Africa's off-grid PV growth to surge if financing is adapted
The growth of distributed solar in Sub-Saharan Africa is set to accelerate in the coming years if new financing models are adapted to build on regulatory progress in the utility-scale sector, leading industry figures said at the PV Insider South Africa 2016 conference.
Zambia's Industrial Development Corporation (IDC) last month awarded France’s Neoen and U.S.’ First Solar a 47.5 MW utility-scale solar power project at a tariff of $6/MWh, the lowest tariff price in sub-Saharan Africa to date.
The project, to be located in the Lusaka South Multi-Facility Economic Zone, was allocated under the International Finance Corporation’s first ‘Scaling Solar’ program in Sub-Saharan Africa.
Zambia tendered for up to 100 MW of capacity and Enel Green Power also succesfully bid for a 34 MW project at a reported price of $78/MWh.
Scaling Solar establishes a transparent and competitive process, supplies contractual documents that are fair and bankable for governments and investors, and provides financial guarantees and insurance to de-risk projects.
Feed in tariff schemes and tender processes are supporting renewables growth in the Sub-Saharan utility-scale sector as the development of projects has proven challenging. The capacities of sub-Saharan grids are relatively low, utility offtakers can present high credit risks, and a lack of regulatory frameworks can delay projects.
In this context, distributed generation projects are seen as a good fit to fulfil the region's growing need for domestic and industrial electricity, speakers told the PV Insider South Africa 2016 conference on June 8.
"In the next couple of years, the big opportunity is decentralised networks-- it could be with PV, with wind-- in order to leapfrog the expensive time-consuming build of the transmission system," Christoph Ehlers, Chief Operating Officer of ACWA Power's renewables division, said.
Sub Sahara is well-placed to benefit from falling PV costs, Marc Immerman Principal, Metier Sustainable Private Equity Practice, said.
"With the reduction in the cost of PV panels, it starts to make more and more sense really...setting up distributed generation solutions, tailor-made for the customer," Immerman said.
Immerman used the analogy of cellular mobile networks in the Sub-Saharan telecommunications market.
"Really it's bypassed fixed line telephony...why can't the same happen in the energy market?" he said.
Sub-Saharan distributed generation projects have consisted of small-scale projects based on lease-based finance models, and larger microgrid projects which provide power to a local community or industrial site and often use energy storage technology.
The deployment of PV with battery storage will be boosted by rapid reductions in storage costs in the coming years, Ira Green, co-founder and managing partner of developer GG Energy, said.
"Even if it's plain basic vanilla battery storage you're starting to see the same developments in that market as we saw in PV 10 or 12 years ago," Green said.
"That's going to create huge opportunities and I think this is the continent that is going to benefit from it the most," he said.
Utility-scale development in Sub-Saharan Africa is helping to lay the foundations for future growth in on-grid and off-grid applications, prompting authorities to improve the bankability of utility offtake customers and improve regulatory frameworks.
Recent initiatives such as IFC's Scaling Solar and the U.S. Agency for International Development's Power Africa plan have already impacted the utility-scale market, Andrzej Golebiowski, project developer at Scatec Solar, said.
"I think something has been changing in the last couple of years...there's been much more focus on creating bankable frameworks and predictable procurement processes," he said.
IFC-supported tenders in countries like Zambia, Ethiopia and Kenya have established robust frameworks which promote the development of higher-quality sustainable projects, Green added.
"I think you will get a lot of quality projects coming out of that process," he said.
GG Energy has mainly targeted captive industrial customers, such as mining companies, in sub-Saharan Africa. Distributed PV and wind projects can help energy-intensive firms reduce their reliance on diesel fuel and offer benefits such as improved reliability of supply and the option of selling excess generation back to the grid.
From a development perspective, large industrial firms represent "a strong offtaker which can enable the project to move forward quickly," Green noted.
GG Energy aims to de-risk its projects as much as possible to attract investors and may restructure projects to provide different Internal Rates of Return (IRR) for different investments, Green said.
Over the long term investors might expect IRR percentages for Sub-Saharan projects in the "low to mid-teens," he said.
According to Immerman, renewable energy projects outside of South Africa are offering IRRs between 15% and 20%, "depending on the project and the region and the offtaker."
Time to shine
A greater focus on adapted financing models should prompt a surge in distributed generation projects in the coming years, the experts said.
As Immerman pointed out, lower cost technology has created market openings and small-scale solar and wind projects can be developed much faster than larger plants.
"Now that renewables has crossed the grid parity threshold...it is just a case of timing and really figuring out a different business model to unlock the potential," he said.
According to Green, Sub-Saharan Africa is at a critical stage in the development of its electricity network and generates opportunities for off-grid projects.
"We see that there is a great opportunity because of the way demand is distributed across these countries...renewables will play a very, very important role in the development of power in sub-Saharan Africa," he said.