Solar Energy Infrastructure in Emerging Markets:

Meeting the needs of institutional investors

January 20218 min readClimate FinanceEnergy, Emerging Markets
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Solar energy infrastructure in sun-rich emerging markets has become a revenue-generating asset that meets both the needs of Commercial and Industrial (C&I) solar customers, such as large multinationals, and of institutional investors who are looking for green infrastructure investments that deliver long-term stable cash flows, while diversifying their portfolio. Here is a look at this fairly recent development, and why it is blossoming now as opposed to in the past.  


HISTORY: The first photovoltaic solar cells were discovered in 1954 by researchers at Bell Laboratories while investigating silicon for use in transistors and rectifiers, however it wasn’t until the 1970’s that rural telephone systems and radio transmitters became the first common Earth-based off-grid applications. By 2019, global cumulative solar PV capacity amounted to 634 gigawatts with 117 gigawatts of new PV capacity installed that same year. To put that in perspective, 1 gigawatt is enough to power about 300,000 homes in the US.

TECHNOLOGY: A PV system is an electrical system consisting of several arrays of PV collectors and other electrical components needed to convert solar energy into electricity that is usable by consumers. These components can be arranged in many ways to design PV systems for different situations, but the most interesting configuration is a solar energy infrastructure where the PV system is combined with at least one another energy source on commercial buildings and industrial sites. The arrays, which are an interconnected system of PV modules that function as a single electricity-producing unit, are either mounted on a rooftop or nearby on the ground. Because of the intermittent nature of PV systems, which can produce electricity only during daytime, sophisticated engineering is required in order to integrate them into a solar energy infrastructure together with another source of electricity and with storage capacity.  

That said, the modular nature of PV arrays and other components make systems easy to expand for increased capacity, and as PV systems are direct energy conversion systems that produce electrical power in one process with no moving parts, this makes them extremely reliable and long-lasting with minimal maintenance. Their versatile nature enables distributed generation, which is a system in which many smaller power-generating systems create electrical power near the consumption point, sometimes even on-site, thus avoiding losses from long transmission lines.


Until recently, some disadvantages have hampered the deployment of solar energy infrastructures where it is most economically viable and environmentally and socially useful. The most significant issues have been the high initial investment cost compared to prices for competing power-generating technologies; the need for a relatively large array area to produce a significant amount of power; the amount of solar radiation the desired area actually receives; and the fact that the assembled operating solar energy infrastructure is a sensitive energy system that needs to be properly designed and managed to guarantee both uninterrupted power generation, safety and energy savings.


COST: On the back of governmental initiatives, mass manufacturing has substantially reduced the cost of solar collectors, thus reducing the initial investment cost of PV systems. A comparable cost decline of energy storage has also lead to cost competitiveness of solar energy infrastructures. As the cost of electricity generated by PV systems in sun-rich regions becomes competitive with grid electricity or electricity generated from fossil fuels, integrating PV systems into the existing energy mix provides energy savings and is economically viable. 

SOURCING: With demand increasing, major components have become more available and can even be sourced through local distributors. 

RELIABILITY: Previously, solar energy was highly unpredictable and variable. With energy management software (EMS), however, grid stability and continuous power can be ensured while minimizing operating costs related to maintenance and site operation. Advanced programming and real-time data collection enable the EMS to automatically adapt to weather conditions, the evolution of consumption patterns or device behaviour modification, and maximize the overall system performance at any time. Smart modules enable consumption and production forecasting, thus anticipating the energy demand profile for the next day and then planning appropriate energy storage and genset ignition. Statistical learning algorithms make it possible to better consider the ageing of electrical equipment (solar collectors, batteries), thus allowing optimisation and reduced operational risks. This technology is highly adaptable and resilient, agnostic to the controlled electrical devices, demand or production profile, making it suitable for solar energy infrastructure in various regions with different configurations. It empowers infrastructure developers, operators and investors with the capacity to monitor, operate and maintain many sites in various locations. So in the current context of global connectivity and globalization, deploying and operating a solar energy infrastructure in sun-rich emerging markets has become a viable business where technical and operational risks are under control.


While the renewable energy transition in Western countries has been sparked by political decisions, there was already sufficient installed generation capacity in a centralized electricity distribution system at a relatively low cost. Plus, the government was a major stakeholder in the utilities sector and a bankable counterpart, and the existence of an efficient distribution network made it easy to integrate renewable energy by tying it into the grid to manage any intermittent supply, as well as having the government as a consistent main sponsor through multiple subsidy schemes.

Although some bits and pieces of this model can serve developing economies, their basic context is different. Private Independent Power Producers (IPP) are able to fulfil the role of power operators, leveraging on financing and solar engineering at the same time to meet the growing demand of C&I customers for electricity. Depending on the state of the grid, PV systems can either be embedded power generators – using the grid to transit power up to one or several customers – or off-grid stand-alone generators where they operate autonomously on-site.

An Energy-as-a-Service business model can be implemented in emerging markets thanks to the economic viability of solar energy infrastructure. The stakeholders are private parties who make their decisions based on economic and technical considerations, as opposed to governments, who may be driven by political agendas and ideology. In this model the IPP owns and operates the solar energy infrastructure for a fee. Although in some cases subsidies are available, the role of governments is confined to shaping the business regulatory environment, leaving private stakeholders free to contract bilaterally. Plus, C&I customers are blue chip companies, large multinationals and leading regional corporates whose credit risk can be assessed and mitigated through various measures and security provisions. A long-term off-take agreement (Power Purchase Agreement, Leasing Agreement) is directly signed between the C&I customers and the IPP who takes on the roles of the engineer, operator and financier. Considering the high up-front investment needed to construct and own such infrastructure, most IPP are relying on third-party investors to fund their operations and to finance the asset, which becomes a revenue-generating asset. Equity and debt instruments with variable and tailor-made terms can then be designed that meet the risk-return expectations of investors with the desire to gain exposure to infrastructure investing.


DIVERSIFICATION: Facing the challenge of managing assets in a low-interest rate environment, institutional investors, particularly pension funds, insurance companies, and sovereign wealth funds, are gradually turning to infrastructure assets in search of yield, with the amount of capital managed by asset managers in this asset class quintupling over the past decade (from USD 129 bn to USD 582 bn)1. Emerging markets are also increasingly important in the global economy. Their share of world GDP is projected to reach 49% by 2030. Asia, in particular, is projected to reach 31% of global GDP by 20302. With strong macroeconomic fundamentals, technological advancement, and significant improvements in the business regulatory environment, Asia has become the forefront of the investable emerging market universe. And with institutional investors striving to play a role in the renewable energy transition, putting environmental concerns at the core of their investment decisions is now standard practice.

LONG TERM VIABILITY: With underlying assets providing essential services, investing in solar energy infrastructure can play a key role in long-term institutional portfolios. The asset class offers the possibility of delivering attractive returns with long-term stable cash flows, matching long-term liabilities, and diversifying traditional business cycle-sensitive investment holdings. The real-time traceability of the PV systems’ operations provides asset-owners with a high level of transparency and facilitates reporting and control.

SUSTAINABILITY: Moreover, access to reliable power fulfils a basic need and is a major driver of sustainable economic development. The ability to operate without noise and pollution also contributes to decent working conditions, and although no power generation technology is perfect, solar energy conversion into electricity via PV systems counts among the few technologies with zero CO2 emissions during operations, which makes it unquestionably environmentally friendly.

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The author

Vincent Bernard

Vincent Bernard joined the Business Development Team at responsAbility for Institutional Investors in Europe. Previously, he was in charge of project development for Commercial & Industrial (C&I) Solar projects in Sub-Saharan Africa with a company that pioneered solar in the 1980’s. Vincent began his career in Sales for a European Asset Manager specialized in Alternative Investments, and is very keen to deliver investment solutions that leverage on technical solutions that tackle real issues.