development.
By studying barriers to market development and comparing business models across neighbouring countries, ideal business models and investment cases were developed for the technologies to improve awareness of investors on the investment opportunities within the sector. Uncertainty of the government’s grid expansion plans and plans on integrating off grid systems to grid to allow for sale of surplus power has hindered private investment in the sector. To further unlock private finance, policy, technical and regulatory measures for grid integration were recommended to policy-makers through a roadmap document including but not limited to developing compensation guidelines for off grid solar project proponents and sponsors, and net metering policies.
In March 2019, a workshop was held in Dhaka where the investment opportunities were presented to an audience comprising policy-makers, development partners, energy experts, project developers, financial institutions and investors. The workshop allowed investors and policy-makers to have a more granular discussion on specific issues on the sector, share information and agree on the actions needed from policy-makers to enable investment environment.
New innovations to inform investors
The third phase was kicked off in June 2019 to further support SREDA on de-risking investment for private financiers on solar irrigation pumps. This last phase will develop a geospatial tool to provide policy-makers, project developers and investors with data on the most economically attractive sites for priority rollout that are technically feasible to be connected to grid in light of future grid expansions. The user-friendly tool made up of geospatial layers will reduce investment risks by providing an objective understanding of project potential to potential financiers, thereby encouraging investment. The tool with an accompanying analytical report will be presented to a diverse groups of national stakeholders in Dhaka in October 2019.
Image: Bangladesh solar power, courtesy ILO.