Renewable energy trends in Africa

The latest data available from the World Bank Group for 2016 shows that nearly half of the world’s population who do not have access to electricity live on the African continent. Despite several initiatives – national, regional and international –  the electrification rate in Africa for 2016 stood at 43% overall and less than 30% for Sub-Saharan Africa. The continent is home to some of the world’s best solar and wind resources, for instance the Great Rift Valley jet stream and direct solar irradiance in the Namibian desert; solar PV and onshore wind energy costs have also decreased significantly in the recent past. it seems only natural that many African countries have turned to renewable energy to address their electricity deficit and high electricity prices, and to bring power to the African people.

The trend towards renewables is witnessed from Morocco to South Africa and from Kenya to Senegal. However, these sources of energy are also intermittent – their deployment requires a grid infrastructure strong enough to alleviate variability and lack of dispatchability (the off-taker is usually obliged to accept as much or as little power as the plant is able to produce at any time). Intermittency represents one of the challenges grid operators and planners across the African continent are trying to resolve.

According to established international practice, large-scale renewable energy development goes hand in hand with a proportionate level of spinning reserve (or other mechanisms, such as interconnection with neighbouring national grids) to secure the entire grid. Electricity generation being the most pressing need in many nations, reserving capacity for emergency situations is an expensive measure and one that not many grid operators are currently willing or able to support. Because of this dilemma, initiatives are implemented across the continent to interconnect countries, allowing the sharing of spinning reserves, so that national grids are not operating in an isolated manner. Interconnectedness is one of the key strengths of the continental European power grid when accepting increasing renewable generating capacity. It is thus likely to represent a massive infrastructure development in African countries over the medium term, backed by capacity building at the grid operation level to enhance renewable energy dispatching.

Beyond grid capacity constraints, the development of renewable energy projects in Africa has historically been hampered by several technical, regulatory and financial challenges; for instance, high transaction costs, perceived risk of off-taker payment default, political instability, physical grid connection challenges, accessibility, social and environmental impacts and/or grid code compliance. It is therefore common to take more than a decade for a renewable energy project to progress to the construction stage. To make such projects viable, investors have tended to develop larger scale schemes, over 150MW for onshore wind. This creates a second challenge for the renewable energy market in Africa as it makes it even more difficult to integrate or to finance such projects, considering the relative scale of national grids and indeed gross domestic product (GDP). Nonetheless, flagship projects that Mott MacDonald has been involved in, such as Taïba N’Diaye wind farm in Senegal, Lake Turkana wind project in Kenya and various 100MW CSP projects in South Africa, have paved the way to demonstrate this is feasible. Such projects help create momentum for bespoke projects to be more successful in the near future.

Another solution to implement renewable energy projects in Africa has been explored and implemented for a few years now – using various forms of public tender to award generating capacity to independent renewable power producers. To get lower electricity prices, several African countries have launched renewable energy auctions, joining a worldwide trend. South Africa has been the leading example for years with its renewable energy independent power producer procurement (REIPPP) programme and the scaling solar initiative spearheaded by the International Finance Corporation (IFC). Mott MacDonald supported both schemes in a technical advisory capacity.

It is essential in such auctions in Africa to avoid what is called “the winner’s curse”, whereby a winning bidder is inadvertently bidding below its costs, thereby making the project unlikely ever to reach financial close and construction. This represents the third challenge for the African renewable energy sector. Because of the stiff competition under auctions, it is common for bidders to bank on a future further decrease in costs (on solar panels for instance) to support aggressive bids. The risk of project non-completion increases if such assumptions are unrealistic. This is the opposite outcome of what an auction is trying to achieve, which is to secure investors, and hence projects.

In the African continent, where the electricity generation capacity is often aging and expensive, the race to the bottom appears unnecessary because renewable energy should easily meet grid parity, even in countries with mature baseload power generating capacity. Some renowned international players have turned down the opportunity to bid in such auctions resulting in less competition and a loss of proven actors to take forward the African renewable energy market. Floor prices or other alternatives to secure project completion could be explored in these national auctions to reduce the risk of projects not reaching completion. This would support the ultimate objective of bringing power to the 70% of Sub-Saharan Africans without access to electricity.

Matthias Vinard is the Renewables Programme Director at Mott MacDonald