Market Assessments for Solar- Powered Irrigation Pumps in Morocco, South Africa and Yemen

Transcription

1 Market Assessments for Solar- Powered Irrigation Pumps in Morocco, South Africa and Yemen Rome, May 2015

2 IFC IS A MEMBER OF THE WORLD BANK GROUP IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation MIGA Multilateral Investment and Guarantee Agency Est Est Est Est Role: Clients: Products: To promote institutional, legal and regulatory reform Governments of member countries with per capita income between $1,025 and $6, Technical assistance - Loans - Policy Advice To promote institutional, legal and regulatory reform Governments of poorest countries with per capita income of less than $1,025 - Technical assistance - Interest Free Loans - Policy Advice To promote private sector development Private companies in member countries - Equity/Quasi-Equity - Long-term Loans - Risk Management - Advisory Services To reduce political investment risk Foreign investors in member countries - Political Risk Insurance 2

3 Deals FROM FY07-14, IFC INVESTED $900M IN 60 DEALS ACROSS THE ENTIRE SOLAR INDUSTRY VALUE CHAIN More than $660m committed in solar energy assets Close to 1GWp in generating capacity Close to $230m committed in manufacturing projects deals 44 Renewable Captive Use Power Generation Components & Systems 26% $894m invested 74% INFRA MAS Note: FM (Financial Markets) invests in renewable energy credit lines, trade finance guarantees, and other financial products. Over the same period, FM invested $2.4bn in RE through financial intermediaries ($801m in credit lines, $220m in funds, and $1,383m in trade finance). However, IFC does not track the specific type of RE technology (wind, solar, etc.) supported by these investments. 3

4 Market Assessments 4

5 Targeting Morocco: Access to Magreb and Sahel South Africa: Access to Southern African Region Yemen: Critical Demand driven by Economics and lack of Resources Private sector: supply chain equipment, services / financial : products, services Public Sector: energy policy, subsidies (fuel, water, crop) Agricultural Sector: landholding size, economics, crops, practices, access to finance 5

6 Morocco 6

7 A favorable context for the development of solar pumping in the agricultural sector in Morocco An agricultural sector heavily dependent on fossil fuels (90% of energy consumption) A high level of solar direct normal irradiation in Morocco Falling PV modules prices and emerging opportunities for the development of solar applications Strong opportunity for the development of solar pumping in agriculture A sector characterized by the prominence of small-size farms, highly dependent on groundwater resources A $50 million program to support the development of solar pumping Several public initiatives to improve the sector s competitiveness

8 Solar pumping in Morocco could represent a cumulated $1 billion market by 2020 More than 60% of the total number of water pumps could be replaced by 2020 represent an addressable market of 100,000 pumps. The value of the Moroccan solar pumping market by 2020 is estimated to be $800 million and $1.3 billion

9 Morocco: Key Drivers for Solar Pumps Agricultural productivity is a priority Unsustainable Fossil Fuel Subsidies Planned Government Subsidy Agriculture represents 15% of GDP and 40% of employment (and 75% of rural employment), making it a priority industry Irrigated land produces 9x more revenue; on average $6,335 per year compared with $690/ ha Irrigated land represents 75% of exports 95% of primary energy is provided by imported fossil fuels Butane is widely repurposed for agricultural power Around 900 GWh energy/year used for agricultural water pumping To improve productivity while reducing reliance on subsidized butane, Morocco plans to introduce a subsidy program for solar pumps paired with drip irrigation installations 9

10 Moroccan Green Plan (Plan Maroc Vert) Crédit Agricole of Morocco will distribute $300 million grant to install target of 100,000 pumps by 2020 Providing up to a 50 % subsidy on solar pumping systems, along with drip irrigation installation The market is waiting for the Government to execute their subsidy plan; there is reluctance to buy a pump now if pumps can receive a 20% subsidy 10

11 Market Opportunities for Solar Pumps may expand along with drip irrigation Use of Drip Irrigation - a complementary technology to solar pumping - has increased from 7 to 23% in the past decade, driven by subsidies Irrigated Land equipped with drip: Growth from 2002 to

12 Predominance of Small Farmland (70% < 5ha) Agricultural sector is a major employer (40%), especially in rural Morocco (75%) Socio-economic development through programs targeting small holders 12

13 Many small farms AND many inefficient fuel-powered pumps Small Farms and High Ratio of Pumps/ha Irrigated Distribution of motor pump/ farmland size 13

14 Solar Pumps as a Replacement to LPG Powered Pumps In most countries, it is economically viable to replace diesel-powered pumps with solar systems In Morocco, LPG-powered pumps are cheaper than diesel-powered and solar-powered ones 14

15 Efficient Water Use for Sustainable Agricultural Activities Issue: Water Scarcity and Climate Change Strain Sustainable Development in Morocco Solution: Climate Smart Approaches/Technologies (Drip Irrigation Solar Pumping Climate Resilient Crops etc) 15

16 Morocco: challenges Barriers to scaling solar irrigation Distribution networks at small scale Potential Solution Clarify opportunity for OEMs and support local capacity strengthening Low cost of subsidized butane Lack of product standardization or quality assurance Lack of technical capacity and skills Predominance of low value crops Access to finance for small holders Introduction of smart subsidy program Manufacturer led global standards development Technical skills programs / training Develop market access for sale of higher value crops Dedicated credit lines; loan guarantee facility 16

17 Potential Market Size for Solar Irrigation in Morocco No. of target pumps 10% conversion Subsidy target Cost Estimated Market Size 150,000 Pumps* 15,000 pumps 100,000 pumps = 20,000 p.a $5,000 Solar system $ million p.a Payback estimated at 4 years compared with diesel With the GoM 50% subsidy, payback is estimated at 2 years, and 4 years for very small farmers Demand has built up awaiting subsidy implementation Majority of SHF butane fuelled pumps replaced bi-annually *Estimated 17

18 Morocco Business Case Comparison of energy costs for Lorentz solar pump installation in Morocco Both diesel and butane are subsidized (butane over 50 %) by government. Significant cost increases in diesel and butane are inevitable over the next years as market prices increase and subsidies are removed. The solar solution provides the cheapest and most fixed known cost over five years of ownership. Source: Lorentz, Case Study 5, DRAFT INTERNAL USE ONLY 18

19 Morocco: Next steps Finalization of subsidy will release demand for solar Standards will be required to protect credibility of technology Training and capacity building will be key: Drip / solar combination is a major technological leap for farmers Water resource sustainability threatened by climate change Next focus in the field: Assess efficiency of drip installations and subsidies to date Mobile asset registry to create collateral class for solar Recommend linking subsidies to registration of wells and monitoring of performance to secure water resources 19

20 What s Next for Morocco? $1Bn aggregated market potential by 2020? Becoming the Manufacturing and Export hub for the Maghreb and the Sahel? And of course: more a productive agricultural sector; trade surplus; increased incomes; food security; climate resilient agriculture etc 20

21 South Africa 21

22 Current context for development of solar powered irrigation in South Africa Of 12m hectares of arable land, c 1.2m ha footprint under irrigation Estimate max ha under solar powered irrigation A high level of solar direct normal irradiation A sector dominated by commercial farming sector highly dependent on surface water resources Solar powered irrigation in South Africa Water scarce country: 98% of economically exploitable water accessed 60% used by agriculture ( with high losses) Water limiting factor to growth in agricultural sector Perception of falling PV modules prices creating wait & see attitude in potential buyers Public focus on improving water use efficiencies in irrigation & providing equitable access given country s water scarcity Lack of government program for deployment of solar power in irrigation make capital cost too high for smallholders

23 Factors currently influencing demand for solar powered irrigation Electricity rates in agricultural sector still competitive, notwithstanding price increases: Electricity ~R1.3 / KWh Diesel ~R4 / KWh RuraFlex (Rural Electricity) ~R0.7 / KWh Solar (Commercial) ~ R / KWh Lack of clear business case for solar irrigation technology/ financial benefits among farmers. Expectation that component prices will continue to fall Perception that funding not available Substantial upfront investment required Fear/risk of loss of components by theft

24 Key drivers for market demand development Energy pricing Since 2008 electricity prices have risen and agricultural sector pays the highest rate of all sectors Expectation is that agricultural sector will bear increases in future, linked to agricultural production outputs Energy Availability Escom investments in infrastructure are not matching maintenance needs and growth in demand Declines in service and increases in price have been gradual but are now creating shock Shortages currently felt in commercial and residential sectors are expected to move to agricultural sector next Green Production Premiums currently paid by European buyers for certified green production provide a margin for use of renewables in supply chains

25 Building on South Africa s Strengths Higher Green Agri Yields More Export Trade Surplus Income Increase RSA is an export hub and regional manufacturing base of equipment of which Solar Powered Water Pumps have huge potential, especially for Sub-Saharan Africa 25

26 RSA Produces Enough Agricultural Products, but Many small holding farmers are at risk of food insecurity Unemployment and other income-related threats are rampant Can be addressed with more agri products for internal consumption Higher trade surplus for higher GDP and employment 26

27 Smallholder Focus Subsistence Farmers ~3mn households occupy 4mn ha Smallholders 225k occupy 10mn ha Economic Empowerment: Assist smallholding farmers improve their technologies and yields and transition to commercialization/export Commercial Farmers 40K Occupy 82mn ha 27

28 Sources of Irrigation Surface water sources (87%) = Cheaper solar powered systems required 28

29 Key Drivers in Agriculture High-value agri sector / Rights Unreliable Energy Access Extreme water scarcity <1.5M ha (10%) irrigated, accounting for 30% of total crop output Significant amount of rural employment / 2.6% GDP Farm size is steadily increasing, indicating consolidation Smallholders are key strategic group for RSA Power demand will double by 2030; without investment shortages will increase Agri power prices are unsubsidized & have risen by 90% 67% of agri energy use comes from diesel Almost half of irrigated areas rely on pumped water Groundwater is scarce and extremely limited Over 98% of renewable water is already being used 60% of all water extracted is used for agriculture Irrigation schemes have water losses between 35% and 45% Could solar irrigation provide a solution? 29

30 South Africa: Challenges Barriers to scaling solar irrigation Potential Solutions Upfront capital costs of solar remain prohibitive for many farmers Land reform makes investments for existing farmers less palatable Credit lines; lease back agreements Short Term: Provide solar/efficiency opportunities with short paybacks Long Term: Provide irrigation solutions for new land holders Limited understanding of technology by banks for financing Perception of theft and security risks Capacity building and awareness raising with banks Remote shut-off capacity; insurance 30

31 Potential Market Size for Solar Irrigation Target Market 10% conversion Sales Revenue Estimated Market Size 40K Commercial 225K Smallholders 26,000 farms $5-12K Solar system $195 million Solar is already competitive with diesel when grid connection is not available or unreliable Commercial Farmers driven by energy efficiency and independence Smallholders driven by energy access and fuel costs South African neighbours well suited for a various of energy / energy efficiency uses including cooling and lighting 31

32 South Africa: Moving ahead Assessment of energy efficiency benefits Clarification of land issues Suitable SHF packages Next focus: Establish mobile asset registry to create collateral class for solar Broaden access to financing options for SHFs and Commercial Allow grid access for feed in of excess capacity Clarify potential target markets more closely 32

33 Yemen 33

34 Low Public Service Provision and High Individual Water Pumping Solutions Fuel-Powered Irrigation Pumps Domestic fuelpowered Pumps 100, ,000 34

35 Many Challenges Current Situation Limits Options The political and security situation that is dragging since 2011 has left farmers with little options Price of Diesel in USD/yr for a small farmer (>2ha) Since September 2014, Yemenis cannot obtain fuel, even in the black market 35

36 Yemen: Key Drivers In Agriculture Food Scarcity Limited Energy Access Extreme water scarcity 45% of the population is food insecure Smallholder dominated : 72% of farms < 1/3 ha Smallholders have less economic access to water During fuel shortages 50% of farms were abandoned 20% of the rural popn has grid access Diesel price subsidizes removed in July ( 95%) 1970 s to 2011: 100,000 wells based on Diesel Farmers spend approx. $252 million/month on diesel Cost of energy driving farmers off land Yemen is one of the most water-stressed countries in the world Water inefficiency is as high as 68% 90% of groundwater is used for agriculture Could solar irrigation combined with Drip provide a solution? 36

37 Yemen: challenges Barriers to scaling solar irrigation Potential Solution Upfront capital costs of solar remain prohibitive for many farmers Low public awareness of benefits of solar Lack of product standardization or quality assurance Lack of local capacity and skills Dedicated credit lines; loan facilities; training for banks Coordinated action within donor and development community Manufacturer led global standards development Capacity building programs / training Water Resource scarcity Combine drip with solar 37

38 Yemen: Potential Market Size for Solar Irrigation Pumps No. of diesel pumps No. of wells Cost of system Estimated Market Size 280,000 pumps 100,000 wells $7,000 Solar system $ million p.a Solar Five-Year Costs (by fuel type, in thousands USD) $16.8 Solar is already highly competitive with diesel Butane Diesel $14.4 $27.5 Combined public / Private sector approach required 38

39 Yemen Business Case Comparison of energy costs for Lorentz solar pump installation in Yemen Diesel is subsidized (50 %) by the government. Significant cost increases in diesel are inevitable due to high cost of transportation and fuel subsidies reforms. The solar solution provides the cheapest and most fixed known cost over five years of ownership. Source: Lorentz and TSC, Case Study,

40 YEMEN: Moving ahead Less than 1000 units installed Need to clarify economic benefits Critical time for action due to subsidy removal Limited suppliers and installers assess capacity building Residential, Industrial and Agricultural sectors to benefit Market transformation possible Next focus: Coordination of multiple donor and development programs (USAID, GIZ, IFAD, WBG) Establish mobile asset registry to create collateral class Create access to financing options 40

41 What s Next for Yemen Donor Community Commitment to Offer Support for Development Establishment of Loan Guarantee Facility Build Skills of Local Distribution Network Build Skills of Technicians and End Users 41

42 Going Forward 42

43 Solar Irrigation Program Components Market growth requirements Step 2 Pilot Step 1 Catalyze Step 3 Step 4 Create Pioneer Scaling-up and Tackling Market Barriers Step 5 Market Building 43

44 IFC: Catalyzing the Private Sector COMPONENT 1 Private Sector Market Development CLIENTS Manufacturers Equipment Suppliers & Distributors Service Providers (O&M, installation) Develop focus market intelligence on regional hubs. Develop distribution / service networks Distribution / Service capacity building Working capital / lines of credit Farmer access to financing (through IFC or local banks) Provide risk reduction for Banks (FLGs) Farmers (Interest rate subsidies) Projects ROLE FOR IFC Sahel Irrigation Initiative Pilot Program for Climate Resilience Scaling up Renewable Energy Program 44

45 Coordinating and Enabling the Public Sector COMPONENT 2 CLIENTS / PARTNERS ROLE Public Sector Coordination Government Ministries Certification Authorities MFIs / Development Partners Participate in establishing a supportive regulatory environment for private sector development Develop quality assurance and appropriate standards for equipment Support elimination or adjustment of traditional fuel subsidies Offer land rights / policy framework Guide development of smart tariffs Support capacity building and awareness raising Provide input on investment climate policy Support PPP projects 45

46 Development Partners: Development of Scalable Business Models COMPONENT 3 CLIENTS / PARTNERS POTENTIAL ROLE FOR IFC SMEs SMEs capacity building and finance through SMEs Ventures Catalyze the development of scalable business models Communities Assessment of business opportunities and risks Assessment of project s impacts and development contributions Trade finance/ Securitized finance NGOs Access to finance/blended finance 46

47 Financing Model The Global Irrigation Program (GIP) An IFC led US$250m financing platform directed to facilitate the sale of efficient irrigation equipment and systems to farmers, dealers, cooperatives, etc in emerging markets Goal is to help Irrigation Companies (ICs) to increase overall sales and not just to mitigate risk Irrigation Company ( IC ) Irrigation equipment & systems Global Irrigation Program Dealer / Distributor / Aggregator Irrigation equipment Irrigation equipment & systems (@ times w/ credit terms) Training and know-how transfer I Borrower Borrower Borrower Borrower Borrower Farmers Possible Structures: Account receivable financing Financial intermediation Direct Producer/Buyer financing 4 47