In this article, which first appeared in the Africa Energy Forum’s official publication, Africa Energy Yearbook 2020, three power and energy professionals talk openly about power shortages and their views on renewable energy as a trending solution.
The following is an extract from the Investment & Impact Report published in advance of the Africa Energy Forum 2020. Addressing the topic of generation supply and specifically loadshedding, these three industry experts contributed some insights: Lisa Pinsley, Director of Actis Energy team in the Cape Town Office; James Magor, Director of Actis Responsible Investment Team in the London Office; and Jennifer Boca, Head of ESG for Lekela in the London Office.
What is your perception of the energy shortage in Africa at the moment, especially loadshedding in South Africa? Has this situation potentially triggered some out-of-the-box solutions?
The space we have traditionally played in is large-scale utility-connected power, and we continue to see that this space will play a large part in Africa’s growth going forward, both renewables and gas. But we also see innovations in the market: in the commercial and industrial (C&I) space, storage, mini-grids and solar home systems.
In the C&I space, companies are building their own power plants, often installing solar or diesel generation for their own usage, because they cannot receive reliable power from the grid and also may be able to self-generate at a lower tariff.
We see this C&I trend increasing, especially when the regulation and financing are in place to allow it to happen. We’re tracking that expansion and potentially looking into investing in the space moving forward. So, still large-scale generation, but not always selling to the government-owned utilities – rather companies buying it themselves.
One important differentiation within the C&I space in that you can either put the power plant on the company’s site – so you don’t have to ask the utility to wheel the power for you – or you locate it somewhere else, have the utility wheel it for you, and then sell to the customer. Actis is involved in other markets in Latin America and Asia where this wheeling arrangement is common in the C&I space. We haven’t seen that as much in Africa yet, due to regulatory or frankly political concerns. Therefore, most of the C&I or self-generation happens onsite.
If Africa’s different regulatory environments can move towards allowing wheeling of power, then that would certainly open up much more opportunity for that kind of investment and generation.
On a smaller scale, we’ve seen a lot of solar home system players such as M-Kopa and BBOXX emerging. That’s a very interesting and dynamic sector with a lot of investment including different multilateral players in Africa. We’re following it closely but we have not invested to date as we see it more as a financial services play, rather than the kind of risk profile that we normally see in longer term power off-take agreements with larger-scale investment.
As for other opportunities, people are looking at mini-grids, and we are keeping a watching brief as these businesses scale.
We are also actively tracking a growing market in storage, whether included in a utility scale generation project, or standalone storage projects. We think that’s going to be big within the next five to ten years in Africa.
On the storage front, we’ve been in a number of discussions with different African utilities – we received a USTDA grant to work on a storage project in Kenya for example in 2019 – and generally this will be an area of focus moving forward.
Just to add to that, obviously Lisa is talking from the generation supply side. Across Actis we are also on the off-taker side as well, on C&I in solar in particular. Our real-estate investments in South Africa and elsewhere on the continent are looking for opportunities to install rooftop solar PV to supplement their power supply and displace diesel generators. We’re seeing that kind of theme on the private equity side, where we’ve made investments in companies with large distribution warehouses and manufacturing facilities.
There’s a lot of opportunity there to install rooftop solar. So in the C&I space, it’s no longer just the large mines and heavy industry looking at captive power supply. It’s also new sectors like shopping malls, supermarkets and logistics companies, and Actis is actively promoting sustainable power across South Africa and the rest of the continent.
On the battery storage side, we’re also exploring that for one of our projects in Senegal, so there’s definitely a focus on battery storage as Lisa mentioned.
Do you think renewables and battery storage tech advancements are going to be the biggest wave in terms of annihilating energy poverty? Or do you think there’s still a 50% split between them and traditional fuel?
We think there’s a very, very strong case for renewables going forward, so renewables form a large part of our investment strategy in our energy and long-life infrastructure funds. But there are also important near to medium-term opportunities in thermal energy, especially gas, which is lower carbon emitting than liquid fuels or coal, but still provides that large-scale baseload power that can be flexible to offset the intermittency of renewables. This makes sense especially in places around Africa with domestic gas reserves. For those who don’t have domestic reserves, there are opportunities to import gas at reasonable prices.
From an energy poverty perspective the idea that renewables are only affordable with subsidies is a bit of a misconception. It is, in many of our markets, the least cost source of power, so absolutely renewables are the key part in alleviating energy poverty. But as Lisa said before, renewables alone are not the solution. There’s still a need to balance their intermittency – batteries may come in to play that role – but a grid exclusively running on renewables and batteries is still not possible in many scenarios.
The development of Smart Grids around the world will probably be the next big thing in tech, especially the interconnection between appliances. In addition, the global adoption of the SDGs, by public and private sectors, has highlighted the urgent need for investment in the development of affordable clean energy, especially in Africa. If you look at SDG7, which concerns clean energy and global access to power, the vast majority of the investment required to achieve that goal needs to be directed into the African power sector and this is likely to further advance the continent’s renewable power sector.
To broaden that point, considering the SDGs through an impact lens can be helpful when we’re working locally as it helps us to connect with global efforts. Our core business deploys utility-scale power for grids but at the same time we look at how to improve local access to energy services for underserved communities through social investment programmes. By considering the wider picture, we are having a positive impact on access to power at multiple levels. ESI
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Africa Energy Forum 2020 is taking place in Amsterdam, the Netherlands on 20-22 October. Book your attendance by visiting www.africa-energy-forum.com