IEEE Power & Energy Magazine - January/February 2021 - 77

A careful balance must be achieved between attracting competitive
investments by shifting risks away from investors and achieving
low-cost outcomes for consumers in the short and long terms.
other challenges, such as dispatch risks that can result which could vary for subsequent additions but allows for
from sudden reductions in demand; increased inflexibility low-risk/low-cost financing. Technology risks could be
from old fossil fuel contracts or other must-run provisions; mitigated with concessional or blended finance.
The rapid evolution of costs is posing a challenge in
delays in transmission deployment; and regulatory rule
changes, which are not uncommon. All of these factors can different markets. Early PPAs with RE projects are provimmediately impact both the performance of the contract ing to be misaligned with current market prices. A solar
and any partial merchant revenues from the market. Sud- photovoltaic (PV) PPA signed in 2016 is almost double the
den shocks in demand growth projections have also led to price of a PPA signed in 2020, reflecting the rapid drop in
oversupply situations in some markets, such as Uruguay, the cost of the technology. Given the increase in efficiency,
Peru, and Costa Rica. With these scenarios in mind, the decreasing prices will continue to be a challenge until
importance of improving the governance and technical prices stabilize.
However, for new technologies, like batteries or other
quality of auctions seems to be more pressing as the share
storage solutions, a significant decrease in prices is expected
of renewables increases.
The successful development of RE resources in Latin as demand grows and efficiency gains are achieved at
American countries has been supported by the Inter-Ameri- the manufacturing and design levels. In these cases, the
can Development Bank (IDB), both through technical assis- challenge will be how to cope with the obsolescence risk
tance in developing the policy and regulatory environment from both the market designer and investor perspectives. As
for renewables and through financing projects with a variety explained before, to achieve the virtuous process of decreasof instruments, such as loans, guarantees, and policy sup- ing costs, low-risk financing needs to be available for such
port lending. Other results in improving access and reducing technologies. How can long-term financing be achieved
with a potential obsolescence risk? On the other hand,
emissions are indicated in Figure 2.
From 2016 to 2018, the IDB supported 4,400 MW of new how can regulators prevent assets from being stranded with
re--newable generation in the region, primarily wind and solar high prices when new technologies become available?
One possible solution is to structure a buy-back feapower as well as some hydropower. Most of these projects are
privately owned and part of the successful auctioning pro- ture in the regulatory scheme. Using this feature, the regulator may include an option to buy the stranded asset at
cessed in many countries.
Based on extensive experience financing RE projects, the remaining asset value (nondepreciated value). Thus,
the IDB has identified key elements that improve a project's a new technology with significantly lower costs could be
bankability and access to longterm financing. These include an
experienced sponsor with strong
15.7 Million
12.2 Million tons
technical capabilities and finan1 No Poverty Beneficiaries of Targeted 13 Climate
of CO2-Equivalent
Action
cial expertise; a strong business
Antipoverty Programs
Emissions Avoided
model with a st a ble r eve nue
stream from a credit-worthy offtaker and competitive price; merchant revenues, if any, projected
conservatively for debt-sizing
180,000 Households
4,400 MW of
7 Affordable
12 Responsible
and Clean
purposes; proven technology and
Consumption Power Capacity
With New or Improved
Energy
and Production From Renewable
in-depth analysis of output generaAccess to Electricity
Supply
Sources Installed
tion based on reliable data; and
a stable and predictable regulatory framework.
The deployment of new technologies requires an ena--
bling regula- figure 2. Some results of the IDB in financing access to energy (Sustainable Developtory framework that ensures rev- ment Goal 7) and cleaner RE supplies (Sustainable Development Goal 12), 2016-2018.
enue for a reasonable timeframe, [Source: IDB Development Effectiveness Overview (2019); used with permission.]
january/february 2021

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IEEE Power & Energy Magazine - January/February 2021

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - January/February 2021