Home / Africa / African Solar Investment and Industry Continues to Grow but Falls Far Short of What’s Needed

African Solar Investment and Industry Continues to Grow but Falls Far Short of What’s Needed

The 21st annual Africa Energy Forum took place in Lisbon, Portugal June 11–14, highlighting the risks, rewards, opportunities and challenges African nations and solar and renewable energy industry players face as they expand efforts to realize universal sustainable energy access and the 16 other 2030 UN Sustainable Development Goals (SDGs).

Power and energy markets and industry in Africa have emerged as some of the most diverse, vital and innovative in the world over the past decade, reflecting the geographic, cultural, energy and natural resources diversity of the continent itself. Distributed solar energy technology and systems, such as mobile pay-as-you-go solar home systems and community and commercial-industrial (C&I) mini/microgrids are playing a key, pivotal role.

Calling for More Effective Support for Solar Mini-Grids in Africa from Leading Solar Investors
Solar home systems deployments in Africa. | Image: Power for All

Multilateral development banks, enterprising social and sustainable energy start-ups, non-profit and non-governmental organizations (NGOs), venture capital and corporate investors, utilities and national governments all appear keen to scale up their solar, renewable and sustainable energy and development initiatives.

Solar is finally becoming recognized by governments as truly cost competitive with fossil fuel plants. Burkina Faso Energy Minister Bachir Ismael Ouedraogo set the tone on the opening day when he highlighted solar’s cost competitiveness by comparing solar’s cost in Africa of USD0.09 per kilowatt-hour (kWh) with the USD0.20-0.25/kWh his country pays for fossil fuel electricity generation.

Gabriel DaviesSolar Magazine Interviewee Avatar, head of Energy Access at CrossBoundary Energy, a pioneering investor in and developer of African solar-storage mini and microgrids, told Solar Magazine.

Mobile pay-go and off-grid solar in Africa

Enterprising mobile pay-as-you-solar energy start-ups working to expand the breadth and depth of their energy products and services across Sub-Saharan Africa have been attracting a lot of ventures, and increasingly multinational and African corporate capital in recent years, predominantly equity but some debt and domestic bank financing, as well. Among African corporate investors, regional telecoms providers active have been playing a leading role.

Mobile money transfer and banking services have proven very popular in Sub-Saharan Africa. That’s led leading market players, such as MTN and Orange, to partner with leading mobile pay-go solar companies in bids to bring digital banking, as well as sustainable energy services and products, to those who’ve never had them, or for whom grid power is too unreliable or expensive.

Corporate investment in off-grid energy access companies—primarily those providing smart, mobile pay-go (PAYG) solar and home energy services and products in East Africa—surpassed USD500 million globally in 2018, according to a landmark report from Wood Mackenzie Power & Renewables and Energy 4 Impact published earlier this year.

A Banner Year for Energy Access Investments, 2018 Saw Deployments Crack $500m+
A banner year for energy access investments, 2018 saw deployments crack $500M+
Source: Strategic investments in off-grid energy access: Scaling the utility of the future for the last mile (Wood Mackenzie Power & Renewables, Energy 4 Impact)
Click here to view the full-size chart.

Cumulatively, disclosed corporate investment in off-grid energy access systems and services totaled just shy of USD1.7 billion as of year-end, more like USD2.3 billion–USD2.4 billion when the estimated total value of undisclosed transactions is included, the research partners determined.

African solar home and minigrid systems providers’ ambitions expand in alongside their energy services and products offerings

Off-grid, low-income, households globally spend a disproportionately high percentage of their incomes for basic energy services, an annual average of USD37 billion.  The vast majority continue to rely on traditional energy products and services, such as kerosene, charcoal, biomass, paraffin, old car batteries, etc.—that carry a variety of risks and threats to human and environmental health and quality of life, according to the research partners. Looking ahead, they expect off-grid solar will provide low- or zero-carbon energy to another 740 million by 2022.

A leading provider of mobile pay-as-you-go solar energy systems and energy services products, UK-based Azuri Technologies’ late June launch of its 24-inch solar satellite television and home lighting system in Zambia provides an example of ambitious start-ups efforts to diversify and expand their businesses while bettering African lives and livelihoods and helping African nations realize their solar, renewable energy, climate change and sustainable development goals.

17 UN Global Goals for Sustainable DevelopmentAlso in June, Kenya’s government, with USD150 million of World Bank debt and results-based financing (RBF), launched a USD 47 million facility under the banner of the Kenya-Off-Grid Solar Access Project (KOSAP).

Via the initiative, the Kenyan government aims to spur private sector investment and participation in efforts to create industry supply chains and roll out standalone solar and 151 solar-centered mini-grids and clean cooking solutions to 277,000 households, about 1.1 million people, in 14 marginalized regions. In addition, the program aims to replace 380 diesel water pumps that provide drinking water with solar equivalents.

The World Bank is committed to supporting the Government of Kenya in achieving the universal access goal laid out in the Kenya National Electrification Strategy and is partnering with the Government to ensure that nobody in the target counties is left behind in accessing modern energy services.

—Patrick Thaddayos Balla, World Bank K-OSAP Task Team Leader, was quoted as saying.

Off-grid solar and universal electrification in Nigeria

Off-grid solar also figures into Nigeria’s universal electrification, sustainable energy and sustainable development plans.

Quoting Nigerian government data, the International Monetary Fund (IMF) recently highlighted that lack of access to reliable electricity costs Nigeria an estimated USD29 billion a year. “The situation comes with environmental and health risks, too. Many individuals, households and organizations have resorted to fossil-fueled generators. Nigerians spend an estimated USD14 billion a year on small-scale generators,” according to a feature news report.

Nigeria’s Electric Power Sector Reform Act (EPSRA) is the overarching legislation governing the electricity sector. A Rural Electrification Fund (REF) was created as part of the Act in order to subsidize provision of electricity to the rural areas, explained Mark AmazaSolar Magazine Interviewee Avatar, who leads strategic communications and research for developing-world, distributed sustainable energy advocacy Power for All.

“So far, the Fund has received about USD5.5 million from the federal government as seed funding and USD 350 million from the World Bank as a long-term loan,” Amaza said in an interview. The funding is for solar home systems and mini-grids, he added.

Nigeria has become a focal point for distributed solar, renewable energy and minigrid investment due to the size of the market—75 million people without access to electricity and another 30 million people that are connected to the grid but do not receive any electricity.

—Amaza highlighted.

Hospital minigrids and creating an industry value chain

“This is the second largest population of people without access to electricity in the world after India and the largest in Africa. Another reason is that over the past three years, the government has focused a lot of attention on the off-grid power sector in terms of policies, plans, and targets, such as the 10,000 mini-grids by 2023 and the USD2 billion investment initiative.”

How Minigrids Serve African Communities
How minigrids serve communities
Source: Minigrids in the Money: Six Ways to Reduce Minigrid Costs by 60% (by Rocky Mountain Institute)

Schneider Electric recently signed a Memorandum of Understanding (MoU) with Nigerian sustainable energy engineering company EM-ONE Energy Solutions with the aim of creating an industry ecosystem based on renewable energy-centered minigrids built or operated by local, community stakeholders.

EM-ONE won a contract to build 30 minigrids to power hospitals in the Nigerian state of Kaduna. It’s aiming to do the same for universities and contribute to the African nation’s rural electrification program.

“The MoU concerns Schneider’s support with optimizing the architecture of these projects and developing an industrial platform to integrate these minigrids into containers in Nigeria and manufacture Schneider Electric minigrid solutions under license,” said Paul-François Cattier, Schneider Electric’s Vice President, Business Development, Africa & Middle East.

Skepticism and doubts on the part of African governments remain

A variety of substantial challenges need to be resolved if African nations are to realize their sustainable energy and development goals, however—patient, diligent efforts to reach out to and engage everyday Africans in technical, project and economic capacity development, carrying out effective regulatory reform programs, and expanding and diversifying access to investment capital prominent among them.

Ongoing skepticism and doubts regarding the feasibility of solar, wind and other distributed renewable energy technology and systems to play the core role in realizing national and international sustainable energy and development goals may be the biggest hurdle that needs to be overcome, however, proponents attending the Africa Energy Forum highlighted.

CrossBoundary Energy’s Davies pointed out that government delegates attending this year’s Africa Energy Forum still expressed skepticism regarding the role of mini-grids in realizing national universal electrification goals. “This is despite endorsement by investors with over 2 billion euros (US2 billion) under management of mini-grids’ role in achieving universal electrification and committing to invest alongside RBF programs,” Davies said.

Minigrid Cost Can Be Reduced 60%, Estimated by RMI
Minigrid cost can be reduced 60%, estimated by RMI
Source: Minigrids in the Money: Six Ways to Reduce Minigrid Costs by 60%
Click here to view the full-size chart.

CrossBoundary Energy joined forces with The Rockefeller Foundation back in April 2018 to launch the Mini-Grid Innovation Lab for Sub-Saharan Africa, an R&D fund that aims to develop and deploy innovative, new business models for community-based, “green” energy systems and services that can accelerate sustainable, rural electrification region-wide more efficiently and at lower cost.

Results-based financing and unlocking private capital for African solar, low-carbon minigrids

In the run-up to this year’s Africa Energy Forum, CrossBoundary Energy joined a group of 12 leading impact and energy investors that manage more than USD2 billion to urge national government representatives and international development and aid organizations “to take new, concrete action to end energy poverty in Africa.

They added they were ready to deploy the capital they manage given the right environment, more specifically coming forward “with a coordinated, well-designed and effective results-based financing (RBF) mechanism for rural mini-grid utilities.”

The group laid out their case in a joint statement entitled Unlocking Private Capital for Mini-Grids in Africa, pointing out that the International Energy Agency (IEA) concluded that mini-grids can electrify 450 million people who lack energy access by 2030, the large majority of whom reside in Sub-Saharan Africa. 

Low-Carbon Solar Mini-Grids Deployments in Africa“The defining feature of Results-Based Financing (RBF) is payment upon delivery of results. The private sector takes the full risk until the delivery of the contracted results,” Davies explained.

RBF is relatively new among developing and lesser-developed countries, but it’s long been one of the most common ways that governments in industrially developed countries have provided incentives that encourage private-sector businesses to participate in the transition from fossil-fueled power and energy networks to low or zero-carbon ones, Davies continued.

“For example, the vast majority of renewable energy subsidy schemes around the world are RBFs. Under these schemes, each unit of renewable energy generated receives a subsidy payment,” he said.

RBF is a proven method of attracting private capital and the private sector. Guaranteed payment on delivery of simple, objective results provides a strong market signal for the private sector to respond to. RBF-based subsidy schemes for renewables in the US, UK, Germany have shown how well designed subsidy schemes can attract private capital to drive scale and cost reduction.

Highlighting a similar case in Sub-Saharan Africa, Davies cited Kenya’s Last Mile Connectivity Program as a good example. Via the program, national utility Kenya Power (KPLC) pays independent power producers (IPPs) a fixed fee for each new customer added. “Under this program, KPLC has made huge progress, connecting around 1 million people to the Kenyan grid last year,” according to Davies.

The outlook for growth

From a broader-based perspective, Wood Mackenzie and Energy 4 Impact expect that the global market for off-grid solar home systems will grow at an 80 percent compound annual growth rate (CAGR) from 2017–2022.  Longer term, they project that off-grid or mini-grid energy systems will account for 71 percent of new electricity connections by 2030 in the countries covered in their report.

Corporate investments in Sub-Saharan African and developing world off-grid solar companies may be heading towards an “investment cliff” in the short-term future, however, report lead author and Wood Mackenzie Power & Renewables Analyst Benjamin Attia told Solar Magazine in an interview earlier this year.

Off-Grid Solar Arrays Installed on Green Grass in Africa“Investment and risk is highly concentrated in a few highly capitalized companies, some of which may be overvalued, operating in adjacent and overlapping geographies, seeking to meet aggressive growth expectations from VCs [venture capital investment companies], and mostly prioritizing market share over profitability.”

“As they start to run up against the limits of their low-cost addressable market, they will continue to face this question of ‘going deep vs going wide,’ where they need to balance growing market share, i.e. acquiring customers, and getting profitable—cutting OPEX, boosting repayment rates, tightening credit requirements, and deepening customer value,” Attia explained.

Furthermore, Wood Mackenzie highlights that despite the rapid growth experienced in recent years, investments in the energy access market space total volumes fall well short of the total estimated financing needed to reach UN SDG 7, providing universal electricity access globally by 2030. That’s a view echoed more recently by the impact and energy investors attending the Africa Energy Forum.

“The pace and manner at which electricity is provided to almost 1 billion people who still do not have access to energy will have a dramatic impact on power demand, electricity generation, grid infrastructure investments and future carbon emissions reductions,” Attia highlighted in a news release.

In conclusion, CrossBoundary’s Davies highlighted expectations that battery energy storage systems will prove to be a “transformative technology in 2020, changing unit economics and use-cases across the energy sector for mini-grids, C&I solar, and utility-scale IPPs.”

According to Davies, falling costs for lithium-ion battery systems will allow:

  • greater storage capacity on mini-grids, reducing the need for expensive and maintenance-heavy back-up diesel generators;
  • greater solar penetration for C&I projects as excess power produced during the day can be stored and used later as a cheaper power source than the grid;
  • greater grid reliability as localized storage can maintain power supply to the distribution networks during power cuts.

Check Also

Joburg in top 50 cities for women entrepreneurs

Dell Technologies has released its latest findings for its Women Entrepreneur Cities (WE Cities) Index, the …

Leave a Reply

Your email address will not be published. Required fields are marked *

Social Media Auto Publish Powered By : XYZScripts.com