Small scale embedded generation (SSEG) makes financial sense for commercial & industrial (C&I) sectors; however, cumbersome requirements for the procurement of SSEG systems are often a challenge for this market.
To appreciate the full magnitude of this challenge ESI Africa engaged with industry experts in a webinar Financing onsite power for the C&I market, with a mission to present available options on funding and regulation for onsite power generation to support businesses. Opening the webcast discussion, Peter Page, investment associate at responsAbility Investments AG, drew attention to some key findings from the Solar for Businesses in Sub-Saharan Africa report issued by BloombergNEF (BNEF). The report assessed the potential and target markets for C&I solar in 15 countries in sub-Saharan Africa.
According to Page, the study found that there is lack of funding for green energy projects in the C&I market due to its shortage of track record information. At this stage, the majority of projects are for small-scale customers [residential], implemented one by one. However, Page says financiers prefer large-scale or a portfolio of projects. Lack of financing is impeding developers and EPCs who seek opportunities in offering on-site solar as a portfolio.
The BNEF study included research trips to Nigeria, Kenya and Ghana. Researchers found that customer education takes time in these selected countries, hindering development of a pipeline at a larger scale. Also financing from local banks is very limited in these countries. A challenge for customers is to provide proof of their ability to pay back the credit.
Weighing in on the conversation, Jack Radmore, energy programme manager at GreenCape, stated that finance availability is not an issue in South Africa; however, the difficulty is the lack of knowledge on how to access it. Radmore revealed that at the beginning of 2019, GreenCape released a financing brief, which lays out all financing options available from commercial banks and how these institutions structure it as well as what they are looking for in terms of risk mitigation. The brief puts forward alternative and innovative financing options that are floating around, he said.
Overview of SSEG in South Africa
According to Radmore, in South Africa SSEG is dominated by industrial, commercial and agricultural sectors with a collective 250MWp rooftop solar PV installed capacity over the last 12 months. The market has a current installed capacity of approximately 850MWp, which is equivalent to 15% of the Kusile coal-fired power station— one of the largest power stations in the country. The industry anticipates to exceed 1GWp of rooftop PV installed in South Africa by the end of 2019. He said the market could reach as much as 7.5GW of installed capacity by 2035 (+-500MWp per year). Total available market of R5 billion per annum and a total available market of R75 billion by 2035, noted Radmore, outlining four drivers of solar PV uptake in South Africa:
1. Regulatory certainty: municipalities and national government setting regulations
2. Innovation: an emergence of new and innovative business models available
3. Price: the cost of SSEG systems is falling and is now more affordable 4. Finance availability: innovative finance is available – there is no upfront capital required
Radmore remarked that regulatory certainty is promoting industry growth, “60 municipalities across South Africa have already introduced rules and regulations. This includes five out of the eight metros.” He also noted that the market is price-competitive and promotes local partnerships and skills. “These are set to continue dropping when battery storage comes on the market and industry will grow exponentially.”
Understanding key trends in the market
Upon studying market trends, Page comments that it is important to take into consideration that the business models of the C&I developers and EPCs are shifting from a direct approach – one where the offtaker would purchase the system upfront – to lease agreements or Power Purchase Agreements. “These are more flexible terms and require quite a lot of capital from installers and less capital from the offtakers.” Given that large-scale PV projects take longer to connect to the grid due to regulatory processes, he pointed out that this is leading to decentralised energy systems being favoured, even in developed markets such the US and Europe.
On the cost side, Page said solar is becoming a viable option. “We are seeing that from an economic perspective, solar does make sense in emerging markets. For example, in Ghana the grid tariff is very high. Here customers can save 20-40% on their electricity bills by installing solar systems.” He added: “Nigeria is a more dramatic example due to the country’s [lack of] grid reliability. There we see that developers don’t just provide solar panels but also add battery storage.
Although the solar PV market is still in early stages in sub-Saharan Africa excluding South Africa, Page said the growth expectation from talking with the developers is larger because of economic incentives from offtakers wanting reliable, clean and cheap power. He further noted that a lot of international firms operating in Africa have a different motivation from economics and reliability but more from a clean energy target point of view.
The elephant in the room – regulation!
Regulation can be a growth deterrent for certain markets, said Page, noting that “in Ghana, for example, there are local participation laws for international companies, which are slightly hindering the market. Regulation states that a certain percentage of solar panels are required to be manufactured in Ghana, which is currently not the case.” There should be some leeway given to ensure the market keeps growing, he advised.
Weighing in, Radmore explained that the main bottleneck around regulation boils down to regulatory certainty. “For example, if I make a decision now, will something drastically change in the next three years that would make what I have done illegal or require me to make certain changes?” In South Africa, there is considerable effort from a municipal level to drive the conversation around embedded generation, as it is starting to impact their business models. “They [municipalities] started by setting bylaws and regulation as to how customers are allowed to connect to the grid. The important part of this is around safety and security of the grid infrastructure,” explained Radmore, noting that national government began to respond when a decent number of municipalities sort to embrace embedded generation. This movement then led to a call around relooking at licence regulations on a national basis to understand how and where certain generators need to register or whether they will need to have a full generation licence.
Generators up to 1MW, which is the majority of installations in the SSEG market, will be required to register their installations with their local municipal authority and with the national regulator. “So they won’t have to go through the whole generation licence process, making the whole process quicker and cheaper,” noted Radmore. From a municipal point of view, Radmore said generators require a registration and a shift towards SSEG tariffs, “which will allow customers to get paid a feed-in tariff or nett metering tariff but will also allow municipalities to build in an element of fixed charge into the tariff.”
He underscored that this development is an important step in the South African regulatory environment, which allows the transmission utility (municipalities) and the generation utility (Eskom) to cover the costs that are fixed with maintaining the overall grid. “That’s a big step towards the distribution liberated market space, where you have multiple generators, a single entity managing the grid infrastructure and then multiple customers. Instead of now where we are seeing a single entity managing all the generation, and municipalities playing a role somewhere in the distribution space and then customers,” he said.
A word of advice from SAPVIA
When planning to install solar PV in your premises, Niveshen Govender, chief operating officer at the South African Photovoltaic Industry Association (SAPVIA), disclosed that the endeavour is not without risks. Govender said in terms of technical risks, “there is always a risk with components that you use and the compliance of those components specific to the grid that you are connecting to.” He noted that the risks of the installation are linked to the wiring and the safety that goes with that installation.
Govender stresses the importance of C&I plants and residential installations performing according to the systems specifications. “You need to make sure that a yield analysis is done correctly. Also ensure that the quality of power being generated matches that of the grid or that it is acceptable by the distribution grid.” Concerning other general risks, including weather risks such as lightning strikes, surges as well as wind speeds, Govender urged that the facility owner is responsible to secure the adequate protection against all of these threats. Another factor to keep in mind is the maintenance expenditure.
International C&I market development
The Monash University in Melbourne, Australia is home to the world’s first 1MWh vanadium flow / lithium-ion hybrid energy storage system. The project owner, redT energy, confirmed that the system is the largest behind the meter C&I energy storage system to be installed in Australia and the first of its kind to be commissioned worldwide.
Comprising 900kWh (12 tank units) of vanadium flow machine technology, coupled alongside a 120kW C1-rated lithium battery, the system is located on the roof of the University’s new Biomedical Learning and Teaching Building at Monash’s largest campus in Clayton, Victoria. The energy storage solution sits at the heart of a pioneering microgrid, storing and dispatching energy from multiple sources, including 1MW of solar panels.
By utilising the complementary strengths of two storage technologies, the hybrid system will act as a flexible platform, integrating with building management systems and EV charging stations while enabling cutting-edge ‘peer-to-pool’ energy trading. This project is a core part of the University’s Net Zero Initiative, an ambitious, unprecedented project, which aims to completely transform how the university uses energy with a target of reaching net zero carbon emissions by 2030.
The Australian energy storage market is estimated to be worth approximately AUS $30 billion by 2030 with almost 400MWh of energy storage projects estimated to be installed in behind-the-meter C&I applications nationwide by 2022. ESI
Access the webinar presentations and listen to the full recording at www.esi-africa.com/webinars