A Solar Strategy for Africa: International Players Set To Expand Key
Markets
By Mark Hankins, Africa Solar Designs | January 4, 2011 |
Now that real progress has been made in growing global demand and
production and lowering costs in developed countries, it is time to
think seriously about kick-starting real solar markets in Africa.
There is a need for a shift in focus on solar markets in Africa away
from donor and rural electrification projects to commercial and
productive investments. There is also a need for the international PV
industry to aggressively invest in the development of solar markets
and not to leave it up to aid and relief organisations. This must be
based on the need to move � today � towards grid-connected and urban
markets. As part of this process there is a need to engage and educate
African governments about the current global status of the solar
sector and help them build frameworks for industry growth.
Markets for small off-grid systems, those below 100 Wp, are important
to kickstart solar industries, but they will be less important in the
long term as demand for them begins to fall.
It is also useful to have an idea of where marketing and development
efforts will lead in the long term. 'Off-grid rural solar development'
in Africa has dominated discussion for so long that we seem to have
lost the bigger picture. Where does the solar industry want to be in
Africa in 10 years? Leaving aside the 'rural electrification' impact,
which is more attractive for a solar company: 20,000 solar home
systems at 50 Wp or 500 systems of 2 kW each? Both will result in 1 MW
of sales.
Kenya's so-called 'solar PV success story' is a good example of this.
Its focus on small systems � to the exclusion of larger commercial or
grid-connected systems � and has resulted in an annual PV market of
1.5 MW that is low-tech, over-the-counter and dominated by small
products. But the market is stagnating.
Continued efforts by aid groups to build sales in 'poverty markets'
will likely increase the depth and accessibility of small scale
lighting systems. However, this will not build a market with a 20 MW/
year solar demand of a scale that is interesting to larger PV supply
companies. No matter their importance to the rural poor, LED lanterns
with 1 W modules fall into the realm of the fast moving goods
providers from Asia, not solar PV companies.
If healthy markets that are multi-dimensional and sustainable are to
develop, solar advocates must prepare the ground for the variety of
viable niches that will be part of a healthy long-term solar market.
In addition to village electrification, this includes off-grid markets
such as telecoms, tourism, business and pumping as well as grid-tied
and utility-scale markets.
Africa is not solely a poverty market and, in the long term, middle
class and commercial groups will do far more to develop solar markets
than procurement-driven public sector projects or the efforts of
humanitarian groups.
Every car salesperson knows that, when a customer enters a showroom
looking for a luxury car there is probably no need to show the second-
hand hatchbacks. But, in Africa, the solar sales approach shows high-
end customers bicycles, not limousines. Africa's most important buyers
go for generator sets because they see generators as being 'classy'
and practical solutions - and generator dealers latch on to this.
Solar agents do not recognise this market.
A solar roof installation in Senegal (Source: Kaito Projekt GmbH)
The Flawed 'Aid' Approach to African Development
The aid-dominated approach to PV in Africa has led many decision-
makers in Africa to believe that solar is about helping poor people.
Without detracting from the hard work of solar NGOs, village solar
electrification is relief work and should not be confused as being the
foundations of a developing market. If building real markets for solar
in Africa, and in doing so reducing carbon emissions, is the
objective, NGO contracts to supply a thousand lanterns or government
procurements for 100 schools are, at best, stepping stones, but they
are not the long-term answer to stimulating wider demand and building
solar futures.
Too many people think of Africa in terms of desperate unempowered off-
grid rural poor people with no cash. Aside from a lot of sunshine, the
continent's agricultural sector is growing as are its mineral exports.
In some areas, Africa is also seeing massive building projects, along
with more frequent traffic jams as automobile sales increase rapidly,
and more and more power shortages as electricity companies struggle to
meet spiralling demand. Where there is money � and power shortages -
there is a market for solar power.
The multi-megawatt PV project market is coming to Africa, but not yet.
To deliver large-scale projects, a focus on intermediate-sized 50 kW
to 200 kW installation market segments is required.
Developers, financiers, solar companies and governments want to push
the envelope and open up new markets in Africa. But most are thinking
big, and perhaps a bit too big, for the present undeveloped state of
the market. For example, a finance house developing PV project
portfolios for African countries, while eager to hear ideas for
innovations in Africa, was unwilling to discuss projects below 1 MW.
On a continent where the largest installed system is 250 kW (Kigali,
Rwanda) a 1 MW minimum requirement is unreasonable as a starting
target. Even though grid parity is close in a number of countries,
outside of South Africa the type of feed-in tariffs and incentives
necessary for megawatt-scale projects are simply not feasible.
Resistance from utility sectors can make agreements problematic and
risky for investors whereas smaller-sized projects may be able to fly
under the radar and build up experience as solar is assimilated into
power sector planning. When experience is gained on one or two 50 kW
projects in a country, these can be bundled by developers into
financially attractive packages. But the first step is to gain
experience.
There is a need for developers, perhaps with donor agency help, to
think bigger than village scale, but a bit smaller than utility scale.
Just 10 years ago 50 kW PV projects made industry headlines in Europe.
Grid-Connected Markets
Grid connection is coming in Africa, perhaps faster than expected and
definitely in different ways than expected. In the near future, urban
PV markets will be as important as rural markets.
In the mid-1990s, when the annual world production of PV was well
below 100 MW, many ridiculed the idea of grid-connected solar anywhere
in the world. Off-grid rural solar electricity made much more sense.
How could grid-connected solar prosper when off-grid markets were
screaming to be satisfied in developing countries all over the globe?
In every country in Africa the electricity sectors plan to eventually
connect all economically active areas to a national grid system.
Arguments and concerns can be raised about how fast this will occur �
or even whether it makes sense � but the fact is that politicians,
planners and consumers are united in their desire for grid
electricity. Because virtually all solar in Africa today is off-grid,
ministry planners often view solar as a second class option for remote
locations where it is likely to be too expensive to establish a grid
connection and where there is little economic activity. It is time for
those planning national strategies to look to solar � and those
developing solar marketing plans � to embrace on-grid solar and stop
pretending that solar is exclusively for off-grid communities in Africa.
Some say that fragile African grids, with fluctuating voltages and
frequent shutdowns, cannot accept PV power but the same thing was said
about wind a few years ago. Now there are multi-megawatt wind projects
all over the continent. Surely, the opposite is true - grid connect
solar systems can help stabilise grids and, with small battery banks,
can also help consumers weather power outages.
While there are definitely technical, financial and regulatory hurdles
to be overcome there are also huge opportunities. From Lagos to
Nairobi and from Addis to Dakar, businesses, hotels, offices and
households today buy and install hundreds of thousands of generator
sets and battery-inverter systems to hedge against brownouts. Because
electricity can be unreliable in African cities people who require
continuous power are willing to pay extra to ensure their supply and
therefore surely it makes sense to use this willingness to pay as a
wedge to open new grid-connected PV markets.
Given the choice, a substantial proportion of the middle classes, NGOs
and business consumers in Africa would purchase grid-connected
systems. Educated Africans will install solar for the same reasons
that people in the North do � because it is clean and silent, reduces
carbon footprints, is modern and aesthetically pleasing.
Net-metering, not feed-in tariffs, will initially be key to developing
grid-connected markets, just as they were in Germany and the US.
For medium- to large-scale renewables such as wind, hydro and biomass,
specialised feed-in tariffs are important policy tools to stimulate
investment. Even in Africa (RSA, Kenya) feed-in tariffs are helping to
get renewable power projects off the ground.
However, feed-in tariffs are less suited to PV than other renewable
technologies for several reasons. First, there is much less economy of
scale in PV; it does not matter whether a PV installation is 10 kW or
1 MW � the costs are broadly the same. Secondly, because of this scale
issue, thousands of dispersed PV installations make as much sense as a
single large plant. But right now PV is still more expensive than
wind, hydro or biomass, so it is hard for governments to justify PV as
part of their 'least cost power plan'. However, there is no need to
block private consumers who want to invest in Africa's nascent solar
market.
Net metering is a low-cost policy tool that allows electric utilities
to incentivise on-grid PV investment by private consumers. With it,
consumers invest in a PV system. Instead of storing their PV power in
a battery during the day, they store it on the grid by running their
meter backwards and selling their output at a retail rate. In the
evenings they draw back the electricity that was generated during
daylight hours, with the result that at the end of a month consumers
could potentially have a zero-value bill.
Unlike feed-in tariffs, net metering does not require massive grant
support or additional levies on electricity consumers by cash-strapped
African governments. Net metering cannot be unscrupulously 'rigged'
because there is no incentive � electricity bills are offset, and no
cash changes hands. Net metering also allows demand to develop
naturally. Those who want solar PV and are willing to pay a premium
for it will be rewarded. In short, those that want to buy and sell PV
power should be encouraged, not discouraged.
The Benefits of Solar
In Africa the versatility and practicality of solar energy solutions
is as important as the cost/kWh.
Too often, electricity is judged on extremely narrow price grounds.
Policy-makers, from both government and donor sides, look at the cost/
kWh of solar and automatically disqualify it from discussions in
national planning. African energy departments, and the donor agencies
that support them, apparently dismiss solar out of hand because of its
high costs. The mentality, it seems, is that Europe should busy itself
with developing the PV as Africa cannot afford to do so.
But at the same time, in countries as divergent as Kenya, Rwanda,
Senegal and Burkina Faso, petroleum-based generation is sacrosanct
when it comes to investments in power supply. Thermal generation units
are purchased to meet 'emergency' peak demands because petroleum
flexibly supplies power when it is needed.
Even though solar PV is an expensive investment it can be an extremely
reliable and predictable component source of an overall electricity
profile during periods when electricity is needed.
It is especially valuable during cloudless periods when dams dry up
and grid managers must scramble to get thermal units on line, and
nothing seems surer than the fact that as petrol prices will
invariably rise the costs of developing and installing relevant and
efficient PV solutions will fall.
PV can be deployed in a decentralised manner where it is needed and
where space is available. Financing can also be decentralised. The
same customers who buy their own generator and battery back-up sets
may consider investing in solar as an alternative to brownouts.
But perhaps most importantly it is necessary to pay the high up-front
prices of solar today to build the experiences and capacities that
will be needed tomorrow.
Solar did not happen in Germany and California overnight; it took
decades of work to get the skills, supply lines, finance and consumer
awareness in place.
Governments cannot wave magic wands and make these things happen, at
which point solar suddenly becomes 'cost-effective'.
Before achieving 200 MW of installed capacity, a first target of 1 MW
has to be reached.
A small-scale focus will see Africa's PV sector stagnate (Source:
Kaito Projekt GmbH)
The Role of Industry
Over the past two decades, as solar markets have grown at double digit
rates in the North, the job of building up solar markets in Africa has
been left to NGOs and aid agencies such as the UN, the World Bank and
the Global Environment Facility.
Few African governments have championed PV, and most of the companies
that did have offices in Africa have left. This needs to change. As
stand alone generator and petroleum-based power suppliers already
know, Africa is a steadily growing market � and a profitable one at
that.
Donor agencies have relegated PV to off-grid markets and, moreover,
they have left the administration of PV projects to slow-moving
government agencies.
Few major solar players want to bid on World Bank-supported government
tenders that can take years to develop and which can be expensive.
Thomas Edison and Henry Ford had it right. When they developed their
electrical lighting and automobile products, they aggressively took
them to the moneyed classes in large American cities and their
companies were successful. With more solar resources than anywhere
else in the world, with steadily growing economies, and with massive
shortages of power, the markets in Africa are ripe. But Africa needs
solar entrepreneurs that can convince the buyers and it needs the type
of aggressive green investment that took place in the 1990s in Europe.
Solar industries need to work together to build viable markets in
Africa and should instead leave the World Bank and the UN to focus on
the off-grid poor.
Aid efforts should focus on helping to steer solar policy in the right
direction, and tying grant and subsidy support to the achievement of
targets. This will require the active long-term engagement of
governments, the private sector, civil society, and the international
solar industry.
The global boom in solar � and the accompanying fall in PV prices �
has occurred because a handful of countries realised that it would
take strong policy initiatives to get PV markets to a size that would
bring solar prices to back down to earth. Bold politicians bet on
solar and we are now beginning to see the fruits of those measures.
Because of a lack of disposable income and difficulties, perceived or
real, in doing business, Africa has been largely side-stepped in solar
energy development discussions.
Slapping donated modules onto the roofs of rural clinics is an easy
way to leave the impression that something is being done in Africa. Of
course it is easier to target support for schools, clinics and village
electrification, but until policy frameworks are in place to build
sustainable solar energy industries, much international solar aid
support is being wasted on projects in remote locations with no
infrastructure and little cash. Sustainable local solar businesses are
simply not being created.
As is the case with coal and nuclear industries in the North, there
are entrenched interests in many African countries that do not
necessarily embrace solar.
Numerous ruling elites manage profitable petroleum and large power
project cartels and they could be expected to block decentralised
solar and grid-connected projects. International solar industries and
development aid networks that are seeking to build solar markets need
to be aware of these interests and find ways to help civil society
empower itself with solar.
As power prices in Africa rise, grid expansion stalls and as grid
power availability is constrained, consumers and communities
increasingly have to take electricity production into their own hands.
In the long term, this is a good thing, and having a portion of
electricity coming from decentralised solar sources is healthy for any
grid.
Just as political systems in Africa have evolved to reflect the needs
of educated voters, power sectors must change too to allow new
segments of the population to profit from and participate in
electricity production. This is the promising future of solar in Africa.
Mark Hankins has worked in the African solar energy sector for 25
years. He manages Africa Solar Designs, a Nairobi-based solar
solutions provider that is currently developing on- and off-grid PV
projects. He recently authored 'Stand Alone Solar Electric Systems'
published by Earthscan Publishers.
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