Renewable energy: Africa and the solar challenge

“Sub-Saharan Africa has a colossal potential for producing solar electricity, which should enable the region to meet its energy needs in a sustainable manner,” notes Hugo Le Picard, researcher at the French Institute for International Relations ( Ifri) in an editorial published in late May. In 2017, 4.6 TWh (terawatt hours) of electricity from solar was produced on the continent, while its theoretical potential is estimated at more than 60 million TWh per year. In comparison, Asia has a theoretical potential of 37.5 million TWh / year and Europe, only 3 million Twh / year.

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An under-exploited potential …

While Africa is largely under-equipped in terms of energy production, it has not yet taken the path of catching up and solar represents only 2% of its electric mix. Out of 80 gigawatts (GW) installed, photovoltaics represents only 1.5 GW. “Almost half of Africans (600 million people) do not have access to electricity in 2018 and around 80% of businesses in sub-Saharan Africa suffer from frequent cuts, causing substantial economic losses”, underlines Arnaud Rouget, Africa analyst at the International Energy Agency, on the ID4D reflection blog run by the French Development Agency (AFD).

… Lack of investment

However, favorable winds were blowing over the area. The sharp drop in photovoltaic costs, the multiplication of funding supported by donors and the appetite of the private sector for solar projects should have resulted in a greater use of solar energy. Unfortunately, the brakes and constraints remain significant. “The solar challenge in sub-Saharan Africa is neither technological nor technical,” notes Hugo Le Picard. “Unlike thermal power plants, almost the entire cost of a solar power plant is concentrated in capital expenditure. Solar investment therefore requires certainty of payment over the entire life of the plant, in order to be able to be financed under favorable conditions, that is for more than 25 years, “he continues. However, the sector as a whole remains handicapped by a number of difficulties. Energy services remain insufficient and unreliable, even in more advanced countries like South Africa.

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Failed national electricity companies

Among the main obstacles to investing in solar energy, Hugo Le Picard points to the poor financial health of electricity service companies in sub-Saharan Africa. According to a World Bank study, of 39 countries in the region, 12 countries had power sectors that did not recover half of their total costs and 18 did not even recover their operating costs. The list of technical and financial difficulties impresses: dilapidated transport and distribution networks, lack of maintenance investments, significant technical losses online, but also theft due to wild connections, to which are added the unpaid invoices by consumers .

Hugo Le Picard then describes a vicious circle that sets in: “The poor financial situation of these companies lowers maintenance investments. The quality of services is deteriorating, the frequency and duration of power outages are increasing. This has a negative effect on the economies of countries representing a cost ranging from 1 to 5% of the national gross domestic product (GDP). More and more users refuse to pay for a service that has become mediocre, which further reduces the income of the electric companies. “

This observation of the vulnerability of national electricity companies is also shared by Benjamin Denis, project team manager, in charge of energy, at the French Development Agency (AFD). “In many sub-Saharan African countries, the resources devoted to strengthening operators and mitigating the risk of default are insufficient […] Due to recurring cash flow difficulties, it is not uncommon to find these electricity companies paying their suppliers a year late, “he explains on the ID4D blog.

The deployment of centralized solar energy is also limited by the absorption capacity of the distribution networks. Most of the time, national companies manage the distribution network and buy electricity from producers. In Kenya it is KPLC, Sénélec in Senegal or Zesco in Zambia. Electricity producers, like solar power plants, therefore depend on a single customer. A default by the national company or a breach of contract leaves a major risk for independent electricity producers.

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Change paradigm

“Improving the financial viability of national electricity service companies is a sine qua non condition for allowing the multiplication of solar projects by independent electricity producers,” says Hugo Le Picard. “Governments should focus today on improving the operational efficiency of the sector. The aim is to reduce technical and non-technical losses, improve revenue collection, limit overstaffing and increase prices, ”he said. He therefore recommends the installation of solar power plants near cities to reduce online losses and the installation of prepaid meters to avoid unpaid bills.

For a simplified and coordinated approach

The Covid-19 pandemic will have repercussions. Financial resources may dry up. The sudden halt in growth and the possible monetary depreciations must be taken into account and will weigh on the cost of solar power plant projects. “It is necessary to clarify the roles of the various actors present on the sector in sub-Saharan Africa to make the most of the skills of each and ensure that funds are allocated effectively”, writes Hugo Le Picard. He therefore recommends that donors focus on the segments where the private sector cannot invest, in particular in networks and reserve the use of tenders for larger projects (50 MW +). For smaller projects, he cites, for example, the establishment of mechanisms such as “Feed-in-tariffs”. This mechanism makes it possible to set a buy-back price for electricity calculated on the cost of production, ensuring investors the profitability of their project.

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Still obstacles to remove

Most purchase contracts are signed in dollars, transferring exchange risk to national power companies, which buy electricity in dollars from producers and resell it in local currency. “To avoid such a threat, it is essential to rely on risk management solutions and to intensify efforts in favor of electricians and their networks”, analyzes Benjamin Denis. Hugo Le Picard also invites states to “remove obstacles to investment by the private sector, which will have a key role to play more than ever”.

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