What Is the Business Case for Energy Storage in Africa?
A common element of the energy storage discussion is that the growth of storage projects appears unstoppable, while their cost will continue dropping. So, has the time arrived to start developing African energy storage projects and what are the current opportunities and barriers to overcome?
The Africa Energy Forum (AEF), which took place in Copenhagen, Denmark, this summer, explored the question.
Do It Now or Wait?
Bart Boesmans, chief technical officer for ENGIE Africa, told the conference that global energy storage developments are driven primarily by cost reduction and this is going to continue. Development of storage, in Africa too, is always a question of cost, Boesmans argued.
Based on the current costs of the storage technologies, it would be preferable in the short term to focus on hybrid power projects and minigrids, he added.
“When we researched Morocco for example,” Boesmans continued, “we saw that if storage facilities were the preferred option to provide baseload power, the cost of power would triple.”
The case becomes better when using solar plus gas turbines, he explained, adding though that if you need extra power for a few hours only, then the business case changes.
Evan Rice, responsible for Tesla’s energy products in Europe, the Middle East and Africa (EMEA), told the Forum that utilities today making a business plan to develop a fossil fuel-based plant that will operate in five years (or 20 years in the case of nuclear power) should compare their business plan costs with energy storage cost projections in five years.
Energy storage projects are now under development in various parts of the world thanks to the reduction of the technology’s costs and its necessity to manage the electricity networks and facilitate the renewable energy growth. But does this mean the time to develop energy storage in Africa has arrived too?“, “sponsorPage” : null, “footerText” : “Brought To You By”, “authorLineLabel” : “By”, “showBylineLabel” : null, “showDatelineLabel” : null, “showPublicationDateLabel” : null, “authorSnippetLabel” : “By”, “showNativeInfoTooltipText” : true, “showNativeAdSynopsis” : true, “showByline” : true, “showDateline” : true, “showPublicationDate” : true, “hasAuthor” : true, “displayMultipleAuthors” : false, “showAuthor” : true, “showAuthorSnippet” : false, “showSubHeadline” : false, “showLiveFyreComments” : false }”>[Native Advertisement]
Yasser Charafi, principal investment officer at the International Finance Corporation (IFC), which is a member of the World Bank and provides financing for projects in developing countries, added that from the IFC’s perspective energy storage in Africa will develop primarily due to the following three reasons:
- Bad quality of electricity in the vast majority of Africa
- The synergy with renewable energies, which is important because renewable energies will be the least expensive option to power the continent
- The off-grid power promise, which can transform the way we think about energy nevertheless
Meanwhile, to reach the point of widespread adoption of renewable energy and energy storage technologies, some practical considerations need to be addressed as well. Olivier Colas, business development head at Bollore Group’s Blue-Solutions, which focuses on the development of electric vehicles and distributed energy solutions, said that transportation and logistic costs in Africa are much higher than in many other parts of the world. There is an African state for example, Colas added without naming the country, where about 40 percent of additional taxes and duties are imposed in imports. To make storage and even renewables competitive in these countries, regulations need also to change, Colas concluded.
The Banks’ Perspective
It is early days for commercial banks in Africa to finance storage projects, commented Maureen Harrington, head of the client coverage department for power and infrastructure, at Standard Bank, Africa’s largest commercial bank. So far for example, Standard Bank has used project finance models to fund power generation based on independent power purchase (IPP) contracts without storage on site, said Harrington, who is based in Standard Bank’s New York office.
Things change though, claimed Harington: Standard Bank has examined how to finance different ways of power generation in Africa and realized that the traditional utility model, where a power utility buys the generated power from IPPs, faces credit problems. For this reason, she said they have established a new team exploring financing options for different kinds of power, not only utility scale or grid connected projects, but also off the grid, energy storage and other types of distributed power, explained Harington.
She added that the new team has explored further the value chain of solar home systems with storage on the site, e.g. solar homes attached to a battery in a pre-paid meter, and revealed that Standard Bank has “just got approval for our first solar system PO [purchase order].” The key is to provide local currency financing for working capital which in fact is a basic banking tool, but at the same time a challenge because commercial banks are not good in financing start-ups, risky projects and new technologies, Harington concluded. This type of project usually receives financing from developing finance institutes (DFIs).
It appears that, for Standard Bank, the idea of energy storage has started taking shape currently concentrating around off-grid solar and battery installations. Its involvement with this business idea can potentially have a great impact in the continent since the bank is represented in 20 African countries.
The bank has also considered energy storage projects built around commercial and industrial solar rooftops. Harrington said they believe that such systems can provide solutions to grid reliability and renewable energy’s intermittency issues in the countries they operate. However, at the same time, they have seen that first movers in commercial solar rooftops, especially in South Africa, need the generated power mostly during the day, when they operate (e.g. shopping malls), and for this reason there hasn’t been a huge demand for storage of this kind yet, explained Harrington. On the contrary, it seems the discussion within Standard Bank for utility-scale storage projects has been initiated.
Off Grid Energy Storage: Ready to Take Off En Masse?
Naturally, the discussion moves to the off-grid segment of the energy storage market, where positive steps have been taken recently. French energy giant Engie for example has announced the acquisition of a 100 percent stake in Fenix International, a U.S. company active in the residential lease-to-own sector in several African countries. Fenix specializes in selling small, off-grid rooftop systems to customers in East African nations, primarily in Uganda.
Furthermore, BBOXX, a fully vertically integrated company founded in London by graduates of the Imperial College and which specializes in designing, manufacturing, distributing and financing plug and play solar systems across Africa and the developing world, announced in October that it successfully closed a new deal on a $5 million facility. Specifically, Essential Capital Consortium, a fund managed by Deutsche Asset Management (of the Deutsche Bank Group), will finance BBOXX to further develop its off-grid solar and battery system offer in Rwanda, where BBOXX is already the largest off-grid utility. The $5 million facility will be managed in country by Atlas Mara’s Rwandan entity, Banque Populaire du Rwanda, which is already a lender to BBOXX. Earlier in the summer, the World Bank announced it would provide US$150 million in credit for off-grid solar energy in marginalized communities of Kenya.
Speaking at the AEF’s seminar “Financing and the Development of Off Grid Energy Solutions,” Mohamed Hoosen, regional head at Engie Southern Africa, said that should commercial banks fail to find the security guarantees they need to finance off grid projects in Africa, the role of DFIs in financing such projects would increase. Securitization in payments (e.g., via mobile phone payments) for off-grid systems is therefore pivotal, according to Hoosen. Other speakers suggested that non-recourse project finance solutions for off-grid projects on an aggregated basis often can be a solution. And Michael Meeser, head of power and infrastructure at Investec Bank, preferred to stress out that apart from the OPEX costs, CAPEX costs of off-grid investments need also to be covered and are an important consideration.
All in all, new financing models will be needed for all kinds and sizes of energy storage in Africa. Commercial banks and other financing institutions together with project developers have started trying new ideas. Some projects will definitely prove educative too. Charafi, of the International Finance Corporation (IFC), told AEF for example that IFC is currently working on the development of the first large-scale grid-connected battery storage facility in Africa, albeit he declined to provide more details. The storage sector will learn from these cases. For off-grid projects specifically, the case will need a greater innovative effort in financing and business management. But as Boesmans, of ENGIE Africa, told the Forum: developments are driven by cost reduction and this is going to continue.
The energy storage market, similar to solar PV, is a global one and cost reduction achieved elsewhere will be felt across Africa too.
Lead image credit: CC0 Creative Commons | Pixabay