New York - First Solar, Enel SA and Neoen SAS won contracts to develop two photovoltaic power projects in Zambia that will provide Africa’s cheapest solar power, the first winners of a World Bank-organised auction programme to promote wider use of renewable energy in developing nations.
First Solar, the biggest US panel producer, and France’s Neoen will jointly build a 45-megawatt power plant that will sell electricity for 6.02 cents a kilowatt-hour, and Enel will provide power from a 28-megawatt facility for 7.84 cents, the World Bank’s International Finance Corporation announced on Monday.
The World Bank, the IFC and World Bank member Multilateral Investment Guarantee Agency are offering financing, insurance and advisory services through the Scaling Solar programme. That reduces risk and helps cut costs, and should make these emerging regions more appealing to the big developers that are building large-scale solar farms in other parts of the world.
“What’s interesting about the first tender round in Zambia was both the speed and low price - the lowest in sub-Saharan Africa to date,” said Victoria Cuming, a Bloomberg New Energy Finance analyst in London. “Without the World Bank support, Zambia wouldn’t have been able to hold the tender round in just 10 months. We’ve seen several countries in the region fall down in this area over the last year.”
Next auction
Senegal and Madagascar are also participating in the programme, which may eventually spur development of 850 megawatts of solar capacity in the three power-deprived countries. That would be roughly $1 billion in investments, according to New Energy Finance. Zambia is planning a 200-megawatt auction within a year.
The IFC expects to add a fourth sub-Saharan country by September, and the programme may eventually be adopted by countries in Central and East Asia.
“It’s not designed for Africa,” said Jamie Fergusson, global sector lead for renewable energy at the IFC in Washington. “It’s designed for countries with limited independent power producer experience and with single-buyer markets, where the buyer of power is a publicly-owned utility.”
Hydropower made up 94 percent of Zambia’s generating capacity last year, according to New Energy Finance. And the World Bank estimates that only 24 percent of the population of sub-Saharan Africa has access to electricity, according to the World Bank.
Scaling solar
Scaling Solar was developed to help introduce a new technology, solar, to the country, using competitive auctions and the endorsement of the World Bank. That helps overcome international banks’ concerns about political risk and makes these emerging markets more appealing to developers. It also includes standardised contracts, eliminating the often lengthy process of negotiating power-purchase deals one at a time.
“Entering Zambia without this programme would have been more difficult for us,” said Antonio Cammisecra, head of business development at Enel Green Power in Rome. “It accelerated our entry by as much as a couple of years.”
The location of the projects isn’t ideal, Cammisecra said, because it’s not flat and has rocks that will need to be removed.
Site criticism
“It is the last site you would choose to do a solar project,” he said. “The end results is a higher cost which means a higher tariff. If the site could have been selected by the investors, it would have resulted in a lower tariff.”
Zambia’s Industrial Development Corporation informed bidders before proposals were submitted that the sites are on even gradients, and may require reinforcement before construction, according to Dan Croft, a senior investment officer for energy at the IFC in Johannesburg. An advantage of the site is that the solar farms will be near a new substation to send power to the capital city Lusaka, where it’s needed.
“There is no solar on the grid in Zambia,” said Croft. “When you think of a market tailor-made for solar power, it would be there.”
BLOOMBERG