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Challenges
Sub-Saharan Africa is endowed with large, untapped RE resources
including, but not restricted to solar, wind and geothermal power
sources. An increasing number of solar and wind RE power projects
are currently being developed in the region. However, among the
utility-scale ones, very few have reached financial close. The main
challenges to building large-scale grid-connected RE power projects
in sub-Saharan Africa (excluding South Africa) are as follows:
• Projects’ bankability
• Limited grid capacity
• Electricity affordability
The process to negotiate a Power Purchase Agreement (PPA) with
the power utility and to achieve the required land permits often takes
many years. Opposition from local communities living in the vicinity
of such projects is not to be underestimated. Indeed, access to land
has been an issue lately for large RE power projects, especially in
Kenya and Ethiopia, but also in South Africa. Commercial financial
investors will often require sovereign guarantees owing to the low
credit-worthiness of power utilities.
Certain governments are not capable of providing such guarantees
as they can only commit to weak letters of support. This is where
the intervention of political and commercial risk guarantees comes
into play – at additional costs, with the intervention of development
finance institutions and export credit agencies such as the World Bank
(i.e. MIGA, IDA, IBRD, IFC), the African Development Bank, as well
as the African Trade Insurance Agency.
Grid connectivity and an insufficient capacity to integrate variable
power, or a lack of understanding of the impact it could create on the
grid, are other key restraints that many sub-Saharan African countries
are facing (e.g. Ghana which is currently imposing a temporary cap of
150 MW for its large-scale grid-connected solar PV projects).
Finally, non-cost-reflective electricity tariffs are often unattractive
to private power generator investors. In addition, these tariffs do not
provide enough resources to power utilities to make the necessary
changes (rehabilitation and expansion) to the grid, often required to
accommodate RE power projects.
Electricity tariff subsidies prove to be ineffective as most power
utilities do not have the adequate means to secure a stable power
supply to their consumers. New business models need to be put into
place to ensure:
• Higher access to electricity
• Cost-reflectiveness
• Affordability and competitiveness of electricity tariffs across the
continent
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ENERGY EFFICIENCY MADE SIMPLE 2015