Solar Energy-generated Electricity Costs only 3−6 Cents Per kWh: CDRI Report

UNDP (United Nations Development Program) has released a report published by Coalition for Disaster Risk Infrastructure (CDRI), on ‘Capturing the Resilience Dividend’. 

Capital Cost in Solar

The report suggests that the cost of capital offers a critical benchmark to assess the risks and return preferences of investors and the pricing of money in different geographies. It cites the example of cost of capital for utility-scale solar photovoltaics and onshore wind ranges from 3 to 6 percent, depending on the region. The study shares examples of other sectors that have regional variation that is relatively higher with 5 to 25 percent for buildings and 4 to 15 percent for transport percent (IEA, 2022). 

The report analyses that the fossil fuel-generated electricity costs 5−17 cents per kilowatt-hour, while solar energy-generated electricity costs only 3−6 cents per kilowatt hour and is trending down (IRENA, 2021). In high-income countries, new building technologies, electric vehicles, and more efficient appliances are enabling a reduction in energy consumption.

Climate Investor Two (CI2) is an infrastructure fund established in 2019 by Climate Fund Managers (CFM). It uses a blended finance approach that invests in private equity water, water-based energy, and ocean infrastructure projects in emerging markets. CI2 has developed an innovative project finance structure that works across three stages:

Funding

There are three types of funding according to the report.

(i) Development fund (DF), (ii) Construction equity fund (CEF) (iii) Climate credit fund.

The DF is a wholly concessional capital pool funded by donor contributions, which aims for capital preservation and mobilizes private capital into the CEF. The DF offers up to 50 percent of the planning and development costs of the projects along with technical assistance. 

Equity financing of up to 75 percent of construction costs is available under the CEF. Blended finance was an enabler to accelerate the development of, and subsequent investment in, resilient infrastructure projects such as solar powered desalination units in Kenya and two waste-to-energy facilities in Thailand.

CI2 closed its first round at $675 million in November 2021. CI2’s success is owed to its flexible and modular governance structure that attracts institutional investors at scale while delivering projects locally. Aligning investment instruments to focus on distinct risk periods in the project lifecycle lowers the cost of capital and accelerates timelines. Flexibility and adaptability in transaction design can also prove critical for successful fundraising.