Podcast Details


Dan Croft | Founder of Scaling Solar Program, International Finance Corporation

2022-07-29
Dan Croft is a founding member of the IFC scaling solar program and was instrumental in developing and implementing IFC's so-called ‘Upstream’ strategy. He has been involved in the renewable sector since the beginning of his career, and has extensive experience advising governments and other authorities on how to form public-private partnerships in the energy sector. In this interview, Mr. Croft gives us an insight into the African solar market, what the challenges for renewable energy integration are across several African countries, and why storage will play such a key role moving forward. I hope you enjoy my conversation with Mr. Croft!

Topics covered on this podcast:
1. A brief introduction to Mr. Croft's involvement in the energy sector
2. What was the idea behind the first scaling solar initiative, which was in Zambia?
3. What were the key challenges in the African solar market, early on in its development?
4. What are the primary obstacles which the IFC scaling solar program helps to manage across the RE markets in Northern, Eastern and Western African countries?
5. How important will energy storage be in the IFC scaling solar's future programming?
6. What does the future of renewable energy look in Africa?

Transcript


00:06 Karan Takhar
Hello everyone. This is Karan Takhar, and welcome to the Zenergy podcast. Over the past decade, India has done an impressive job of integrating renewable energy into its energy mix. For this Fulbright podcast series, I sought to investigate the enabling factors and potential of India's global leadership in renewable energy, with the focus on solar. This Fulbright series is broken down into Four Seasons. This season we capture the views of high-level officials of the Indian Government in energy delegates from African countries looking to India's support. We'll try and understand how India's continued progress in renewable energy development can improve its leadership position in the world.
In this episode, we will be speaking with Mr. Dan Croft, who is the founder of the IFC Scaling solar program and is one of the main people behind the development and implementation of the IFC so-called Upstream strategy. Mr. Croft has been involved in the renewable sector since the beginning of his career, and he's now an advisor for Government and other authorities on public-private partnerships in this space.
In this interview, Mr. Croft gives us an insight into the solar market in Africa, what the main challenges are across several African countries, as well as the importance of energy storage in the sector. Finally, he provides us with his thoughts on the future of renewable energy in Africa, and I really hope you enjoy our wide-ranging conversation. Thank you, Mr. Croft, so much for participating in this interview. I really appreciate you taking the time, and I wanna ask you just to briefly introduce yourself so that we can get an understanding of what you do and the extent of your involvement in the energy sector. Could you provide a brief introduction?

02:21 Dan Crofton
Sure. So my name is Dan Crofton, the regional upstream manager for infrastructure in Middle Eastern Africa for IFC, and what that involves is effectively trying to implement our IFC 3.0 strategy, which is centered around creating a market by going upstream. Upstream for us means early-stage market development, sector development, project development, all of those things with a view to try to increase the number of investable opportunities, I mean obviously ideally. But I have seeked to play a part in investing in those opportunities, but generally speaking, the focus is on market creation.

03:06 Karan Takhar 
I see within which industries specifically. 

03:11 Dan Crofton
So, infrastructure for us would cover energy, water, transport, municipal and environmental infrastructure like wastewater and sanitation. It would cover oil, gas, and mining, and telecoms, media, and technology, that's that's the that's the remit of infrastructure. We have other teams that look at other stuff, but that's generally what we do. 

03:35 Karan Takhar
So, prior to this, new this role of yours, were you were also involved in the IFC Scaling solar initiative, right, correct? Like launching that and getting that off the ground.

03:49 Dan Crofton
Yeah, I was one of the three founders of that initiative, and I led the first iteration in Zambia on the government side, so it involves engaging on both the public sector side and the private sector side, which is quite unusual for us to be able to do both under one structure, but we found a way to make that work, and I led the team that advised the various public sector stakeholders on the government side on how to implement that project.

04:17 Karan Takhar
And how did that idea come about to create this whole new initiative?

04:23 Dan Crofton
I think through a recognition that in a continent with abundant solar resources, nothing was really happening. So, this is a good example of what we would talk about market creation you had. If you just take sub-Saharan Africa, you are probably the majority of the 50-odd countries that would be included in that, trying various different approaches, negotiated deals, competitive tenders, but that were not fully structured, so it left a lot of uncertainty, you know, or Just generally a whole load of outcomes that didn't really lead to projects they and to projects being built. Just various processes that went down blind alleys and got stuck. And we thought that if we adopted the key elements of procurement programs that have been delivered in other markets, you know, once we looked at would include India, the Middle East, some of the Latin America programs that had been successful, South Africa as well, of course, that have been successful in helping allowing governments to procure lots and lots of megawatts of Low-cost renewable energy, So what we did was we synthesized all of those, tried to boil that down into the bare bones and then build it back up in a way that would work in smaller, more challenging markets, and that's really what we ended up doing for scaling solar.

05:52 Karan Takhar
And this was in the 2014 timeframe right around then?

05:58 Dan Crofton
Yeah, probably about that. I think that's when we started, yeah.

06:02 Karan Takhar
Yeah, I was reading the article that you wrote, actually called making the sun work for Africa, and found it super interesting and provided a lot of good content. Next, around that time frame with respect to where the renewable energy like the state of the industry in Africa at the time and I'm just curious to ask, so in the article, you mentioned that like investors were expressing interest in getting involved in the market yet like investor interest First, was not the barrier in terms of allowing enabling the solar market to take off within Africa and I was just trying to understand like why exactly the market had not taken off with it in Africa at that moment in time. Could you just talk a little bit about this?

07:05 Dan Crofton
Yeah, So One of the challenges was that in some countries, and it really does vary by country. It's very tempting to think of Africa as a single market, but it isn't, obviously, and it pretty much every country is different, though. That you see some patterns. Some countries had no capacity or desire, whatever it was, to implement a structured program to procure large amounts of solar, and in many of those, if they were seen as attractive countries, you would have developers going in and having ideas and pitching ideas to governments and saying, well, we'll just do it, and the problem with that is often they had no money, but they did have money. They didn't want to spend it until they knew that they'd secured the project. So they would often look for kind of MOU use, and it's very easy for governments to sign MOU use and appear to be delivering infrastructure, and I know in many cases they thought, well, if we sign lots and lots and lots of MOU use, some of it will come right the problem is then you've got far too many megawatts in circulation, and everybody thinks they've got a project done badly, that project can actually tie government hands, because If the MOU is rather more binding than they realize, then it means that actually they have committed something, or at least given somebody some kind of moral right to press, OK, and the challenge with that is that often without having done the work the developer can't really say much about the economics of the project, so they're effectively it's a. It's like saying to somebody, let's sign an MOU that you're going to buy my car, but I'm not going to tell you what the prices or I'm expecting this to take so long that I'm going to give you a really high price, much higher than you would actually pay if you went to a dealer or looked shopped around, but the car analogy is quite a good one the way that works is it's like somebody walking up your garden path and saying, please buy, do you want to buy my car, and you might be in the market for a car, but it might not be that type of car, and you might not want it at that price, and maybe you haven't really done your research. And what you'd really like to do is to decide what kind of car you want to buy and then look around for who's selling that rather than just take the 1st offer that comes up your garden part, but that's what we see because governments are under pressure to increase the stock of infrastructure in their countries, and it's a real, very real issue, and not just in this space In other countries, governments did get round to organizing procurement processes, but often that where the structure was incomplete. So, in one country, for example, there was a perfectly good tender, somebody won, but they want what they won was the right to negotiate a contract, and that then took two years, and at the end of two years, the Government realized that equipment prices had fallen so much that actually the price, the winning price was no longer the right price. So, they just tore it up and started again. So uniquely with solar, it made sense to try and standardize because what we spotted was that solar is so simple, relatively speaking, compared to other technologies. You know you can't you can't fast-track a hydro just through standardization every hydro is different and requires a lot of analysis, but with solar with a basic amount of site analysis, resource analysis other due diligence. You can actually say a solar project is a solar project as a solar project, and at that point, what you the real critical path item is the documentation and the process, and what you say to a government is if you're really willing to run a competitive process to find out who's going to give you the cheapest price. You can then, through what we've devised, get to the finish line as quickly as you possibly can, and that doesn't protect you from the falling equipment prices because in two years' time you'll realize you could have got it cheaper, but it does give you the confidence to say that right now when I procured that power I got the best price I could have got and then you don't run the risk of realizing of having buyers remorse and having to cancel the process two years further down. So that was really what we could. That was, that was the driver that we saw so much potential, almost nothing happening, lots of activity, but from the wrong types of bidders and the wrong types of players, and this was the other piece that if you actually look at the economics of a solar plant. Privately sourced solar plant. Done as an IPP. The three drivers of costs are the solar resource which is the same for everybody by definition. The cost of equipment, which is largely the same for everybody, although some larger suppliers are able to command slight discounts from suppliers, and the cost of capital, which of course is not the same for everybody and the people you want to be attracting other large utilities, international utilities who are doing hundreds of megawatts a year can do it in their sleep, have bulk buying power very often, in the case of some of the European utilities, for example, have very low other rates of return, and you want those guys coming, but those are the guys that don't come and develop projects because they know how difficult it is and they know that ultimately without a proper process, the Government won't engage properly. Ultimately, at some point, something will fail, so our process was designed to focus everybody on the one variable, the one driver of the price that differs by bidder, which was the cost of capital by D risking the project for bidders upfront. So that they could sharpen their pencils and offer the single lowest price that they could do what we were trying to do.

12:52 Karan Takhar
That makes so much sense, and did you see it to be very effective like right away and over time? How, like, how do you perceive the challenges to have changed after the IIT scaling solar program was initiated and like over time, I know it's expanded to new countries. I know it's really big in Ethiopia and other African countries, and so, after the process was standardized, like did you right away see a lot of interest, and success, and what are like the challenges moving forward, would you say, for the solar scaling program and for unlocking the renewable market in like the northern or eastern Western African countries.

13:40 Dan Crofton
So, the success in the initial market was really significant. Right. So when we were negotiating our mandate to advise the Government, we were aware of various approaches that the private sector market was the Government Two, with offers of fast track power, and it was never fast track, but they just said it was fast track builders would approach, and the market rate, the going rate that bidders seemed to be offering their ministry with was about $0.12 a kWh, and fortunately, the Government decided to go with us they didn't totally stop talking to these guys, which showed even then they weren't necessarily convinced that this was going to work and they thought they should back multiple horses, but they did go with us, and they let us do our thing, and we found a site and we diligence the site, and we offered it up, and you know, nine months later when the envelopes were opened the winning bidder had bid six cents, So we hauled the cost in less than a year, which showed that when you really derisked a project and structured it properly, and there were all sorts of payment guarantees bolted on from the World Bank, and there was an offer of political risk insurance from Meagher and, you know, bidders knew that this had been properly structured IFC was putting it putting a term sheet into the tender to say if anyone wants it is in any doubt that we consider this Bankable. Here's our here's our offer. Right. And that gives the Government the ability to go to market saying our offer or our process is non-negotiable, and we know that it's capable of acceptance in its current form because IFC is willing to finance it. So, give us your best price. That was the dynamic that proved the concept that lands in one country. But the point of the model was actually to create a virtual market for smaller countries to be able to tap into. Because if you're India or South Africa or Brazil, you know that you're going to be procuring so much that it's worth local developers and international developers focusing on a program and really committing resources. The problem with 48 countries doing 48 different things is that it scares the big utility players with the lowest costs of capital away, and it really lends itself to people who are willing to take more of a chance, have a higher risk tolerance, but charge accordingly, which pushes the price. So, what we were really hoping was that if Senegal and Ethiopia and Madagascar and Zambia and half a dozen other countries ordered the same thing, the kind of players that we wanted to attract would only have to learn the documents once. They would only have to learn the process once. Now we did see across multiple countries. We saw lower and lower offers. So Senegal came in lower, Ethiopia came in even lower, and those are the ones that have really got to that stage in Africa, so What we haven't managed to see is what we also hoped would be to see multiple rounds in country, and in most countries that have done multiple procurement rounds of renewable energy, you see a price decline, not just because of the technology, but because actually people get comfortable with the process and they get comfortable with the fact that projects are going to be paid for the first round of South Africa, South Africa Renewable Energy program, for example, I think prices came in somewhere around $0.30 US cents, and it had got down to something like date by round 4, and that was because people got comfortable, and started to realize that this was something that they should spend time on and the profile of the of the winners changed in the early rounds. It was the high-risk, you know, specialist developer types who would come in and were not sure, and they could afford to take a chance by the end. It was a lot of institutional money that needed less returns and knew that because it was competitive, they had to shave every last cost of their bids. We were hoping to achieve the same thing both across countries, which seems to be happening, but within countries, and that hasn't yet happened. We haven't yet had a successful round. There were some initial leads, but and the reason for that is quite simply that we standardized what we could standardize. But you can't change systemic issues that hinder the development of infrastructure in our markets just by coming up with a clever set of documents, so if sectors are of dubious credit, or if there is a shortage of hard currency to pay tariffs in or if the government needs, you know if there's a political if there's a change of Government after an election and somebody decides to change their mind about whether or not solar is really the right answer, nothing we do is going to change that. So those problems remain. What we really focused on was addressing what we could address.

18:38 Karan Takhar
I see. It's really interesting. So, moving forward. Are you still involved with the IFC Scaling solar program, or have you kind of shifted?

18:50 Dan Crofton
Well, I'm loosely involved in that. You know, there are thoughts of adapting the program for wind, there are thoughts of adapting the program so that it has an option to incorporate some battery storage and I'm on the periphery of that what's changed is really. But the product is now quite well understood that engagement in Zambia Probably. I think I spent something like 120 nights in Lusaka in the same hotel over an 18-month period, and I've got a different job now. I run all sorts of things like that. It's my old team that does that, the team that I left, and they've got other guys doing the same job in multiple different markets, so. But I'm not nearly as I'm not involved in the day-to-day, no. But I mean, I'm aware of what's happening, and I still think it's a really good product, and the governments that are willing to do this the right way and to take it seriously, it gets real value if you think about the difference between 66 cents and 12 cents on 100 megawatts. It's you over 25 years PPA it, I think we worked out it was around $750 million. It's, you know, really significant. So, it doesn't sound a lot, but it really is when you add it up, and it's, you know, you think these are some of the poorest countries in the world. So I continue to look very fondly at the program, but others are really taking over implementing it now.

20:16 Karan Takhar
Have there been any tenders that you're aware of, like where storage is now coming into play?

20:22 Dan Crofton
There is in what one of the mandates we're working on, there's a storage element, but not for the reasons that we think it's not an attractive bolt-on for the Government to be able to shift. It's not. It's not peak shifting, so it's not taking energy during the day and using it at night, which is obviously the big drawback of solar normally. You can't do that. You have to use it in real-time. And yet most countries have morning and evening peaks, which is not when the sun is shining. So, it's that's the drawback of solar countries with abundant hydro like Zambia. That's actually manageable because it just allows them to use their water better. So they keep the water for the peaks, and they use the solar during the day in one country where we're currently still working itself, you know, it's a difficult engagement, but the grid is so fragile that actually, the storage piece is really there to stop the system, if there's a momentary outage caused by a cloud going in front of the sun, for example, so we've put storage in there because it's actually necessary to make the technology work, not because it's some sort of economic benefit to the Government, Or the utility, so that's a slightly different thing and that's that's being done on an ad hoc basis under that project what we're really trying to do Is to say if you would like a ready-made procurement package of documentation which includes both solar PV and storage. We have a model that works, but the challenge is, and it's a real one is, that I said earlier that a solar project as a solar project, the minute you put storage in, that changes because there's lots of different uses of storage, there's lots of different types of storage. And then you start saying, well. Now actually, it's less commoditized, it's less standardized, and you actually have to start designing that stuff from scratch, which means that the speed that you get. Right. From having a ready-made package back of documents, you've lost that advantage because you've got to do a load of other work anyway. So actually, it's not as compelling a case to use a standardized model when actually the one advantage that gives you is taken away by another aspect of what you're trying to do.

22:38 Karan Takhar
Interesting. Really interesting, and my final question is, I know you have limited time, so with regards to, like, the future of renewable energy in Africa, are you pretty optimistic that it has a big role to play in Africa's development with your thoughts around like the future of renewable energy in Africa.

23:09 Dan Crofton
Well, it's kind of inevitable, really. Most of these countries have their Paris accord commitments. Now the cop series of greenhouse gas reductions and they people are committing to green their economies, and that's where he is focusing on most deifies and most donors are increasingly pushing back on the carbon, they're not willing to support carbon anymore. You really have to make the case. In some cases, it's inevitable. There aren't options. But unless you can make that case, it's very it's increasingly difficult to offer government support on any kind of carbon-based power generation. So, you've got to find a way to make renewable energy work. So I don't think there's any debate around the future of renewables. I think the question, the more interesting question is how do those electrons get to those appliances that people want? Right. Is it through the old model of generation, transmission, distribution, you know, recognizing that the geography that we're dealing with in Africa and the complexity, it just doesn't make sense the old European developed model of transmission and distribution in many countries would cost the average cost of each new connexion outstrips what that household will spend in their lifetime on energy? So, every new collection undermines the economics of the state utility more, and when you hear that, you think that model is actually broken, right? Or it's it's no longer fit for purpose. What we need to be thinking about now is off-grid electrification solar home systems are OK, but they, you know, they, for some people they, don't give them what they want. But mini-grids are increasingly viable, and we're working on a program to try and do four mini-grids. What we like to think we contributed to in scaling solar, which is try and find a way to open up the market, and mini-grids, by definition, are pretty great, I mean. In terms of their generation, not entirely. There's usually some diesel there until storage becomes cost equivalent, there's usually a diesel backup, but the amount of diesel that's actually burnt in practice is very limited. So, the renewable energy piece will be there, but it's likely to be far more direct supply than Big power stations, transmission network, distribution networks, and consumers because the other issue is, of course, the underlying sector economics are very challenging in most countries if you start going through public sector utilities. These guys, you need to be sure that they're going to pay you for the next 25 years, and most of them are barely solvent because of tariff restrictions and things so much better. If you can get closer to the mobile telephony model, where it's effectively pay as you go right, you don't pay your electricity bill, you get shut down, but there's enough subsidy in there to make it affordable for all, so it's an interesting model to see How that goes?

26:07 Karan Takhar
Thank you so much, Mr. Croft. Honestly, this has been like really insightful, and I've learned a lot, and yeah, that the IFC scaling and solar initiative. It's incredible that you were part of that like founding process, and I really appreciate you taking the time.

26:25 Dan Crofton
No problem. Take care, Karan.

26:29 Karan Takhar
I hope you enjoyed that episode and do check out the show notes For more information on my guest. See you next time.

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