Solar PV in Africa
Following the successful financial close of Africa’s first solar photovoltaic independent power project outside of South Africa in 2014 (an 8.5 megawatt power plant in Rwanda) it was anticipated that solar PV in Africa was now viable and that a wave of solar PV projects would follow to a swift financial close and a rapid construction period, as seen on both the Rwanda project and the South Africa Renewable Energy Independent Power Producer Procurement Programme. The stark reality is that, aside from the two projects commissioned under the GET FiT programme in Uganda, this has not happened – yet.
From our experience over the past three years, there are key trends as to why this is which are unique to solar PV:
Fixation on tariffs
As a result of the plummet in the price of solar PV it has had a highly publicised focus on the bare tariff figure. In June 2016 the World Bank Group announced results of the Scaling Solar programme solar PV auction in Zambia of 6.02 US cents per kilowatt hour. This announcement followed a trajectory of record breaking low tariffs for solar PV – principally in South Africa and the Middle East – but the difference of the Zambia result was that this was an African result. The drop off in global solar PV prices was not missed by state utilities in Africa. Furthermore, the consequences in Africa of the reduction in solar PV tariffs has been exacerbated by the lack of experience in IPP procurement by many state utilities, combined with the highly politicised position occupied by a typical state utility. Executing a power purchase agreement with a fixed tariff for up to 25 years is, in many respects, a leap of faith for utilities, and an issue upon which no government official would wish to risk their position by make the wrong decision.
Accordingly we have seen a ‘wait and see’ approach broadly adopted by state utilities, as well as a few examples of unrealistic tariff demands. This has resulted in certain bilateral or feed-in-tariff solar PV negotiations stalling, becoming further protracted, or subject to competitive procurement. A consequence of this is that the earlier pioneering solar PV developers have been placed in a precarious position without the lynchpin of a bankable power purchase agreement against which to raise further development funding.
The fixation on a pure tariff number ignores the background facts that enable low tariffs to be achieved – in particular, the provision of a site, coverage of grid connection costs by offtakers, bankable project documents, the currency of PPA payments and availability of concessional funding. The headline grabbing tariff figures for solar PV inappropriately attract an ‘apples with apples’ comparison which masks the nuanced and gritty day-to-day reality of developing an independent power project in Africa.
With yet another record breaking tariff of 1.79 US cents per kWh announced in Saudi Arabia in October 2017 the only way – surely – is upwards with less of a focus on pure tariff figures and a stronger focus of operational megawatt capacity. Indeed, in recent months we have seen the negotiation of project-specific appropriate tariffs in Africa. Solar PV is cheap and this has been proven, therefore the real challenge of getting projects closed and operational in Africa must now be faced.
Highly competitive procurement rounds
There has been an intentioned move away from previously published feed in tariffs for solar PV in several African markets such as Kenya. Several jurisdictions have held solar PV tenders which have generally been extremely competitive as a result of market conditions (not least the stalling of the South Africa REIPPPP). A recent example is Botswana where it is reported that 62 bidders have been pre-qualified, and similar examples are Malawi and Ethiopia. The quality of the requests for expressions of interest and requests for proposals issued alongside Africa solar PV procurement rounds has varied. In certain cases it has been poor with the procurement documentation being more appropriate for the tendering of a consultancy advisory position rather than an IPP and the project documentation either lacking entirely or being poorly drafted and off-market. A further complication may also arise from the cross-over of nascent public private partnership (PPP) legislation and government administration into traditional IPP territory.
An extremely competitive environment combined with poor quality procurement documentation has increased the potential for procurement challenges from unsuccessful bidders. In cases of procurement challenge where the procurement documents are poor quality it is harder to provide a clear answer as to whether the procurement rules have been duly complied with. A result of this is that solar PV competitive tendering has suffered delay in certain markets, and further delays cannot be ruled out in getting lenders and investors comfortable with a project where there has previously been a procurement challenge.
Solar PV is ‘easy’
In comparison with thermal technologies and even with wind and hydro, developing solar PV is a relatively simple process on paper. The construction period is shorter than for hydro and does not involve prolonged hydrology studies, and the land required is not as extensive as for wind (which is a key benefit of solar on a continent where land issues continue to frustrate renewable power). As a result of this, solar PV is a technology which may be under-estimated by inexperienced local and international developers. The upshot of this is again delays as projects which are unviable (either due to resource quality, land issues or grid access) use up state utility PPA negotiation time and then fail to materialise, so causing an element of distrust between the state utility and subsequent developers. This is also heightened by the pre-existing public sector over private sector preference in several African markets, such as Tanzania.
Whilst the construction period is short, and the land and environmental aspects relatively simple, the reality is that development costs of solar PV remain high as bankable documents and a robust project financing structure are still, by necessity, required. Furthermore, the importance of an international standard environmental and social impact assessment, irradiation studies and clear-cut land rights cannot be underestimated.
Utility expertise and interest in solar PV
Solar PV is still an unknown for African utilities who remain more familiar with hydropower and fossil fuels (the emergency power diesel and HFO generators being the devil you know here). The impact of introducing solar PV to the grid remains a concern and state utilities may struggle to see the benefit of a technology which is not available during the evening peak hours. We have seen this evidently in the scheduling of solar PV PPA negotiation meetings, which may be ranked behind thermal project negotiation meetings in importance and therefore suffer delay. The necessary mid-size of current solar PV projects also means that these are not so attention grabbing as the larger thermal transmission connected projects, and it may therefore be difficult for developers to engage with governments in terms of government support.
Developers should meet this concern head-on by prioritising grid studies and exchanges of information between engineers, at the same time as proposing a package which offers cutting-edge forecasting ability and the possibility of a storage add-on. Solar developers should get smart with their offering so as to improve the confidence of state utilities in solar PV and create proven results rather than bad news stories. This is ultimately what will boost the sector in the mid-term. Furthermore, given utilities’ mixed views on solar, in our experience the successful developers are those who are persistent and flexible in their engagements with utilities on the ground in-country – ultimately in what is an unpredictably paced environment this persistency is what will pay off.