A Solar Strategy for Africa: International Players Set To Expand Key Markets

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.