Only 290 of 915 million Africans have access to electricity. IEA therefore deserves praise for having published its first report on the energy challenges facing Africa. At one crucial point, however, the report stumbles in its analysis and therefore fails to give adequate advice. By overstating the cost of harnessing Africa’s vast solar resources, and underestimating the costs and hurdles related to conventional energy sources, the report fails to appreciate the important role a rapid acceleration of solar PV can play in addressing Africa’s acute energy crisis.
Only a few weeks before IEA published its «2014 Africa Energy Outlook», it issued the report «2014 Technology Roadmap Solar Photovoltaic Energy». In the latter report IEA maintains that solar PV in some markets already has become price-competitive to gas and even new-built coal, and in few years will become the least-cost option for new generation capacity in most parts of Africa. The gap between the two scenarios is stunning: As summarized in the table below, the Outlook projects that total installed capacity of solar PV will grow from less than 1 to 7 GW by 2020, whereas the more optimistic Roadmap foresees a growth to 25 GW in the same period. By 2040 the Outlook projects Solar PV will have reached 48 GW equal to 9 % of total installed capacity, whereas the Roadmap projects almost the double. If IEA’s analysts cannot agree with themselves, it is certainly no surprise governments, utilities and developers remain confused.
|Total PV installed capacity (GW)||Share of installed capacity|
|IEA Africa Energy Outlook 2014 |
("IEA New Policies Scenario")
|2014 Solar Technology Roadmap |
("IEA Hi-Ren 2-Degree Scenario")
The Africa Outlook is an in-depth report published as part of the yearly World Energy Outlook. The projections are based on IEA’s New Policies Scenario, supplemented with a slightly more growth-friendly version of the same baseline scenario. This is a scenario that IEA itself warns would «correspond to an increase in the long-term average global temperature by 3,6 % compared to pre-industrial levels». It is therefore surprising and regrettable that the Africa Outlook does not include any low-carbon alternative to the business-as-usual scenario, like IEA’s 450 Scenario (consistent with 2 degree Celsius target). By doing so, IEA seems to communicate that Africa has no role to play in the global efforts to decarbonize the energy sector. This despite the fact that the people of Africa are, to cite the Outlook, «in the front-line when it comes to the impacts of climate change.»
Renewables in Africa and IEA
The future of energy in Africa will be debated at the Norwegian-African Business Summit on October 30, 2014 in Oslo. IEA’s chief economist Fatih Birol and the author will both participate.
IEA correctly emphasizes that Africa has abundant hydropower and fossil resources, but the organisation seems to underestimate the costs and time required to bring these resources to the market. In the Outlook report, the rapid growth of hydropower is the most striking feature. Installed capacity of hydro doubles by 2025, and doubles again by 2040 to 104 gigawatt, to become the largest source in terms of installed capacity. There is no doubt hydropower in Africa has the technical and economic potential to quadruple by 2040; the main question is whether the political and administrative hurdles for projects like the 4,5 GW Inga III project, including the thousands of kilometres of cross-border connection lines, can be overcome within the timelines assumed by governments and by the IEA.
IEA and Solar PV
More on this topic: Read the author’s report on IEA and Solar PV, and his analysis of the IEA renewable energy market report.
Similar objections can be raised regarding the time and costs of bringing 60 new gigawatts of gas fired power on stream during the coming decade, power plants that for the most part rely on gas infrastructure yet to be built. Recent studies have confirmed that construction of large fossil infrastructure projects almost systematically require more time, and cost more money, than decided.
The consequence of the delayed energy infrastructure projects is that Africa’s nations are becoming more and more dependent on expensive and polluting diesel and heavy fuel oil to meet its fast-growing power demand. IEA estimates that Africa in 2012 spent more than 5 billion dollars yearly on such «emergency» power generation. Adding the extensive use of diesel generators in the private sector, the number is even higher. Solar PV is an available, scalable and quick-to-deploy resource that can alleviate the short- and medium term burden of Africa’s mounting fuel-bill, while at the same time playing an integral cost-competitive part of the countries’ energy-mix.
The explanation for IEA’s failure to address this opportunity can be found in the «Indicative levelised costs of electricity» for on-grid generation in Africa.
The figure indicates that the cost of large-scale solar PV is three times that of large hydropower, and 150-50 % more expensive than gas-fired power generation. The figure is highly misleading, for several reasons:
- In South Africa, the costs of solar PV is already close to half the 175 $/MWh stated here. Similarly, tariffs will fall in the rest of Africa’s markets once the first projects have demonstrated the viability of PV in the market.
- The Outlook covers the period 2014-2040, but only provides an estimate of costs in 2012. This is misleading because costs of solar PV are falling 5-10 % per year, whereas the cost of the conventional alternatives increase over time. IEA’s own «Solar Technology Roadmap» projects that the average cost of solar PV will drop to 130 $ MWh before 2020, and around 100 $/MWh in markets with high radiation like in most parts of Africa.
- If countries had access to large hydro at the low 50 $/MWh tariff claimed here, there would certainly be less talk of an Africa energy crisis. But the cost of large hydro is clearly underestimated. The cost of the 1,500 MW Mphanda Nkuwa project in Mozambique for example, one of the most attractive hydropower projects on the sub-continent, is estimated at about 70 US$/MWh at the power plant but will easily approach 100 US$/MWh when transmission is included. As mentioned, experiences indicate that cost overruns on large hydropower projects commonly are in the order of 30–40%, if not more. This indicates that the cost of large hydro should be positioned at around 100 US$/MWh, the double of what is assumed by IEA.
- The costs for gas fired projects are also higher than the costs estimated here, partly because these will be IPPs (Independent Power Producer) for whom the cost of capital (equity and debt) in Africa is higher than assumed by IEA. The costs for new gas power is rather ranging from 90–120 US$/MWh per MWh for combined-cycle applications depending on cost of gas, and typically 20 % higher for open-cycle applications.
- The estimates do not take account of high-voltage transmission costs which are significant in the case of large hydro and gas power, but commonly not the case for grid-connected solar PV.
As stated in IEA’s Roadmap report the cost of solar PV in Africa could be cut to less than 100 USD per MWh already tomorrow, if we assume the same cost of capital as in Germany. The experience from South Africa, where more than 800 MW was built the last 18 months and another 1 GW is under construction, holds an important lesson. The average South Africa cost of solar PV dropped more than 50 percent in two years, and is now according to Eskom cheaper than building new coal power. Similar progress will happen in other parts of Africa, provided governments are prepared to introduce predictable and stable targets and incentives. Strangely enough, IEA’s Energy Outlook does not even discuss what the rest of Africa can learn from South Africa’s Renewable Energy program.
Sceptics may argue the growth in wind and solar PV projected in IEA’s Hi-Ren scenario is impossible without an expensive upgrading of the electricity grid with the inclusion of storage capabilities. Some additional grid reinforcements are undoubtedly required to accommodate a combined 30-35 % market share for PV and wind by 2040. But as IEA concludes in their recent study on the integration of variable renewables, the additional costs are far smaller than normally assumed, less than 5 % of total electricity costs if carried out gradually. In other words, the gradual grid-related costs of accommodating a 30-35 % share of variable renewables will be much smaller than the savings African countries can obtain by systematically allowing solar and wind to replace fossil fuels as quick and comprehensive as possible.