Navigant Research Blog

Distributed Solar PV Poised to Reach Its Potential in Africa

— December 9, 2014

According to the International Monetary Fund, 7 of the world’s 10 fastest-growing economies are located in Africa.  While Cairo, Egypt, was the only city in Africa to have a population exceeding 10 million in 2010, seven cities across Africa are expected to achieve this level by 2040.  Rapid urbanization means that more than 100 African cities are projected to exceed 1 million inhabitants by 2040.  Such levels of urbanization and economic growth have forced local utilities to acquire new, primarily large-scale power projects.  Utilities are primarily calling for large scale natural gas power plants and renewable energy projects (led by solar PV and wind),  as evidenced by the booming South African renewables market.

Over time, however, there will be growing opportunity for smaller-scale distributed renewable energy projects in the 1 kW to 1 MW range.  Growth in this power class is led by government agencies that are electrifying health clinics and schools, often with international donor support. This is likely going to continue to be the case for at least the next 5 years. According to Navigant Research’s report, Global Distributed Generation Deployment Forecast, annual capacity additions of distributed solar PV in Africa are expected to grow from 10.9 MW in 2014 to 56.5 MW in 2023.  Agriculture, hotels, extraction industries, water pumping, telecom applications, and growing consumer markets in Africa will result in distributed solar PV growth across the region.  Cumulative distributed solar installed capacity during this time will reach 332.2 MW, representing less than 5% of the total installed solar PV capacity in Africa in 2023.

Immense Opportunity

Urban residential will be the last segment to catch on in urban African communities, primarily due to the combination of a small middle class, a lack of awareness among potential customers, and a lack of financing options.  Several experienced engineering firms, particularly in Kenya, are targeting distributed solar customer segments.  And while there is significant buzz about microgrids in the region, in particular, these projects have not yet developed at the anticipated rate.  That will change if innovative companies, such as PowerHive, Access Energy, and PowerGen, are able to successfully scale up current microgrid efforts and attract further investment.  In Kenya, there are a number of creative mid-sized projects, including solar-wind hybrid systems, ranging from 10 kW to 300kW.  In general, the opportunity for distributed renewables is immense, and the field is wide open – provided companies (and investors) are patient enough to deal with potentially problematic African bureaucracies.

Patient Yet Determined

The engineering firms and developers offering these solutions are working with utilities and regulators to create a more conducive environment for this small-to-mid-scale market segment in urban and off-grid settings.  Compared to utility-scale installations by larger international companies that hire workers for a short period and do not have a continued presence, the distributed market segment will have the most impact from a job creation and sustainable development perspective.

These companies tend to be staffed with very determined people who have made progress in very uncertain and often frustrating circumstances.  They’re becoming more organized and lobbying for a more favorable regulatory environment – including more robust net metering policies, feed-in tariffs, and, in general, more freedom to operate.

Equally critical, however, is education among financiers (and customers) on how to finance small-to-mid-sized solar PV systems.  Similar to the diversity among U.S. state policy and public utility commissions, pathways for growth will differ for each country in Africa.  Those that are willing to stay the course and weather the frustrations of operating in uncertain political and regulatory environments stand to profit  and, in the process, contribute to the establishment of the local industry over the long term.

 

Renewable Energy Grows, Large and Small, in Africa

— December 8, 2014

More than two-thirds of the population of Sub-Saharan Africa has no access to electricity – a figure that rises to more than 85% of those living in rural areas.  Those that do enjoy electricity pay some of the highest rates in the world.  Now, though, the opportunity for renewable energy investment in Africa is finally being realized.  Renewable energy growth in Africa has typically been due to investment in large hydropower plants.  The new wave of investment is now happening across the spectrum – including in utility-scale solar PV, wind, geothermal projects (greater than 10 MW in size), and pico solar systems (under 100W) that encompass solar lanterns, task lights, and solar home systems for people who typically earn less than a few dollars per day.

Beyond Johannesburg

At the utility scale, the leading country in Africa for renewable energy deployment is South Africa, where the government’s integrated resource plan may result in nearly 10 GW of solar PV installed by 2030.  With nearly 1.5 GW of solar PV and 2 GW of wind currently installed or in development, following four well-administered auctions, the country is making strong progress.

Kenya, arguably the next leading market, has 750 MW of solar PV and 290 MW of wind approved and in development.  South Africa and Kenya have both seen strong economic growth over the past decade and are typically the landing points for new companies looking to expand in the region.  The opportunity for large-scale renewable energy investment is now expanding to other African countries through similar mandates for integrating large amounts of renewable energy as part of their overall strategies for increasing electrification rates and meeting demand for power that’s crucial for economic development:

  • Rwanda: An 8.5 MW solar PV installation was built by GigaWatt Global Rwanda in Agahozo Shalom Youth Village for $23 million ($2.70/W); in addition, the government has set a 567 MW target for new renewable energy installed capacity by 2017.
  • Tanzania: The government of Tanzania has a renewable energy target of 14% by 2015.
  • Mauritania: 15 MW of solar PV have been installed, and 15 MW are in development.  The government has targeted 40% rural electrification by 2020.
  • Ethiopia: A 20 MW module assembly line was completed in partnership with Sky Energy.
  • Ghana: The government is targeting 10% renewable energy by 2020.

At the Pico Scale

Of course, there will be challenges along the way in executing these targets and ensuring a fair and transparent process for bidding on projects in these countries.  But if the majority of major announcements are realized in the next 6 years, the African solar PV market could see more than 8 GW installed and $23 billion in revenue by 2020.

On the pico solar side, Navigant Research’s report, Solar Photovoltaic Consumer Products, forecasts that the pico solar and solar home system market could surpass 130 MW in annual installations in Africa by 2018, resulting in revenue in the neighborhood of $500 million.  Kenya is the leader here, as well, expected to account for approximately 20% of the African market followed by Tanzania.  Venture investment is now flowing to so-called social enterprises that use for-profit business models to reach reduce poverty and spread electrification.  Pay-as-you-go and mobile phone-based payment systems are expected to be the key to enabling pico solar to scale effectively.

The success of several leading companies – such as D.Light, Barefoot Power, Green Light Planet, M-KOPA, and others – has led to a crowded market in Kenya, in particular, and the need to expand to new markets, including Malawi, Zambia, Rwanda, Uganda, Nigeria, and Zimbabwe, is increasingly on the radar.

Taken together, impressive growth in utility-scale renewables and of pico solar systems in Africa shows that developing countries can forge their own paths, achieving the benefits of electricity without becoming dependent on large, polluting thermal power plants.

 

Small Wind Leases Open Up New Markets

— December 8, 2014

With more than 5 MW of distributed solar PV being installed per day in the United States, third-party-owned (TPO) systems have catalyzed growth in residential and commercial market segments.  Until now, the wind industry has missed out on the immense opportunity offered by customized power purchase agreements and lease options for its customers.  As with TPO solar, wind leases enable customers to start saving money on their electric bills immediately, with little-to-no money down.  The system owner, meanwhile, takes advantage of the federal investment tax credit (ITC), depreciation, and other state incentives.

Based in Brooklyn, New York, United Wind is a developer of small wind projects and is currently offering lease options for 10 kW and 50 kW wind turbines.  The company has focused its efforts in New York, where the New York State Energy and Research Development Authority (NYSERDA) wind incentive can mean up to $40,000 in credits on a 10 kW system, on top of the 30% ITC.  Other companies are also trying to provide financing options for their customers, either directly or through third-party sources, but uptake has been slow.

Slow Off the Mark

According to Navigant Research’s report, Global Distributed Generation Deployment Forecast, 225 MW of small and medium wind (<500 kW) are expected to be installed cumulatively in the United States between 2014 and 2023.  Overall, the small and medium wind market in the United States has been far surpassed by the solar PV market due to rapidly declining costs that small wind has not been able to match.  With state incentives, in regions with strong wind resources, small and medium wind can be more cost-effective than solar PV, but the industry has been on its heels for the past few years.  As key state incentives have expired, a number of companies have gone under.

At the same time, distributed solar PV companies secured hundreds of millions of dollars in investment, established national sales operations, and significantly reduced customer acquisition costs.  The wind lease option is intended to tip the scales back in favor of small wind in key market segments, such as agriculture, manufacturing, municipalities, universities, schools, and hospitals, in places where wind is abundant.

As with solar PV, wind leases will range from 15 to 20 years on average and include guaranteed performance (in kilowatt-hours generated) warranties that include maintenance and insurance – all wrapped into a single payment.  This puts a premium on site assessment, since customers that don’t see cost savings are a risk to default on their payments.

The small and medium wind market needs to prove it can succeed in markets without lucrative state incentives.  The lease model is a great opportunity to move in that direction, but will require significant investment.

 

NRG Goes All In on Distributed Generation

— September 6, 2014

One of the largest independent power producer (IPPs) in the United States, NRG, provides power for the wholesale power markets with more than 50 GW of conventional installed capacity.  More recently, under outspoken CEO David Crane, the company has made a name for itself in renewables, with approximately 2.5 GW of solar PV, concentrated solar thermal, and wind capacity.  NRG also made headlines recently with a reshuffling of its business units: NRG Business (focused on conventional wholesale energy including nuclear, coal, and gas power plants), NRG Renew (focused on large-scale renewables), and NRG Home (focused on distributed generation [DG] and energy services for residential customers).

The company has relied on both organic growth as well as a series of acquisitions to fuel its DG offerings, including Dominion Resources and solar PV provider Rooftop Diagnostics, which expands the company’s customer base – particularly in the Northeast – and its expertise in residential systems.  These acquisitions underscore the growing opportunity presented by DG – systems that provide power onsite or at the distribution level of the grid.

Power in the Wild

What’s more surprising is NRG’s acquisition of Goal Zero, a privately held manufacturer of portable chargers and solar PV consumer products. Based in Utah, Goal Zero supplies unique niches of outdoor/off-grid enthusiasts that need power in the remote, challenging regions in which they travel.  The company effectively markets itself like Red Bull, touting the X-Games: “Zero Apathy, Zero Regrets, and Zero Boundaries is our mission. Goal Zero is our name.”  The company’s numerous ambassadors keep it real by leading expeditions to Kyrgyzstan or photographing surfers in Iceland.  They power their laptops with batteries recharged by the Goal Zero portable charger (the Sherpa Power Pack), and they blog at night with light from the Goal Zero solar lantern.  The portable chargers can be charged via car adapters, a wall outlet, or solar panels provided by Goal Zero.

The company’s products are sold through retail partners such as REI, Cabela’s, other sporting goods stores around the country, and online.  And by all measures, to use the vernacular, they appear to be crushing it. With 100 employees, the company ranked #9 on Inc.’s 500 list of fastest-growing private companies in 2013, with 3-year sales growth of 16,981%.

This is a big move for NRG and takes DG to a whole new level.  The appeal to NRG goes beyond the extreme adventure lifestyle to cell phone charging stations (think airports, stadiums, convention centers, malls, etc.) and potentially to off-grid living in the developing world.  I profiled Goal Zero in my Solar Photovoltaic Consumer Products report, along with Oregon’s Grape Solar, which sells similar products.  There I observed that large corporations have been circling the waters to get into the portable power/off-grid lighting niche through acquisition, but I was mostly thinking Panasonic, Schneider, and other consumer electronics companies – not the third-largest U.S. energy IPP.  NRG just went super DG, and we can expect many more to follow suit.

 

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