How BRICS bank can be a friend to solar

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Last week, Brazil, Russia, India, China and South Africa (BRICS) confirmed they had joined forces to form the joint-nation New Development Bank (NDB). Each country will input an equal US$10 billion, creating an initial fund of US$50 billion, scaling up to US$100 billion in development funds.

The BRICS countries jointly pledged to prioritise sustainable development, prompting commentators to herald a big potential boost for solar in emerging markets. However, with very different cultures and politics, just how much solar will realistically be supported by the new bank is open to question.

Frost & Sullivan innovation consultant, Pramod Dibble has high hopes the BRICS leaders will back renewables energy, with wind and solar likely to be “at the top of the list”.

If NDB follows in the footsteps of the development pillars of the West – the International Monetary Fund (IMF) and the World Bank – funding any profitable project, NBD “can very easily fund renewable energy”, says Dibble. Solar investment is “not a hard decision for a long-term profit orientated person to make, it’s not difficult at all”.

Meanwhile, Raj Prabhu, CEO and co-founder of Mercom Capital Group, a clean-tech communications and research firm, says he is eager to see if NBD “is really a serious fund that is actually going to make some difference, or just a fund made for political reasons”.

According to initial estimates from Columbia University professor Stephany Griffith-Jones in June, the proposed US$100 billion fund could reach annual lending levels, after 20 years, of up to US$350 billion, or US$34 billion annually.

With added public and private funding, NDB could be used for investment projects worth US$68 billion annually. “This would be far bigger than the World Bank loans,” says Griffith-Jones.

But with UN estimates of the trillions required to lift BRICS nations’ infrastructure from non-existent to thriving, the NBD funds are a “drop in the bucket”, says Prabhu.

In 2013, the China Development Bank lent out more than US$200 billion and Brazil’s national development bank US$90 billion, estimates Prabhu. Compared to BRICS’ meagre US$50 billion “the amount is too small” to be serious just yet, says Prabhu.

But in comparison to the Western conglomerates of the IMF and World Bank, the BRICS formation raises more suspicious eyebrows in missing a crucial element: similarity in culture and politics.

For BRICS there simply “isn’t a lot of common stuff”, states Prabhu.

“There is a lot of cultural conflict there; Russia seems to have a hard time playing nice with everybody, and Brazil is all the way on the other side of the world, with its own set of problems, and South Africa was not even in the original BRIC organisation,” agrees Dibble.

It took two years for the competitive nations just to divide NDB’s roles: headquarters in Shanghai, first chair of governor’s board from Russia, first chair of the director’s board from Brazil and its first president from India.

This tension could mean no solar funding for anyone: the biggest advocates for solar development in the BRICS family are also the closest rivals. “China wants to project itself” claiming the headquarters, while India “wants to show that it’s powerful too” staking the first presidency and christening the bank ‘NDB’, says Prabhu. Even when compared to its suspicion of the West, when it comes to China, India is “even more sceptical”, says Prabhu.

Some common purpose

However, there is one knot tying these starkly different nations. “BRICS countries are not happy with their role in [the IMF and World] banks,” says Prabhu, pondering if NDB is just the result of “immediate frustration that made these countries go and start a bank”.

The IMF and World Bank have proved “too bureaucratic” for funding the energy and infrastructure ambitions of BRICS, says Griffith-Jones

Dibble says the IMF and World Bank have every right to be worried at the competition from the new bank. The way the IMF and the World Bank “behave towards developing economies; it isn’t really conducive towards economic development in a sustainable and equal manner”, says Dibble.

In response, NDB is looking to show it is “the alternative” and may fund more “neglected” causes – such as renewables, says Prabhu. But whether NDB joins forces with Western banks, or takes a rigid rivalry, the United Nations has estimated renewable energy requires US$1 trillion a year in investment. “There is a lot to be done,” says Griffith-Jones.

A crucial plus for BRICS solar funding; pro-solar China’s economy outweighs all the other BRICS put together. “China is going to have the lion’s share of the stake in this bank,” says Dibble. To bring the bank to its further planned US$100 billion target, China is going to contribute US$41 billion. China in the lead will make solar funding “more feasible, and encourage others like the World Bank to do more [solar projects]”, says Griffith-Jones.

With the bank’s headquarters in Shanghai, and with China’s investment in the NDB set to outweighs all the other states, Prabhu predicts China will begin to boss the bank. “Once that money is in then China will have a little more say,” he says. Although this could be a voice for solar, it could equally prove an impediment if other parties object to China’s stance, says Prabhu.

The most likely letter to object to BRICS leading development bank investments for solar, is the letter R.

Given the current crises in Ukraine, Russia wants to sell as much natural gas to China as possible, says Dibble: “If China develops solar infrastructure heavily, then the demand for natural gas goes down. I don’t see Russia really backing that play as much.” As energy access is transformed into a weapon between Ukraine, Russia and the rest of Europe, “Russia will stay focused on fossil fuel development” says Dibble.

But ultimately solar could win the numbers game: India, South Africa, China and Brazil all want to develop solar capacity, meaning Russia is the only likely opposition. And as the NDB is not led or headquartered in Russia, and not funded primarily by Russia “they might not be as large a barrier [to solar funding] as it could be, it’s more likely that what China and India want, “is what the bank will do” says Dibble.

The other compelling fact in solar’s favour is that billions of people living in the BRICS nations are without basic electricity; the NBD could be a mechanism to help address that. “[India] still has a lot of people without electricity, as does Africa, it will be a priority for the BRICS development bank to expand access to clean water and energy – and solar would be a very good way of doing that,” says Griffith-Jones    

In comparison to maintaining and upgrading the centralised energy infrastructure in the West, for BRICS nations, smaller energy infrastructure “distributed generation makes sense” says Dibble.

If the NBD focuses on installing micro and community grids, with some storage and smaller transmission distribution, NBD could “make a huge impact” for BRICS and for solar investment, says Dibble. Rural solar projects are the most likely bet to be funded by NBD, as there is a “PR leverage” NDB could get out of it, says Prabhu.

Leapfrogging expensive grid infrastructure is “an advantage of latecomers; it’s very interesting and the sort of thing that would be really exciting if [BRICS] did it”, says Griffith-Jones.

“Solar makes a lot of sense as the engineering challenges associated with micro-grids have more or less been solved; it’s a safe scientific bet,” says Griffith-Jones.”

Economical practicalities still propose a hurdle for smaller off-grid solar projects: NDB may need to use intermediaries “to make it more agile”, says Griffith-Jones. As private banks will want to make money, “using national development banks or local cooperatives may all be helpful” in getting funds to decentralised renewables adds Griffith-Jones.

Overall Prabhu predicts NDB “is not going to be a huge deal” for courageous shifts in energy infrastructure “I would not take it seriously that this is going to solve energy and infrastructure problems,” he says.

But Dibble predicts a half-and-half scenario, with the billions in funding being compromised to a lower level but the possibility for “fairly high-profile and forward-looking projects coming from this bank”.

Griffith-Jones dispels critics as the BRICS countries already have “expertise” and successful national development banks. “Some academics and NGOs are just full of concerns but give it a chance and wait for it to work,” she says.

Indeed, there is no reason why NDB’s debut shouldn’t be a solar project, says Griffith-Jones. “It’s really interesting, and I will be watching it a lot.”

The NBD's initial US$50 billion funds are a “drop in the bucket” says Mercom CEO.
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