South Africa’s renewable energy IPP program: the rediscovery of upstream project preparation

For most PPFs, incentivizing replication and market development is essential because successful individual transactions have little impact on the infrastructure investment gap in the developing world. Research has rarely been done on how markets like this emerge, but examples of the scaled-up use of PPPs do exist. This chapter explores some of the lessons of South Africa’s briefly successful renewable energy IPP program. That success had little to do with demonstration effects and much more to do with upstream project preparation-activities that prepare the groundwork for successful downstream transactions. The dramatic success of the South African program had a major influence on the IFC’s “Scaling Solar” program, which used extensive upstream preparation to facilitate the closure of two solar IPP projects in Zambia. But Scaling Solar’s success was limited and its upstream changes not sustained. IFC’s new “3.0” corporate strategy, formally launched in 2020, took upstream project preparation to a new level, including the creation of a new “IFC Upstream” department to begin preparing projects three to five years before actual investment. This represents a dramatic change in IFC’s transaction-only approach, but it seems unlikely to achieve outcomes involving projects reaching closure without the involvement of partners like the IFC.