“Scaling Solar” – A World Bank Initiative to Promote Photovoltaics in Africa

In a nutshell:

In view of the low electrification rates in Sub-Saharan Africa, where two-thirds of the population still have no electricity, and considering the enormous photovoltaics potential in those regions,  International Finance Corporation (IFC), a member of the World Bank Group, launched the aid programme “Scaling Solar” in January 2015. The aim of the programme is to promote fast and transparent development of the photovoltaics (PV) market in Africa. “Scaling Solar” is a “one-stop-shop” programme that brings together a suite of World Bank Group services under a single engagement to provide the governments of the Sub-Saharan countries with electricity supply solutions. IFC is responsible for the supervision of the entire process all the way from project preparation through to project audit and financing to the commissioning of the large-scale PV plants, which should not take longer than two years. In addition, the programme aims to stimulate private investment in the African PV market and ensure competitive solar electricity tariffs.¹

​Target groups

The programme focuses on the collaboration between project developers and governments that want to increase the share of renewable energies in their countries’ energy mix or support the construction of PV plants. According to the World Bank, the advantages of the programme are fast execution, cost optimisation and security because the project is coordinated and centrally managed by IFC. The project developers will receive assistance in participating in tenders organised by the respective governments or IFC and in the funding procedure, which will be smoother thanks to the use of standard document templates, among other things. The benefits that Scaling Solar offers German EPC firms include, first of all, easier market access (thanks to the tendering system), shorter project turnarounds (thanks to the central coordination of the project by IFC and/or state agencies collaborating with IFC in the respective countries), and, where possible, the opportunity to obtain advice from the World Bank.

How it works

The World Bank and IFC has elected to award contracts for the construction of privately funded grid-connected solar plants through tendering procedures, whereas the winning bidder is the one who offers the most favourable tariff or electricity price. IFC supports governments in organising tenders and project developers in participating in same at each of the following five steps of the tender procedure (within the specified time frames):

Figure 1: Example of a roadmap for a Scaling Solar project²

(Click to enlarge) 

Existing Scaling Solar projects

Zambia

Table 1: The Scaling Solar candidates short-listed for the first tender round in Zambia³

Under the “Power Africa” programme, the US government has already joined the African Development Bank, the World Bank Group and the Swedish government in supporting renewable energy projects in Zambia. The support provided for the Scaling Solar programme will be seen as a private sector investment.⁵

The diagram 2 shows the basic structure of the Scaling Solar programme in Zambia, which is explained in more detail in the paragraph below:

Figure 2: Basic structure of the Scaling Solar project in Zambia⁶ 
(Click to enlarge)

(1) First, Zambia's IDC sets up two Special Purpose Vehicles for both 50 MWppower plants to be operated by the future IPP (Independent Power Producer) and holds a 100 percent stake in each of them. Upon completion of the tendering procedure, both IDC and the two winning bidders will bring in “fresh equity” as part of a Shareholder Agreement (company’s articles of association), whereas the share of the winning bidders may not exceed 80% in either case. The remaining (minimum) 20 percent will remain in the hands of the IDC. The remaining share will be sold under an IPO (Initial Public Offering) on a stock exchange (Lusaka Stock Exchange LuSE) as soon as the investments become profitable – whereas the Zambian citizens will have the preferential right to purchase the shares.⁵

(2) The IPP (or the SPV between IDC and the respective winning bidders) will conclude a PPA (Power Purchase Agreement) with the state electricity supplier ZESCO (Zambia Electricity Supply Corporation); the agreement will be based on the price bid by the candidate and will regulate the future revenues from the electricity supply.

(3) The financing for the power plant’s development and construction will be provided by investors or through financing packages of the World Bank. The terms of the loan can be improved through the payment guarantee given by the International Development Organisation (see above) and, if necessary, through other services of the World Bank. In addition, it is planned that the Zambian government will conclude other agreements, both with the IPP and with investors, to ensure that the projects are refinanced under the PPA with the state supplier ZESCO.

As far as other countries are concerned, the following plans have been developed to date:

Senegal

Madagaskar

On 21 May 2016 it was announced that Madagascar will be the third country to participate in the programme. The government of Madagascar delegated to IFC the task to organise and hold the tendering procedure for a 30 to 40 MW_p PV power plant. In this way, the supply of electricity will be supplemented by cost-intensive diesel generators and thus will become more controllable. In addition, production costs of JIRAMA, a state-owned utility company supplying approximately 334,000 electricity customers, should be reduced.⁸

Conclusion

Scaling Solar is an attractive programme for project developers willing to introduce the IPP business model in Africa. For the first engagement on the African electricity market, performed under a procedure coordinated centrally by an internationally renowned institution, Scaling Solar offers the opportunity to participate in tenders on the one hand and to obtain far-reaching support from the World Bank and its agencies on the other hand. Possible additional costs connected with the programme, e.g. for advisory services of the World Bank should be analysed on a case-by-case basis again.

In the coming months other tenders for 500 MWp under the Scaling Solar programme are expected to be launched in different African states, with whom the World Bank Group is already in talks.⁴

However, these are all still the countries of the Sub-Saharan region, which hope to emulate the success of the South African model. Nevertheless, delays in project work and certainly lengthy negotiations of contractual details are expected.

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¹ Scaling Solar Brochure: Unlocking Private Investment in African Solar Power:   http://www.ifc.org/wps/wcm/connect/industry_ext_content/ifc_external_corporate_site/industries/infrastructure/power/scaling+solar, 5/4/2016.
² Scaling Solar Brochure:  http://www.ifc.org/wps/wcm/connect/811dab004b378c4f8675fe4149c6fa94/02+SS-brochure-english-print_Folder.pdf?MOD=AJPERES, 5/4/2016

³ 11 firms pre-qualify to submit bids for two 50 MW solar PV power plants in Zambia: https://www.lusakatimes.com/2015/12/29/11-firms-pre-qualify-to-submit-bids-for-two-50-mw-

⁶ Zambia Scaling Solar - Pre-qualification meeting: http://www.idc.co.zm/sites/default/files/tenders/231015_Zambia_Solar_pre-qualification_meeting.pdf.

⁷ Senegal Is Second African Country to Join ‘Scaling Solar’ to Quickly Develop Clean Energy: http://ifcextapps.ifc.org/ifcext%5CPressroom%5CIFCPressRoom.nsf%5C0%5CF8712D8
9C6A26B4A85257F550055639B, 5.4.2016.
⁸ World Bank Group’s Scaling Solar to give Madagascar a Clean Power boost: http://ifcextapps.ifc.org/ifcext%5Cpressroom%5Cifcpressroom.nsf%5C0%5C00E711964F470A4E85257F7D005866B4, 5.4.2016.