JOHANNESBURG - To meet the needs of growing populations and allow economic development, countries in Africa need to radically increase energy supply.
Even though about onebillion people in sub-Saharan Africa alone are expected to have access to electricity in 2040, the World Bank Group anticipates a shortfall of an estimated 530million people living in the region who still won't have access to electricity by then, because of population growth.
We are seeing a rise in wind and solar capacity in Africa, but uptake has been slow in comparison with other geographies, especially considering the opportunities available across Africa. With an assortment of challenges facing the African energy market, how can well-designed renewables bids lead to increased uptake across the continent?
There is no doubt that the private sector can make invaluable contributions by carrying out the all-important work of developing and building renewables projects swiftly, efficiently and according to industry best practice, showing the value of these projects for the countries’ economies and communities.
When you look at a project's expected outcome in terms of value it's apparent that there are three fundamental factors. The first is the quality of the project, which is primarily established during the planning phase, and the second priority factor is how the contracts are assembled.
Having an international wind turbine manufacturer responsible for the whole project will decrease local involvement and drive up costs. From other markets, we see that local active developers who can split up their projects into several packages are most successful.
The third factor is the quality of the implementation of the project, which relates to the execution phase, and this can directly affect a project’s outcome.
One factor which is having a major impact on the business environment for developing and building renewables projects is the global move from systems largely based on feed in tariffs (FITs) to competitive power auctions.
Model
African countries have been quick to adopt the auction model, despite the slow movement of the market in recent years, with the support of key international financing institutions such as the IFC.
There is no doubting the positive influence the auction model has had in creating enthusiasm in policy circles around the potential of renewables as governments realise that wind and solar are cheaper and faster to deploy than fossil fuel power projects. However, the rapid decline in prices fostered by the auctions system creates new challenges.
It is not peculiar to see companies submitting incorrect bids and as a result are then unable to execute a project and need to renegotiate the terms of the bid submitted. Projects need to be well-designed, bidding companies need to have a firm grasp on supply chain and logistics, as well as future projections to secure bids that are both competitive and ensure that projects are realisable once won.
There is a strong investment case for renewables across the African continent, and projects that are more desirable, attract investment from an early stage. Improving a project’s viability and deliverability will ultimately boost such a project’s desirability.
Hebren James is the South Africa Country director at K2 Management.
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT