This article was written by Adijatu Kamara and Barri Mendelsohn.
China remains the driving force behind solar power as global deployment in 2018 is expected to outpace the 2017record of 98GW. China currently accounts for more than 40% of the world’s total investment in renewable energy, with approximately US$44bn and US$32bn invested into clean energy projects in 2017 and 2016 respectively. The growth in the solar industry is evident in Africa, where the PV market is set to expand to 2.2GW in 2018. The abundance of solar resources, combined with the drop in the price of solar panels, are key factors fuelling demand.
The successful completion of large scale solar projects in Africa by Chinese entities, the goodwill generated by the increase in African government spending and foreign government led initiatives are key factors contributing to the sectoral expansion.
The involvement of Chinese entities in the region’s solar power space is vast. Chinese activities in the sector range from a 200MW facility in Ghana to rural electrification in off-grid villages in Tanzania.
China Jiangxi Corporation for International Economic and Technical Cooperation is in the process of completing the construction of a 50MW solar plant in Garissa, Kenya’s largest solar park. The US$116m project is financed by the Export-Import Bank of China based on a 25-year power purchase agreement with Kenya Power (off-taker).
Egypt has signed a memorandum of understanding (“MOU”) with China’s Golden Concord Group Limited (“GCL”) to construct a US$2bn solar panel facility to manufacture panels capable of producing 5GW per annum. The North Africa nation has committed to adding 3.5GW of solar generated power to its energy pool by 2027 and the venture with GCL is a significant boost in this respect.
TBEA Sunoasis is constructing four solar power stations at Benban Solar Energy Park in Egypt's southern province of Aswan. The solar park, which is scheduled for completion in mid-2019, will generate up to 2GW of utility-scale solar capacity, making the facility one of the largest in the world.
The appetite for solar power projects in Africa has greatly increased since the announcement of the Garissa solar park project in 2012, with various solar power initiatives led by multilateral credit agencies and global blue-chip private entities. One such initiative is the World Bank Group’s Scaling Solar initiative which offers private entities an opportunity to collaborate with the International Finance Corporation (“IFC”) on the development of solar power projects in Africa, presenting a platform for Chinese entities to engage with the IFC and other multilateral credit agencies to secure low cost financing.
IFC, European Investment Bank, and Enel (an Italian multinational manufacturer and distributor of electricity and gas), have recently entered into an agreement to develop a 34MW solar power plant in Lusaka, Zambia (Ngonye solar power plant), the second project awarded pursuant to the Scaling Solar initiative. IFC committed to a hybrid funding which consists of a US$10m senior loan and a US$12m concessional loan.
The first project awarded under the Solar Scaling initiative is a 45MW PV plant near Lusaka, with construction set to start soon by a joint venture between French company Neoen and US entity First Solar. Their joint auction bid at US$0.06/kWh is a new benchmark for low-cost solar power in Sub-Saharan Africa where the average is US$0.19/kWh (on the low end).
Project bankability is always of key importance and even more so in emerging economies. Therefore, the Scaling Solar initiative mode of delivery, which focuses on risk-reduction and cost efficiency, could well be a breakthrough in successfully structuring bankable projects in Africa, combating the stall-effect that has affected the development of many infrastructure and energy projects in the pipeline for lack of government guarantees.
African governments are increasingly becoming reluctant to provide sovereign guarantees and instead settle for alternative arrangements such as a put-call option agreement i.e. the government commits to buying the power produced and subsequently, the asset.
Lighting Africa, part of the World Bank Group’s contribution to the Sustainable Energy for All initiative recently teamed up with Hanergy Holding Group (“Hanergy”) to deliver solar power solutions in Africa. Hanergy, a privately owned multinational renewable energy company headquartered in Beijing, which runs the largest private-owned hydropower station in the world and has become a global leader of thin-film solar power generation, donated its new umbrella-shaped thin-film solar product to the initiative. Hanergy’s Humbrella is expected to store 40,000 mAh electricity.
Africa’s energy deficit is over US$800bn, and its energy market is one that guarantees investment returns as the continent is keen on finding solutions and diversifying its energy pool in a shift towards clean energy. Hence, equity and debt are important for achieving bankable projects in the region. Furthermore, bankability also depends on the project’s location, availability of reliable grid connection or a viable alternative, and the take-or-pay agreement in place; i.e. whether all the generated power will be absorbed and consumed.
Another challenge is providing power solutions, not just in the dry season, but during the rainy season as well. Hybrid solutions, including combined solar and wind power generating plants, are being used in small scale projects in Mali and Burkina Faso, guaranteeing energy solutions all year round ensuring that Arica continues to play a key role in global energy investment and solutions.