Executive Summary

While concentrated solar power (CSP) currently contributes less than 0.1% of total electrical capacity worldwide, its potential is significant enough for many experts and international institutions to suggest it could supply up to 10% of global energy demand by 2050.

CSP’s costs are coming down but, in most cases, they still remain above alternative sources of power and public finance is needed to bridge this gap. Indeed, our analysis estimates that over 98% of the total investment in CSP to date has needed some form of public support. Understanding how to structure effective public policies and investments is therefore crucial to further the development of the technology and to ensure that governments use their resources efficiently, particularly in a time of economic difficulties.

Over the next year, Climate Policy Initiative (CPI) will distill lessons on how effective the Climate Investment Funds (CIFs) and other public entities have been in financing CSP in emerging economies. This analysis will inform the extension and adjustment of these public entities’ financing vehicles.

There are particular advantages to CSP as a technology to drive low-carbon growth. Not only is it potentially scalable, harnessing a relatively untapped and abundant renewable resource to generate low-carbon electricity, but its ability to store energy as heat also allows it to generate power on demand around the clock, even after the sun goes down. This enables CSP to provide peak power, and also base-load power to balance out fluctuations in supply from other renewables like wind and solar photovoltaic (PV). The combination of scalability and dispatchability gives CSP a key advantage over other renewables.

Following almost two decades of standstill, the total capacity of installed CSP power plants has increased from 0.5 to 2.5 GW in the last five years. A further 3GW is already financed and under construction. This background paper sets the stage for further study on the effectiveness of CSP financing in some of these CSP projects. It analyzes the current landscape of CSP (technologies, costs, financing and policies), details the approach we will use to analyze the effectiveness of different public interventions for financing CSP, and explains our next steps.

Key Insights from the Current Landscape of CSP
Our analysis of the current landscape of CSP yielded four key insights to be considered when analyzing the effectiveness of public interventions to finance CSP in emerging economies:

Some CSP plants are built without public financing, or only borrow part of the capital they need from public lenders at non-subsidized terms. This raises the question of why other plants need full public lending at highly concessional terms or full public financing, and whether and how this support can be phased out.
Question for analysis: Is public support needed in all cases? If not, in which cases is it needed?

A range of policy and public investment tools have been used to support CSP financing with different results and levels of cost-effectiveness. Governments in emerging markets are using competitive tenders and reverse auctioning rather than feed-in-tariffs to deliver revenue support policies, with the expectation that these will more effectively drive down costs. Early indications are that this approach can successfully drive down costs but that it increases the risk that winning bids are so low that developers are unable to build the plants.
Question for analysis: How effective or cost-effective are different policy and public investment tools?

CSP costs are projected to fall as more plants are built but, despite public support for additional CSP deployment in the last five years, cost reductions can only be observed for some types of CSP technology and in specific regions. CSP technology costs remain substantially above alternative energy sources (both conventional and renewable), although the additional benefits of CSP, such as energy storage and power-on-demand that support the energy system as a whole, reduce the viability gap to other technologies.
Question for analysis: Can public policy and support drive technology cost reductions simply by enabling additional capacity, or are more specific interventions needed?

CSP has not been deployed wherever solar irradiation is high but has instead emerged in specific niche markets where government policies support CSP in order to pursue specific national interests. These interests include diversifying energy sources, building a local industry, or becoming more independent from fossil fuel imports. Spain and the U.S dominate the current CSP market, but emerging economies such as India, South Africa, China, and other countries in the Middle East – fueled by international public finance and national policy – play an increasingly important role among recent and planned installations, incentives. This means projects are moving towards countries where investment risks are high and the role of public finance is more crucial.
Question for analysis: How can international public finance best support national policy efforts in emerging economies?

Approach to analyze the effectiveness of public interventions to finance CSP
We will base our analysis of the effectiveness of different policies and public investment tools in promoting deployment of CSP power plants using three main pillars:

1. Two in-depth case studies will analyze the effectiveness of policy, risk management, and public financing in two specific CSP projects, using the systematic analytical approach of the San Giorgio Group.
2. Three CSP expert dialogues will provide a forum for experts from governments, development banks, and the private sector to discuss the case study insights and exchange ideas on effective policies and public finance to support CSP.
3. A lessons learned paper and policy brief will summarize the key findings of the dialogues, the two case studies, and an existing CPI San Giorgio Group Case Study on the Ouarzazate plant in Morocco.

The case studies will focus on the 100 MW Rajasthan Sun Technique project in India, and the 100 MW Upington power tower project in South Africa. The selected projects are the largest CSP projects utilizing public funding in two different developing markets, both of which have substantial CSP potential. The fact that the selected projects employ two different and innovative technologies (linear Fresnel and power tower) with substantial local manufacturing potential, and different financing models (public-private financing with non-concessional public loans, and public-only financing with concessional loans), will allow us to examine the effectiveness of very different approaches.