Africa trends towards renewable energy

by Johan Burger

This trend reflects rising affluence and the accelerating diffusion of small-scale renewable energy technologies. Today’s technology is easier and more affordable to install, provides lower operating costs, and has a smaller carbon footprint. Many small African countries embrace the trend, with several industries adopting solar to generate electricity to support operations. This report addresses some recent developments in this sector.

AFRICA TRENDS TOWARD RENEWABLE ENERGY

By 2030, Africa’s energy capacity will equal twice its current consumption. The decreasing cost of renewable energy technologies will drive the shift to renewable energy sources. Despite this trend, a 2021 report sees fossil fuel sources as continuing to dominate Africa’s power mix over the coming decades. Renewable energy sources such as solar and wind will contribute less than 10% of total Africa’s power up to 2030. However, the cost of renewable energy technology decreased in recent years and should drop even further by 2025.

Ideally, Africa’s governments will use renewable energy technology to build renewable energy farms. This initiative would reduce the use of fossil fuels and subsequently decrease carbon dioxide emissions. Building renewable power plants has the additional benefits of creating jobs for professionals and the youth. University of Oxford scientists report that small renewable energy plants have better chances of success than large projects. The plant’s source of funding was another factor, as projects funded by big public agencies, such as the World Bank, tended to be more successful.^[1]

A new report by Africa Oil Week and Wood Mackenzie, identified “above-ground risks, oil price risks, and access to finance on reasonable terms” as factors that would shrink the pool of buyers for oil and gas assets. The study also said that low-value, high-emissions assets will eventually be sold off. This bodes well for renewable energy in Africa.

Financing for clean energy projects is coming from both large multilateral and bilateral partners. The AfDB, the Korean Ministry of Economy and Finance, and the Export-Import Bank of Korea have recently committed up to US$600m for renewable energy (RE) projects in Africa, and Financial Sector Deepening Africa (FSDAi) investing US$4.5m in Pay-As-You-Go (PAYG) solar in three African countries.

The Korean funds will be invested in the production, transmission, and distribution of renewable energy. It will also support the deployment of off-grid solutions, including mini-grids and solar home systems.

One factor boosting the investments in renewable energy is the rapidly reducing cost of solar panels and supporting equipment. According to IRENA, close to 67% of renewable energy generation brought online last year(162GW) cost less than the cheapest fossil fuel power generation options. The Levelized Cost of Energy (LCE) of coal is US$109 per MW, compared to onshore wind at US$59 per MW, utility solar PV at US$79 per MW, and natural gas at US$74 per MW. This situation will not only reduce Africa’s carbon footprint but also enable accessible clean energy throughout the continent.

With renewable energy showing lower LCE and the need to transition to clean energy becoming more urgent development finance institutions (DFI), banks, government agencies, and private sector entities are increasing their investments in the renewable energy pool. Even traditional oil and gas majors are getting into the renewable energy business. Total Energies recently announced that it will invest US$60bn in renewable energy projects between now and 2030. The European Investment Bank (EIB) has approved US$95m for funding geothermal energy projects in East Africa. The AfDB announced it was working on a Desert-to-Power Initiative, which would provide 10,000MW of solar power in the Sahel, providing electricity to 250 million people.^{[2] [3]}

POINT OF INTEREST

• Various financial institutions have recognised the importance and role of renewable energy in Africa and are financing projects to expand access to electricity. In addition to affordibility, the ease and speed of setting up solar plants in rural areas make them increasingly attractive as alternatives to coal-fired grid plants. The continent is in dire need to increase the provision of energy, not only to increase the living standards of its population, but also to stimulate the development of its economic sectors, such as agriculture, manufacturing, and mining, to name but three. The push towards RE has also gained impetus from the need to reduce the carbon footprint of Africa, or at the very least to not increase the world’s carbon footprint through the generation of much needed electricity! The investment opportunity for investors, local and foreign are vast!

SOLAR SOLUTIONS FOR HORTICULTURE IN KENYA

Flower farms in Kenya are turning to solar power in a bid to reduce electricity bills and counter the frequent blackouts that result in heavy losses every year. In March 2021, electricity tariff rose by 46% per kilowatt hour (kWh) after the government hiked a fuel surcharge. This was bad news for flower farms as their cooling storages are energy-intensive.

A local flower farm Shalimar recently installed a 428 kWp solar PV plant in Naivasha, using REDAVIA as its supplier. It helped cut down electricity bills. At a time when the cost of fertilisers, labour and air freight is going up Kenya’s horticulture industry is looking to cut down its power costs to stay competitive.

To deal with the high cost of solar solutions, which is a challenge for many firms that are willing to invest in clean energies, German startup Ecoligo, is offering its Kenyan customers crowd-funded solar modules. Ready-for-use solar units are installed on farms for a monthly fee for the electricity until the system is paid.^[4]

POINT OF INTEREST

• The agriculture sector has been an active adopter of renewable energy, mostly relying on solar systems. We have seen various technologies being driven by solar, such as irrigation systems and water pumps. Cold storage systems have also been driven by renewable energy. These are just examples of the typical uses of renewable energy. What is also interesting is the financing models being developed to enable farmers to deal with the high upfront capital costs of renewable energy plants. The rent-to-ownership is a model that has also been used in the provision of electricity to individual consumers, who pay a fixed monthly rent until they receive ownership at the end of the contract. Some of the providers, such as M-Kopa, also add consumer items such as TVs to the contract as many consumers cannot afford to buy them upfront. With the growth in population and a growth in the consumer class, we can expect the demand for this kind of service to grow strongly, creating business opportunities in the process.

INCREASING RENEWABLE ENERGY CAPACITY IN DJIBOUTI

Djibouti recently approved the construction of a 30 MWp solar PV power plant in Grand Bara after a long delay. The preliminary agreement for this solar PV project dates back to June 2019. Construction will be within a public-private partnership (PPP) framework. Engie will develop, build and operate the plant. The electricity generated will be fed into the grid of the state-owned company Electricité de Djibouti (EDD) and help increase the country’s national production capacity to meet rising demand. The project will contribute to Djibouti’s sustainability goals by reducing its carbon footprint and its social development goals by creating jobs. The project will also reduce its electricity imports from Ethiopia.

The Djibouti government also approved construction by Djibouti Wind Company (DWC) of the 60 MW Ghoubet wind farm. DWC is a special purpose vehicle owned by four partners: Africa Finance Corporation (AFC), a pan-African fund dedicated to infrastructure development, based in Lagos, Nigeria; Climate Fund Managers (CFM), an investment fund manager; Great Horn Investment Holding (GHIH), an investment fund set up for development projects in Djibouti; and the Dutch Development Finance Corporation (FMO). The new wind farm will cost about US$63 million and will effectively double the country’s power generation capacity. ^{[5] [6]}

Djibouti sees a capacity-building strategy as essential for attaining its energy independence. The country recently established the Red Sea Drilling Company (RSDC) as its national geothermal energy engineering company. RSCD will develop Djibouti’s geothermal power reserves and contribute to training engineers and technicians. These capabilities will position the country to operate in mining and oil and gas drilling, plus water drilling to reinforce the country’s water security. RSDC apparently plans to become an East African drilling major, tapping markets in nearby Ethiopia, Kenya and Somalia. In the near term, the country remains dependent on foreign expertise. In February 2021, the government awarded a USD 6.5 million contract to Kenya’s KenGen to drill three wells in Lake Assal.

Djibouti’s target is to use its 100 MW geothermal energy capacity to fully supply its domestic market, then become a power exporter. To this end, the country’s government invested heavily in energy-related projects over the past eight years. In 2013, a US$6.83 million loan from the African Development Bank enabled geothermal exploration around Lake Assal, reportedly the most promising area in the country. An additional loan of US$14.68 million in 2016 and a final loan of US$3.22 million in May 2020 laid the ground for the future establishment of a 20 MW geothermal power plant, with the potential to expand to 50 MW at a later stage. This plant will contribute to Djibouti reaching its goal of powering 100% of its economy through renewable energy by 2030.

Djibouti is heavily dependent on its small fuel-based power generation capability, supplemented by electricity imports from Ethiopia, to serve its power needs. As a result, its users consume some of the most expensive electricity in the region, up to six times the price of power in Ethiopia.^[7] The new initiative aims to address this issue.

POINTS OF INTEREST

• The march towards renewable energy adoption in Africa continues. At the national level, renewable energy like solar PV and wind is increasingly part of the energy mix. While coal is still a very cheap source of electricity in Africa, the countries needed to import coal now have options and can embrace renewable energy as complementary to their existing sources of electricity. The shift towards renewables is increasingly an easy choice, given the increasing efficiency and decreasing cost of renewables, plus emergent opportunities to create hybrid systems (solar, wind and batteries). Such renewable solutions do not need scale economies. Given the ease and speed of installation in rural and remote areas, they are becoming attractive.
  
  
• This holds even for countries that once provided reasonably efficient and low-cost energy, such as South Africa. An unreliable and corrupt state-owned electricity utility is seemingly incapable of meeting the needs of South African consumers. The electricity Eskom does supply is increasingly expensive. Rising costs motivate private homeowners, businesses and large municipalities to adopt renewable energy. This problematic situation boosts the trend towards the adoption of renewable energy to save costs and reduce dependence on a failing provider.

INSTALLING MINI-GRIDS

Off-grid power, driven by economic growth, rising expectations, and falling costs for clean energy platforms, is trending in Africa. Winch Energy joined other leading off-grid players in January 2021 to launch its new Winch Energy IPP Holdings Limited (WIPP) platform. The consortium, composed of Total Eren, Itochu Corporation, Al Gihaz Holdings and Winch Partners, reportedly holds Africa’s most extensive mini-grid financing portfolio. WIPP recently completed its funding round for solar mini-grid projects in 49 villages across Uganda and Sierra Leone. The funding originates from Winch Energy Limited and NEoT Offgrid Africa (NOA). Previously, NOA invested more than US$36 million to electrify 25,000 homes and businesses in Ivory Coast and Nigeria. Other industry players and EU agencies also joined WIPP to provide funding.

The partners view the platform as an enabler for rapidly scaling up operations in Africa. CEO of Winch Energy Nicholas Wrigley views the joint effort as positioning Winch Energy as a future leader in large-scale off-grid renewables. He says the funding “stimulates economic growth and improves education and healthcare provision in remote communities.” NEoT Offgrid Africa (NOA) Director Frédéric Pfister sees the deal as positioning NOA as a critical player for financing mini-grids and other off-grid solutions such as solar home systems and commercial and industrial installations.

The mini-grids, based on Winch Energy’s proprietary technology, are “expected to be operational within the next 12 months, providing remote communities with affordable, clean energy and access to essential services.” The project will reportedly connect more than 6,500 customers in Uganda and Sierra Leone, supplying clean energy to over 60,000 people. It also provides for the installation of 6,000 portable batteries to provide people outside of the mini-grid catchment area with clean electricity. In addition, the project will provide internet to the communities through partnerships with telecommunication operators in both countries.

WIPP expects to expand its operations in Africa and aims to reach approximately US$100 million of operating projects in the next 24 months. Winch Energy is also active in Benin, Mauritania and Angola.^[8]

POINT OF INTEREST

• We also see increasing use of mini-grids to electrify homes and businesses. Until recently, many consumers had little choice but to remain a captive of the existing infrastructure. This is due to the high initial costs of many renewable energy systems. The solution was new business models to address the financing needs of different types of consumers. These innovative business models include rent-to-own solutions that are attractive for consumers. Larger businesses prefer to adopt a leasing model. This solution converts upfront capital expenses into tax-deductible monthly operating expenses. Leasing avoids large initial outlays and stabilizes monthly energy costs while providing access to more reliable and affordable electricity.

RETAIL GOING THE RENEWABLE ROUTE

The Shoprite Group, South Africa’s largest retailer, recently announced that it now generates enough electricity – about 12,300 MWh – from solar energy to power over 1,100 households for a year. The company placed rooftop solar PV panels at 19 sites in South Africa and Namibia. Shoprite also fitted 649 solar panels to its refrigerated trucks. These generate 760 MWh annually – enough to run 1,040 refrigerators all year. This innovation allows truck drivers to switch off truck ignitions at delivery locations, reducing fuel use, noise, and exhaust pollution while keeping the cold chain intact.

Located at its Basson distribution centre in Brackenfell in the Western Cape, the group's largest installation has a considerable impact on its strategy to reduce its impact on the environment. According to Shoprite, the solar panels at this distribution centre covers an entire soccer field.

The group also replaced fluorescent lamps with energy-efficient LED at R98.3 million (±US$6.8 million) to save 83.8 million kWh of energy over the four years since this change.

The group plans to procure 434,000 MWh of renewable energy per year for the next seven years. Shoprite is the first retailer to embark upon such a strategy, which is reportedly a first for Africa.^[9]

POINT OF INTEREST

• Given the vast energy consumption of retailers, Shoprite’s welcome move towards converting both horizontal and fixed surfaces into solar energy production opportunities is laudable. It is not the only retailer in South Africa to take this path. A 2016 Greenpeace report ranked South Africa’s five most prominent retailers, Massmart, Pick n Pay, Shoprite, Spar and Woolworths, on their energy policies. The report used four criteria – energy transparency, commitment to renewable energy, greenhouse gas mitigation and lobbying for clean, renewable energy. None fared well: Woolworths did the best overall with a score of four out of ten. Shoprite received the lowest ranking due to a lack of transparency regarding its energy information. However, South African retailers have since then increased their commitment to the use of renewable energy. Woolworths were early in using rooftops on their owned buildings as energy production sites. Shoprite’s new approach to renewable energy generation is a clear break from the past. Their commitment to embrace low carbon electricity is hugely advantageous to the environment and will reduce demands on the national grid, perhaps easing the challenge to Eskom.