Long touted as the most widely available energy source, solar energy has come of age in the past 17 years. Solar photovoltaic (PV) in particular has experienced tremendous levels of innovation and scale, thus becoming truly ubiquitous.
“Among renewable technologies, solar PV installations have seen the fastest growth, with a 21-fold increase in the 2010-21 period, as a result of major cost reductions backed by technological advancements, high learning rates, policy support and innovative financing models,” Irena writes in its Energy Transition Outlook 2022.
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After passing the milestone of 100GW of installed capacity in 2012, global solar PV installed capacity reached 843GW in 2021.
Analysts expects this to be only the tip of the iceberg and solar PV to lead the renewable energy revolution moving forward and become more and more of a key pillar in any decarbonisation effort. Under the 1.5°C scenario, installed capacity is expected to reach 5200GW by 2030 and 14,000GW by 2050, according to Irena estimates.
Foreign direct investment (FDI) has been instrumental to the rapid growth and diffusion of solar energy applications. Energy companies, particularly from Europe have triggered a first wave of cross-border FDI into solar energy in the 2000s. Their peers from North America and Asia followed suit in the following decade, accelerating the globalisation of the solar energy market.
FDI into solar energy projects has been on a natural upward trajectory since 2005, peaking in 2019 at $61.4bn, according to figures from foreign investment monitor fDi Markets. In total, $388.6bn of foreign capital has gone into solar generation between 2005 and 2022.
There are many nuances to this upward trajectory, particularly when it comes to its geographic distribution.
FDI in the solar energy sector has moved from being concentrated mostly in western Europe and governed by policy incentives to becoming ubiquitous across the world and driven by falling prices – the global weighted-average levelised cost of electricity (LCOE) of newly commissioned utility-scale solar PV projects fell by 85% between 2010 and 2020, that of concentrated solar power (CSP) by 68%, according to Irena figures.
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Plummeting costs limited the need for public incentives for solar to be competitive vis-a-vis other energy sources – in fact, solar PV is already the cheapest source of energy in countries with high-quality resources even not considering fossil fuels negative externalities –, which levelled a playing field originally skewed in favour of European countries with deep public budgets.
Solar FDI goes global
If FDI into solar used to be an almost exclusive European play in the 2000s, with European producers chasing incentives across European countries, by the mid 2010s the flows of capital have started to include destinations with high direct normal irradiance (DNI) beyond Europe, particularly in Latin America and Africa.
Chile, thanks to its irradiation levels – the second highest in the world after Namibia’s, according to World Bank data – big industrial clients like mining companies and an improving, market-driven regulatory framework, became a poster child of this new wave of solar FDI. Foreign investors announced solar projects worth $18.2bn in the country between 2010 and 2020. Most of them (75%) came from Europe, with Spanish companies leading the way.
Chile became the catalyst for booming European, as well as North American investment across the whole of Latin America. Investments by Western European companies into solar power developments in the region surged by a factor of 17 to $7.7bn between 2010 and 2020. Meanwhile, investments from North American companies in Latin America went from negligible in 2010 to $1.9bn in 2019, although in a more volatile fashion.
Foreign investment also started flowing into countries with top-class solar resources in other geographies, once again signalling a maturing market. Among others, solar FDI into Egypt hit $5.4bn in 2015, while Australia saw annual investment flows of above $3bn from 2015 onwards, peaking at $20.3bn in 2019 thanks to one particular project: Singapore-based Sun Cable’s plans to build a A$22bn ($15.6bn), 10GW solar power plant in the Tennant Creek area of Australia and a subsea cable connecting Australia with Singapore.
By the time FDI into solar projects peaked in 2019, its global spread was dramatically different than at the beginning of the decade.
In the record year of 2019, roughly 45% of overall foreign investment in solar went to Asia Pacific, roughly 19% to Latin America, while western Europe recorded a little under 4% and North America roughly 12%. In 2010, North America and Europe combined represented nearly 59.5% of the solar destination market.
If the spread of investments looks less European-centric as of 2019, there are regional quirks to this new global solar market. Asia-Pacific, for instance, remains a regional solar market with over 65% of solar investments coming from fellow Asian countries in 2019.
China is a story of its own. Beijing’s clear policy input in support of solar energy – enshrined in successive five-year plans since the early 2000s –, set in motion the country’s production machine to meet the resulting booming demand for solar PV panels. Its cumulative installed solar power capacity swelled from 4.2GW in 2012 to 253.4GW in 2020, the world’s largest according to IEA figures. With Beijing also keen to promote a “Go Global” agenda for the private sector and thus export some of the often redundant production capacity built at home, Chinese solar developers became active foreign investors in the mid-2010s. In 2014 alone, foreign investments in solar generation by Chinese companies reached a peak of 17 projects worth a total of $6.5bn and spread across Japan, India, the UK and Morocco. However, they have gradually retreated in recent years as sensitive sectors like energy became subject to greater FDI scrutiny, and priorities at home changed. Chinese FDI into solar fell to $1.7bn in 2019, $2.4bn in 2020 and merely $361m in 2021.
The overall impressive growth in investments has not only contributed to bring forward decarbonization processes, but it also had an important impact on socio-economic dynamics in those destination countries where investments brought about new jobs and labour opportunities. Over the period 2005 to 2020, it is estimated that 83,362 direct jobs have been created globally as a result of solar FDI – roughly 30% of the total estimated jobs created from renewables FDI. According to Irena, 3.8 million jobs were created in the solar industry in 2019, up from 1.4 million in 2012.