Devex Invested: Why IFC's solar program failed to take off in Africa

The World Bank and its private sector arm, the International Finance Corporation, are under pressure to deliver on projects that address climate change and attract more private capital to the table. The same was true back in 2015, when the “billions to trillions” narrative was at its zenith. Back then IFC launched its Scaling Solar program in an effort to increase solar power in lower-income countries and use donor dollars to mobilize more private money. So how has the initiative fared? That’s what I sought to find out as the program has come under scrutiny. • Scaling Solar has supported solar power plants in Zambia, Senegal, and Uzbekistan but hasn’t taken off rapidly or met its ambitious goals. IFC first worked in Zambia, where it offered advisory services to help prepare and structure a pair of solar energy plants. It also introduced a competitive bidding process, standardized the relevant documents, and offered de-risking tools and IFC financing. • That Zambia project set a new low price for solar energy on the continent, and it didn’t go unnoticed. Now there are questions about whether IFC should have been more transparent about the terms of the Zambia deal and whether aggressive marketing may have in fact hurt the growth of the African solar energy market rather than accelerated it. • “It wound up becoming a disrupter as opposed to something that was a catalyst for solar in Africa,” says Teal Emery, an independent research analyst and former sovereign debt investor who authored a recent paper about Scaling Solar for the Energy for Growth Hub. A U.S. government official, who asked for anonymity in order to speak freely, tells me that after the Zambia deal, other countries started to demand the same low prices, and “a continent full of deals was shredded.” • But that’s not how Dan Croft sees it. He is IFC’s regional upstream manager for infrastructure in Africa and designed Scaling Solar. The Zambia deal did not lack transparency and didn’t hamper other solar power projects, he tells me, adding that as a DFI trying to achieve the lowest possible cost of electricity in low-income countries, “we don’t make any apology for resetting pricing expectations.” So was this a thoughtfully designed program that was marketed in a way that created unrealistic expectations? Was it transparent enough? Did other factors, including hesitancy from governments to use the program hamper its efforts? After taking this deep dive I’m left thinking about one issue. There may be a trade-off between achieving the lowest-cost power for those living in low-income countries using a lot of public finance, and building projects that are commercially viable and sustainable in the long term. And if there is, in an era where climate and private capital mobilization are both important, which do you prioritize? Read: Why a major IFC solar initiative failed to scale in Africa All eyes on Albany A bill making its way through the New York state legislature could have global implications, and its proponents say it could tackle a key challenge with current debt relief efforts — bringing the private sector to the table. Why care about what’s happening in Albany? Because more than half of emerging market sovereign bonds are traded in New York’s financial institutions and are governed by New York law. The legislation is coming as the debt crisis in some of the world's lowest-income countries worsens and existing processes to provide relief have been slow and inefficient. After the state Assembly Judiciary Committee approved the the New York Taxpayer and International Debt Crises Protection Act last week, lobbyists for so-called vulture funds that buy distressed debt have descended on the capital city of Albany to try and put a halt to the effort, Eric LeCompte, executive director at the Jubilee USA Network, tells me. “They are coming down hard to crush this legislation,” he says, adding that for them to react this way means “we know we have poked the beehive.” Proponents argue that this bill will compel private creditors to come to the table and be treated equal to public creditors, evening the playing field and ensuring that debt relief efforts backed by taxpayer dollars don’t go to repay private creditors. But the opposition argues that New York companies will lose out, that contracts won’t be enforceable, and that changing the rules mid game will have a negative impact on the economy locally and on global borrowing. The bill awaits approval from the state legislature’s Assembly Ways and Means committee before a floor vote, and committee discussions in the state Senate are expected in the next couple weeks. The pressure is on to pass the bill before the end of the legislative session in early June. Bringing in private capital We’ve got the second installment in our opinion series about private capital mobilization and how multilateral development banks can better attract investors. This time Neil Gregory, a former senior official at IFC and the World Bank, makes the case that MDBs and development finance institutions need to adopt a new model, one where they originate an asset or loan and then share the risk with investors, or sell it off to them. These institutions only attract about $20 billion in private capital annually, he writes. Why? “Too much effort goes into structuring bespoke investments, including those which blend in concessional finance, and mobilizing private capital one transaction at a time. This approach is appropriate for first-time investments in difficult contexts but is not scalable for private capital mobilization in less risky countries and sectors,” he writes. Opinion: Private capital for development requires new business models + Catch up on the opinion series here. Money where their mouth is With the World Health Organization’s annual forum, the World Health Assembly, underway this week in Geneva, one of the key issues to watch is how to sustainably fund the agency. As my colleague Jenny Lei Ravelo reports, member states agreed to gradually increase funding for WHO last year. But how will WHO do that, and who will pay? This week member states will decide whether to allow WHO to fundraise through replenishments, or investment rounds — this is typical of some other organizations in the global health space. If that sort of pledging event or round is on the table, WHO plans to engage sovereign donors, NGOs, philanthropic foundations, and academic institutions, but also the private sector through the WHO Foundation. Devex is also hosting a two-day event at WHA, where I’ll be tuning into a panel about reimagining health financing on Thursday. It will include Jenny Yip, managing partner at Adjuvant Capital, and Priya Basu, the executive head of the Pandemic Fund Secretariat at the World Bank. To tune in via livestream or attend in person, sign up here. Read: 3 key issues to watch at the 76th World Health Assembly (Pro) + Start your 15-day free trial of Devex Pro today to unlock the article and all our exclusive reporting and analysis. What we’re reading Scoop: A multibillion-dollar climate fund is hunting for its new chief. [Devex] Africa faces a mounting debt crisis and rising interest rates are hurting some of its brightest stars. [The Economist] Executives say they’re committed to ESG, but data shows otherwise. [TechCrunch] Doing Business rankings shocker: Did improvements in the former World Bank rating actually correlate to negative short-term effects? [Financial Times] Shabtai Gold contributed to this edition of Devex Invested.