A World Solar Bank and India’s Solar Ambitions.

In the past week, talk of a World Solar Bank, midwifed by the International Solar Alliance (ISA), Prime Minister Modi’s biggest foreign policy initiative has picked pace again. The ISA, whose overarching mandate can be considered the raising of 1 trillion dollars to build, spread and sustain  solar energy worldwide, with special attention to the tropical world has come around to the idea, almost 5 years after its launch.

The World Solar bank, as reported by Livemint, will be a global bank, that works along with other key global multilateral banks, be it the World Bank, the Asia Development Bank, the African Development Bank and even the AIIB, or Asia Infrastructure Investment Bank.

The idea of a dedicated bank for funding India’s solar ambitions, is a good indicator of the backing, and belief the solar energy sector enjoys from the top leadership in India. However, with an expected capital requirement of anything from 650 million dollars to even 3 billion dollars, its a decision that needs to be taken  carefully.

For one, the whole premise of the ISA aggregating demand, and using that to drive down prices can only work so far. The organisation has done it successfully with solar pumps, but even that, some industry players we spoke to at the time, was more a case of prices being on a downward slope in any case, than any extraordinary slashing caused by the volume of ISA created demand. More importantly, the slow progress made by ISA on such projects has made many suppliers wary of making too many plans on the basis of projected demand from the organisation.

Between the launch of ISA and today, the solar market has already changed significantly. Today, solar +storage appears to be the next big thing, not to mention hybrid solar+ wind projects. The exclusive solar centric focus of the ISA, or a World Solar Bank could actually force it to back projects that will become unviable almost as quickly as coal based projects coming up now. How the proposed World Solar Bank, and even the ISA adapts to this new reality, is moot.

The AIIB, where China holds a dominant 30 percent plus stake, followed by India with 8 percent is strangely enough, another reason to consider the proposed Solar Bank very carefully. The AIIB, despite being much better funded, and having had close to 5 years of functioning itself, has managed to fund just 80 projects across 22 countries till date , for a total funding commitment of 17.9 billion dollars, and even that is as co-financiers in half the cases. There is an obvious case for overlap between the aims of the AIIB and another bank focused on solar funding, as the AIIB itself has also been funding solar projects, including in India. The ISA already risks irrelevance with the slowdown on actual progress versus its lofty founding objectives. Adding a bank to that list may not be the best idea.

China itself, which has been relatively cool to the ISA, and now, the World Solar Bank is too big a player to leave out. With a domestic manufacturing capacity that can easily service global demand in the solar energy sphere on its own, China has easily been the biggest single reason for the drop in prices that have made solar a viable option for developing countries today.  A World Solar Bank based on the idea of keeping Chinese firms out , or even reducing their dominance, might possibly fail at the first measure of a prudent financial institution. Funding sustainable, viable projects. Most ISA member countries  have joined up in the hope of funding support and low costs. Missing either of those will force them to look elsewhere.

On the other hand the case of a World Solar Bank is also quite strong. Financing costs are a critical  factor in the long gestation period of projects, fine margins of the solar business. In India too, we have seen how much of a difference access to capital has made to the fate of many large developers. Globally  competitive funding rates can make a massive difference for firms with global ambitions out of the country. India’s own plans to 2030, for 450 GW of renewable energy capacity addition, will probably demand over 200 billion dollars of funding. Before counting the investments required in the transmission sector. The question is, is India better off using the money to propel domestic champions to the world stage, or just hope that an institution lie the World Solar bank that will be headquartered here will do the job?