Posted on :Thursday , 27th July 2017
The power generators are essential for both home and businesses in cities across the continent, even in the economic hubs of Lagos, Nigeria, and Nairobi, Kenya. Almost two-thirds of Africa’s 1.2bn population lack access to electricity and, according to the African Development Bank (AfDB), annual power consumption in sub-Saharan Africa per capita is 181 kilowatt hours (kWh), compared with 6,500 kWh in Europe and more than double that in the US.
Sub-Saharan Africa generates as much electricity combined as South Korea and the generation capacity is barely one-tenth that of Latin America. Africa’s population has grown by 2.9% every year over the last 25 years, but grid extension in the continent has only grown by 2.7% over the same period.
The AfDB estimates that it could cost $60bn per year to achieve its target of providing universal electricity access by 2025. “The deficit of power and the reliance on backup solutions is a huge burden to all the sectors,” says Charlotte Aubin-Kalaidjian, CEO of the independent power producer GreenWish Partners.
“Overall Africa is foregoing around 2% per year of growth because of lack of power. There are studies that say that if there was 100% electrification in Africa then growth would reach around 10–15% for the next 15 years. So the energy challenge goes beyond the power sector – it’s really about unlocking economic development.”
Amid the challenging power environment on the continent, however, solar energy has emerged as a shining light. The collapse in solar photovoltaic (PV) panel prices – which have fallen by 80% since the end of 2009, according to the International Renewable Energy Agency (IRENA) – provide Africa with a unique opportunity to bridge the power deficit using one of Africa’s most abundant natural resources: sunlight.
“Today renewable energy is very competitive. Prices for solar power, in particular, have decreased tremendously, and [the cost] has got to a stage where it really is now competitive to traditional power sources,” says Aubin-Kalaidjian. One such example is GreenWish Partners’ independent power project (IPP), which installed and operates a 20MW solar farm in Bokhol, Senegal, that sells its energy to the local power utility Senelec at a rate 40–50% lower than the current Senegalese energy mix, which relies on imported oil and gas.
The private sector has fully embraced the drive for renewable energy in Africa, with initiatives such as the US’s Power Africa Initiative drawing investors eager to turn a profit. Despite the obvious opportunities available to both private investors and African governments, the locations of solar IPPs across the continent are unevenly distributed.
In fact, according to Solarplaza, a Dutch company aimed at invigorating the global solar PV industry, the leaderboard of the top 50 operational solar PV plants in Africa is shared between a mere nine countries. South Africa dominates, claiming 28 of the top 50 solar plants in Africa, and Algeria is second with 12 plants. As a result 80% of the top 50 plants in Africa belong to just two countries, the rest being found in Ghana, Namibia, Cape Verde, Rwanda, Egypt, Kenya, and Mauritania. Of all these plants only Cape Verde’s Santiago Island Solar Park is a state-owned enterprise.
IPPs are the primary vehicle for private investment in the African power sector and over the last 30 years there have only been around 83 IPPs in sub-Saharan Africa, if you exclude South Africa, which has 63% of the market share.
South Africa leads the way in driving private investment for renewable energy projects due to policies such as the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). The programme seeks to accelerate private foreign investment in renewable energy and since 2013 it has delivered 5,243MW through 79 different projects.
South Africa has targeted 18,800MW of electricity to be supplied through renewable energy by 2030. While the South African model is the envy of the rest of Africa, it is not necessarily the ideal model to follow.
While the REIPPPP has been a success with each round of bidding – there have been four so far, pushing prices down – the renewable energy rounds have also imposed contingent liability of around R250bn ($19.11bn) onto the national treasury of South Africa. Very few African countries could support this burden. Indeed the rest of the sub-Saharan African countries struggle to entice renewable energy investment mainly due to a lack of creditworthy power buyers such as utilities, according to Ana Hajduka, CEO at Africa GreenCo.
“The problem with other African countries following the South African model is that there are very few creditworthy offtakers, therefore, the government has to give some kind of support over the power purchase obligations of its utility,” says Hajduka. “This means the government will cover the liabilities of the utilities. But these [liabilities] are usually very large obligations which are encumbering very heavily indebted governments, so it’s an unsustainable proposition to continue down this path.”
The lack of creditworthiness sorely impacts on the availability of funding that can be raised for power projects such as solar infrastructure projects. Just under half of all the power utilities in sub-Saharan Africa are able to cover their operating expenditure, leading to deficits, with several countries losing in excess of $0.25 for every kWh sold. Only Uganda and the Seychelles were able to recover their costs.
One of the main reasons so many utilities are unprofitable is because of the low tariffs they charge. Although South Africa’s power utility Eskom is also heavily indebted, the country’s economy is the second strongest in Africa. But for the other African countries to attract similar investment similar to South Africa, then it is vital that they commission projects even if the cost is above market rates, according to Andrew Johnstone, CEO of renewable energy fund Climate Investor One.
“Success breeds success,” he says. “What other African governments should increasingly do is actually initiate programmes by going out into the market and saying not only are we open for business but this is the deliverable programme we are putting into place.”
However, the renewable energy market in Africa is currently experiencing a slowdown because of the drop in prices of solar panels, which, while good for customers, has caused major disruption, with market players waiting to see if the price will get lower before mobilising.
“At the moment, many African governments have adopted a wait-and-see strategy and they are waiting for prices to bottom out,” adds Johnstone. “However, it is advisable to get some deals on the table today, while recognising that it might be more expensive than the deal you’re going to do tomorrow. But you need to have successful projects going so that other investors can see that it works in your country.”
As officials plan their next move, a breed of solar entrepreneurs continue to fill the space. Operating at a much smaller level, countless keen businessmen and women have taken to solar and are making it work.
Sachi DeCou founded a company called Juabar that operates a network of solar charging kiosks in Tanzania. DeCou uses energy from her panels to sell to entrepreneurs who then offer the electricity to their communities. Juabar’s entrepreneurs are earning profits of between $75 and $150 per month and operating out of 30 kiosks.
On a larger scale M-Kopa Solar provides “pay-as-you-go” renewable energy to more than 140,000 households in Kenya, Uganda and Tanzania and demonstrates the success of those who enter the solar industry. The company was set up in 2011 and since then has added around 4,000 homes each week, charging customers $0.45 per day plus an original deposit of $35 to take home and use a solar kit.
While solar power does provide Africa with a great opportunity to accelerate cheap power distribution across the continent, African governments need to develop innovative solutions to attract foreign investment to scale up infrastructure development, and answer the burgeoning energy call.
On a daily basis the demand for robust solutions to electricity shortages grows louder and louder. The International Energy Agency predicts that this demand will increase at an annual growth rate of 4.6%, and by 2030 it will be more than double the current electricity production. The World Bank estimated in 2011 that sub-Saharan Africa needed to add 8 gigawatts (GW) of new generation capacity each year, but an average of only 1–2 GW has been achieved.
One method would be to pool together a number of countries’ risks for their uncreditworthy utilities through a new intermediary body while the rehabilitation of utilities is taking place, according to Hajduka. “So if countries pool in a regional basis certain levels of risk – such as the lack of cost-reflective tariffs – through an aggregator or entity, then investors would be more open to committing to projects on a regional basis,“ she says.