Common Risk Mitigation Mechanism (CRMM)

The historic Paris Agreement of 2015 stated “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development“ (article 2.c). To achieve this objective, on May 18th 2017 in Delhi, understanding that one of the biggest obstacles to solar deployment is the cost of capital (~70% of total installation costs), 16 countries of the ISA jointly commissioned of a study to define and structure the Common Risk Mitigation Mechanism (CRMM) for solar power generation projects. This instrument, if implemented, will dramatically lower the cost of finance for renewable energy and the overall price of electricity. Even more significantly, CRMM will vastly enlarge the total size of the renewable energy market by making investments in renewables widely available to institutional investors.

Benefits:
The proposed CRMM will offer a simple and affordable tool that will create a secure environment for private institutional investment in solar assets. The instrument will help diversify and pool risks on mutualized public resources and unlock significant investments. It would underwrite investment risks and thus create a significant leverage to increase direct investments.

Developments:
Countries with high solar power potential have put their muscle behind a common risk mitigation mechanism that could unlock up to USD 15 billion of investments to add 20 GW of photovoltaic capacity in more than 20 countries. A task force has been set up to define and structure a Common Risk Mitigation Mechanism (CRMM) for solar projects in solar-rich countries in order to “dramatically” reduce financing costs. The proposed Common Risk Mitigation Mechanism (CRMM) is a multilateral market platform that has received initial support from countries that include India, France, Australia, Mali, Namibia and Nigeria, among others. A CRMM feasibility study released at the India Pavilion at the climate negotiations in Bonn outlines the 20 GW plan as a pilot phase with an eventual aim to leverage billions of dollars of impact capital to catalyse USD 1 trillion of domestic and international private institutional capital. CRMM could help build over 1 TW, or 1000 GW, of solar power generation capacity in low and middle-income countries by 2030.

About ISA:
The International Solar Alliance (ISA) is an Indian initiative, jointly launched by Prime Minister Narendra Modi and the then President of France in November 2015 in Paris on the side-lines of COP-21, the UN Climate Conference. It aims at addressing obstacles to deployment of solar energy through better harmonization and aggregation of demand from solar rich countries lying fully or partially between the Tropic of Cancer and Tropic of Capricorn.

The ISA Interim Secretariat has been operational as a de-facto organization since January, 2016 and three programmes have been launched — Scaling Solar Applications for Agriculture Use, Affordable Finance at Scale, and Scaling Solar Mini-grids. These programmes are expected to help in achieving the overall goal of increasing solar energy deployment in the ISA member countries for achieving universal energy access and speeding up economic development.

Problem areas:
Financing of solar power generation assets in a majority of developing countries suffers from a lack of risk mitigation tools, a high perception of risk among investors, high transaction costs, small project sizes, and lack of scale. Investors, developers, and other stakeholders need transparency and clarity of process, which is often missing in some countries.

CRMM is designed to create a global solar market, boosting confidence among the international development community and private and public institutional financiers, to help meet international climate targets in countries with high solar potential.

By: Dr. Vivek Rana