Responding to the department of mineral resources and energy’s first budget speech since the merger of the two departments, Standard Bank Group says the COVID-19 crisis highlights that Africa needs to develop flexible energy systems.
The Bank sees renewables and decentralised technologies play a far larger role in creating these new approaches to the delivery of electricity.
Worldwide the pandemic has created both a decline and change in electricity demand as commercial and industrial activity slowed and people worked from home.
In South Africa electricity demand reduced by as much as 7,500MW on average in March and April at the height of lockdown.
But, demand is now increasing in most African states as economies reopen.
Considering that many African countries entered the crisis with a shortfall of energy supply, governments will need to procure more power in the months ahead.
The fast and most cost-effective way to address that supply gap is through more flexible technologies such as renewable power projects, advises the Bank. This could mean the crisis may prompt some African nations to deploy renewables at a faster rate than before.
“Given that renewables are currently the most economically viable source of energy in most countries, we expect that the COVID-19 crisis will accelerate the pace at which these technologies are adopted on the continent, with hydro, wind and solar being the most attractive technologies,” said Rentia van Tonder, head of power at Standard Bank.
Flexible energy storage and renewables to plug the gap
According to the International Energy Agency (IEA), renewables are the only energy source set for growth in demand in 2020, with solar and wind generators best placed to weather the storm due to cost competitiveness and the ability to adjust more easily to fluctuations in demand.
“This further strengthens the case for economic recovery strategies to be underpinned by investments in renewable energy,” said van Tonder.
Rapid advancements in storage technologies are addressing the problem of intermittent supply of electricity by renewable energy units, but there are no utility-scale battery storage facilities in Africa.
With electricity demand recovering, South Africa’s Department of Mineral Resources and Energy recently announced that it is preparing bid documentation for the emergency procurement of 2,000MW of generation capacity.
Given the time constraints, renewables may be best suited to plug the gap, and there are signs that these projects could include investments in storage technologies, which would further enhance the flexibility of these systems.
Gas to power projects will also be able to provide dispatchable power solutions, complementing renewables.
Alongside launching bid window five of the Renewable Energy Independent Power Producer (REIPP) programme, finalising plans to enable the private sector and municipalities to secure their own power supplies would also be a welcome development in South Africa.
Going green and off the grid to ensure reliable supply
Decentralised green-energy solutions, which promote innovation as they are purpose-built and not connected to national grids, will continue to gain momentum as municipalities, mining houses and industrial firms seek to ensure cost certainty and reliability of supply.
Some mining groups in Africa are even turning to hydrogen power to diversify their electricity mixes – an indication that the fledgeling hydrogen economy is garnering more interest.
“In countries such as Nigeria – where the electricity self-generation market is 55% larger than the main grid – we expect the country will start to seriously consider pivoting to decentralised renewable solutions as oil subsidies near an end, so as to decrease the supply shortfall and better service the large and geographically fragmented population,” said van Tonder.
Meanwhile, African nations are well placed to implement a ‘green stimulus’ strategy, as the European Union and other markets have done.
“This approach would increase the potential to secure additional green funding for the continent’s COVID-19 recovery measures,” said Greg Fyfe, head of energy and infrastructure finance at Standard Bank.
“With government finances under strain amid the pandemic, public-private partnerships will be essential for the energy infrastructure build programme to be a success. Banks will need to work closely with governments, development finance institutions and other financiers to mobilise funds and expertise,” explained Fyfe.
“Given the heightened focus on environmental, social and governance factors as well as sustainability, we would also expect global investors and financiers to continue to pursue opportunities in the renewables space,” he added.