Absence makes the heart grow fonder.

How electric cars are changing the African continent, without even being present.

 

Recently I followed a webinar by Africa’s power journal ESI Africa about renewable energy market developments in Africa. One of the four key global energy megatrends discussed was EV (electric vehicles).

 

Electric cars Africa

 

TOYOTA HILUX 2.4GD-6 (diesel powered, not electric) photo published by Leisurewheels.co.za

 

Based on the research presented there is not so much to be expected from EV in African countries in the next few years. However there is an important side-effect to the global EV market growth that will impact Africa greatly: batteries.

 

The researcher in the webinar Travis Hough (representing Frost & Sullivan Africa) forecasted that no substantial growth is to be expected from electric cars on the African continent. He compared the growth numbers to Europe and the US, where EV market shares are growing fast.

 

Nissan (LEAF) and BMW (i3 and i8) are the only brands with presence in Africa, and are both located in South Africa. They have sold about 500 electric vehicles (2013-2016). Worldwide in 2016 about 776.000 EV’s were sold (all brands). South Africa, representing the whole of Africa, currently has a 0,06% share of the 2016 worldwide EV market.

 

Charging infrastructure is crucial for EV expansion. Across the entire continent, South Africa is the only country with electric vehicle charging stations [Chibelushi, 2016]. When comparing Africa to the US and Europe, it becomes even more clear, that EV’s will not take root in Africa soon. All charing infrastructure combined the US has about 4000 charging units. Europe has up to 105.000 charging units. In South Africa, thus the whole of Africa, there are in total 41 charging stations of which 1 is for public use. Obviously Hough concludes “for the foreseeable future the demand for EV will not be of great significance”.

 

There are some interesting developments to watch in Uganda and Ghana where tech universities are building solar powered vehicles. Ghana’s Kantaka’s has been selling electric vehicles since 2015 [Shaban, 2017] [Chibelushi, 2016]. It is still too early to forecast whether these vehicles will be sold on a large scale in the near future.

 

There are three main reasons why the African EV market is not growing as fast as the rest of the world. The range of electric cars is still too short for African driving distances. Only for city driving EV’s could be interesting. However the electric infrastructure needed for charging the EV’s is not available. This is the second problem. There are too little charging stations in the major cities to make buying an EV attractive to consumers. And it is not expected that this will change soon, due to current electricity crises at nearly all African cities. The third reason why the EV market is stagnant in Africa is because (the expectation of) dumping of conventional cars on the African market. While EV’s are getting more and more traction in Europe and the US, diesel and petrol cars will be sold for low prices in Africa. Those cars will be much cheaper than the new EV’s. These three reasons assure there will be no consumer incentive for buying an electric car.  

 

However the impact of global electric vehicle sales on battery development and prices will affect Africa’s future

 

Due to the rising EV sales worldwide battery prices will continue to drop. Look at the graphic below. In the last 5 years already the battery prices have dropped from USD 900 to USD 300 this year. Hough forecasts a further drop in price going under USD 200 in the next years.

Electricity needs and the crucial role of the battery

The African markets might not be interested in EV’s, but they do want its most important particle: the battery. The electricity problems in the majority of African countries are severe. There is an enormous amount of people with no access to electricity; up to 600 million people have no access to the electric grid (and this number is growing!). On top of that another large amount of people with no access to secure electricity; the 600 million excludes the millions who do have access, but supply is very irregular. The annual usage is much less than the world average: 600 kWh, compared with the world average of 3,064 kWh. The current state of African national electricity grids makes it impossible to offer a grid-based solution for these electricity issues. It is too expensive to update and extend the grids.

 

Continue reading
Current state of the African continent:
it’s electrifying

July 2017, Minimal Mass

 

 

Off-grid electricity systems are the future. They can address and overcome Africa’s electricity problems. So called small scale solar systems are small electricity generation and distribution systems that operate independently from the electricity grid. Powered by local sources of renewable energy, such as river flows, wind, biomass, or the power of the sun. There are many forms of small scale solar technology. The three most important ones are:

 

  • residential solar systems: self supply of electricity per unit (house, office, building) often, but not necessarily connected to the national grid
  • microgrids: similar to the national grid except on a smaller scale. Producing electricity needed for a small area. Microgrids can be independent or connected to the national grid. Electricity flows through wired connections from generating source [solar plant] to user
  • micro utilities are not connected to the national grid and instead have a battery based distribution system making it possible to operate in rural areas, far from the national grid, [with users] scattered far apart, sometimes over difficult terrain [Van der Walt R.J , 2013, Stellenbosch University, ‘Micro-utilities for rural electrification in South Africa using solar energy’].

 

In order to realize these ‘personal power plants’ and for them to be really useful and viable, we need to pay close attention to storage of electricity. Especially when renewable energy is solar based, electricity demand [for consumers at least] is peaking at night time. “The biggest power demand [..] is at night, when lights, TVs, and sound systems come on. That is not a great match with solar energy production, which of course is in daylight hours. […] you need battery storage sufficient for at least 24 hours of use.” [Pearce, 2015]. So when talking about electricity and off-grid solutions, energy storage is a key issue.

 

Adding a battery to your solar system will increase your investment significantly. But it is necessary for off-grid solar energy to be successful. The battery development is one to follow, and directly relates to EV market developments. Some argue for years now that solar systems with storage are becoming affordable to the masses any day now. “[…] given the plummeting cost of solar power and the introduction of game-changing backup batteries — the time is now for solar + storage in affordable housing.” [Mazur, 2015]. Others say batteries have not changed that much since the first battery was made. And are also critical of the prices and its potential to drop over the next years.

 

Whether optimistic or not, this is definitely a key factor to take into account. And the research presented by Frost and Sullivan is very positive indeed. As the image below shows, the African battery storage market is a growing one. This forecast shows a steep increase in installed capacity in the next 8 years based on installed capacity that is also increasing, especially for remote power systems.

Without having much physical presence in Africa, these electric vehicles will change the continent. They will be a driving force in making electricity available and affordable for millions of people throughout Africa.

 

Stay updated and follow us on twitter: @minimalmassblog

 

Bright commercial opportunity

Solar panels are nothing new in this world. The timeline starts in the 19th century. Could we have anticipated the current commercial opportunity of solar?

 

When in 1839 Alexandre Edmond Becquerel observes the photovoltaic effect via an electrode in a conductive solution exposed to light. Meaning that the presence of sunlight is capable of generating usable electrical energy. Back then it was too early to see the commercial opportunity that solar is presenting to us today.

 

Commercial opportunity

Cape Town, view from the colorful Bo Kaap.

 

One other interesting fact: solar cells historically have been used in situations where electrical power from the grid was unavailable. So let’s take a closer look at the commercial opportunity for small scale off-grid solar in sub-Saharan Africa.

 

Many companies are seeing the solar energy opportunity in sub-Saharan countries. And also in the literature the African solar potential is something authors can all agree upon. “Africa boasts incredible clean energy opportunities, and the potential for growth in the African solar energy sector is tremendous. According to the new Climatescope report, sub-Saharan countries have attracted over $25 billion for renewable energy projects, doubling their renewable energy capacity in 2014 to over 4 gigawatts.”  [Herscowitz, 6 December 2015]. And this can be easily explained, regardless of all social and economic opportunity: abundance of sun and space.

 

In an overview of solar power by country Wikipedia clearly shows the potential for African countries. “They receive on average a very high amount of days per year with bright sunlight, especially the dry areas, which include the deserts [such as the Sahara] and the steppes [such as the Sahel]. This gives solar power the potential to bring energy to virtually any location in Africa without the need for expensive large scale grid level infrastructural developments. The distribution of solar resources across Africa is fairly uniform, with more than 85% of the continent’s landscape receiving at least 2,000 kWh/[m²/year]” Wikipedia.

 

Many articles have published updates on the price developments of solar panels, all stating that over the years [last 5 or last 10 years] the prices keep dropping. This of course directly relates to the growing distribution of solar panels worldwide. “‘Swanson’s law’ states that solar modules drop in price by 20% with every doubling of cumulative shipped volume” [Adegoke, February 17, 2016].

 

Of course this is a positive and easy to understand economic development. But if you go in a little deeper, this means solar energy can perhaps become a competitive alternative to fossil fuels. And if this is the case, chances are the demand of solar panels will rise even more, leading to even more attractive prices and a better competitive market position.

 

This positive spiral is already changing the world of energy as we know it. ““Prices for renewable technologies, especially solar and wind-power, are falling at an extraordinary rate to the point at which they are competitive with fossil fuels,” wrote the African Progress Report panel […] which is headed by Kofi Annan” [Lynch, December 9, 2015]. As UN leader Ban Ki Moon mentioned in his speech at the World Future Energy Summit in Abu Dhabi 2016: “We have made a good start. There has been remarkable progress on many fronts.  The fall in prices for renewable energy especially solar energy and the emergence of new business models are bringing sustainable energy within reach”. He is a little cautious in choosing his words here, but you can see the optimism if you watch the speech. More interesting about this quote is the combination he mentions of both dropping prices and new business models that are making this industry attractive and competitive.

Small scale solar

Solar energy can be found in many forms and scales. Let’s keep focussing on the small scale, off-grid technologies. To avoid confusion, this is the definition of small scale solar: small electricity generation and distribution systems that operate independently from the electricity grid. Powered by local sources of renewable energy, such as river flows, wind, biomass, or, as we focus on here, the power of the sun. There are many forms of small scale solar technology. And many authors mix up all these terminologies. The three most important ones are:

● residential solar systems: self supply of electricity per unit (house, office, building) often, but not necessarily connected to the national grid

 

● microgrids: similar to the national grid except on a smaller scale. Producing electricity needed for a small area. Microgrids can be independent or connected to the national grid. Electricity flows through wired connections from generating source [solar plant] to user

 

● micro utilities are not connected to the national grid and instead have a battery based distribution system making it possible to operate in rural areas, far from the national grid, [with uses] scattered far apart, sometimes over difficult terrain [Van der Walt, 2013]

 

● Then there are all sorts of mixes, simplifications and expansions of the above systems.

 

 

Their total generating capacity is unknown. “There are no official statistics on how many there are, or what their total power output is. But a recent study by U.S.-based Navigant Research, which studies new energy technologies, suggested that their combined generating capacity might now exceed 750 megawatts worldwide” [Pearce, October 27, 2015]. This is 0,3% of the world total pv [photovoltaic] capacity according to the numbers of the International Energy Agency [2016]. Pearce continues: “but they are a true hot-bed of innovation popping up all over the world”.

 

Last year [2014], nearly $64 million was invested in off-grid solar solutions. The Global Off-Grid Lighting Association estimates today’s off-grid solar market at $300 million annually, and 2015 investment figures are likely to be higher than 2014” [Tweed, October 23, 2015].

Biggest commercial opportunity in energy in decades

Whether small scale solar energy can be successful in African countries largely depends on commercial viability too. Do people need the product and what are they willing to pay for it? Few will say they are not interested in access to [affordable] electricity. And […] based on this logic many [millions of] people are interested. The market potential in this continent is massive.

 

If you now add to this the massive dropping product prices [expected to only go down in the next decades, based on a growing demand and fierce competition], we have the biggest commercial opportunity in energy in decades. Given the falling cost of solar and batteries and the groundwork laid by many nonprofits, the market is strengthening for off-grid distributed renewables in developing countries.

 

 

Stay updated and follow us on twitter: @minimalmassblog

African national grid challenges

The reason to choose device over grid is not only the pulling effect of opportunity of off-grid solar technologies in African countries. Also the immense African national grid challenges national governments are struggling with, pushes us toward smarter and viable technological solutions.

 

With growing populations and growing demands already on their way for several years now, there have been some governmental initiatives in multiple African countries, however until now these efforts have not been sufficient.

 

A panorama of Johannesburg at sunrise looking east across the M1 highway. Source: wikipedia African national grids

A panorama of Johannesburg at sunrise looking east across the M1 highway. Source: wikipedia

 

“The potential market across sub-Saharan Africa is significant. Two-thirds of the region’s population – 620 million people – lacks access to energy. Until recently, efforts to tackle this energy gap focused on scaling up large power plants and the centralized grid. However, these efforts have largely benefited corporations and industrial customers, not individuals disconnected from the grid entirely.” Davies, October 19, 2015. This again shows that grid based solutions will not suffice, since it is too expensive for most African countries to expand their grid.

The governmental challenge here is threefold. Not only do many countries need to drastically update their existing electricity grids, and continue to do so for the long run. Also they need to drastically raise their electricity production capacity to meet their country’s rising demand. The third and most difficult challenge is to expand the existing grid to reach those millions of citizens that are not connected yet. Even if they would make the investments to update their current national grids, there is also the challenge to keep up with the capacity that will be needed in the years to come. “The challenge lies not just in building new generating capacity, but in the transmission and distribution of electricity. The cost and difficulty of stringing power lines out to remote and low-income communities means grid extensions are often both too slow and uneconomic.” Davies, October 19, 2015.

The Africa Progress Panel adds to these enormous challenges also a notion that governance is not capable due to their role at the heart of this African energy crisis. Governance is not able to concern themselves with a secure energy future and affordable energy, because often utilities are seen by them as sites of political patronage and vehicles for corruption. Africa Progress Panel 2015. This statement makes me wonder whether governance is at all working on the grid challenges their countries are facing (generalizing all countries and governments). These national grid challenges that have been around for decades and are only becoming more costly and less manageable.

 

GRID CHALLENGES

 

  • invest in updating the current grid that is old and outdated
  • continuously raise capacity to meet the demand that is only growing
  • expand the grid to reach full market potential

 

These immense challenges push towards a trend of choosing device over grid. “In the absence of the hundreds of billions of dollars needed to build new power grids, more attention has been paid to innovative, green-friendly alternative forms of power.” Lynch, December 9, 2015. Put in all your capital in small scale, off-grid technology and get your money’s worth for sure. “This is a far better alternative to the multi-year, massive capex investments associated with traditional power plants.” Vergunst, October 7, 2015

 

Let’s briefly sum up the most important facts that need to be addressed when talking about energy challenges in African countries.

 

  • An enormous amount of people with no access to electricity; up to 600 million people have no access to the electric grid;
  • Another large amount of people with no access to secure electricity; the 600 million excludes the millions who do have access, but supply is very irregular;
  • Annual usage is much less than the world average: 600 kWh, compared with the world average of 3,064 kWh.
  • The current state of the national electricity grids makes it impossible to offer a grid-based solution for the electricity issues. It is too expensive to update the grids.

 

The social and economic implications of these figures are quite severe. The actual difference between having and not having access to [regular] electricity is unparalleled and influences all aspects of social and economic activities in each country. When you have no electricity it immediately sets back all health care and education opportunities. This is problematic by itself, but also causes tremendous economic costs. These costs are estimated up to 2-4 per cent of the national GDP’s and this leads to stagnation in job creation and investment.

It’s a negative spiral and the problem is only on the rise when you see that the demand for electricity is growing, while on the other hand the amount of people with no access to electricity is also growing. All in all these are some heavy facts about the current situation of the continent. But when it comes to solar energy technology and off-grid solutions, there is a lot of opportunity, especially in sub-Saharan Africa. “The opportunity is vast. When people talk about the 1.3 billion [worldwide estimates vary between 1 billion to 1.3 billion] people living without electricity, they often don’t realize that there are at least a billion more people with a grid connection that’s often expensive and unreliable. Those are customers also willing to invest in complementary solutions like solar.” Tweed, October 23, 2015.

Let’s make a positive interpretation of the presented facts above and focus on what’s possible and what is already happening in solar energy in Africa. The amount of people who are interested in solar alternatives is so big, meaning that we have an enormous market to cater to.

Many country examples of rising demand for electricity are a direct effect of the fact that African economies are growing. “Mozambique typifies other sub-Saharan African nations in its accelerating economic growth – 7 percent over the last 10 years. And, like the other sub-Saharan nations, it desperately needs more power to sustain that level of growth.” Davies,October 19, 2015. So the demand will definitely rise massively in the years to come. […]

These immense challenges national governments are struggling with, but more important the people are struggling with, pushes us toward smarter and viable technological solutions. And they are here, ready to install.

 

Recent country updates:

 

Op-Ed: No end in sight to Eskom delays in signing renewable energy PPAs, Chris Yelland, August 7, 2017

 

The landlocked African country of Zambia is to get “pay to own solar homes”. Energy Voice, August 2, 2017

 

Brief on Ghana’s island-based renewable energy mini grid systems, Frank Yeboah Dadzie, July 21, 2017

 

World Bank invests $50m in Rwanda off-grid renewables, Africa’s Power Journal, July 10, 2017

 

Stay updated and follow us on twitter: @minimalmassblog

Current state of the African continent: it’s electrifying

Long Street Cape Town

To grasp the magnitude and the potential of solar energy in South Africa we need to dive into to current literature and debates. There are many views and opinions of course, however there seems to be a clear trend where everyone is agreeing upon. This helps us answering our research question: can electricity be available and renewable energy technology be affordable for all?

 

When referring to ‘the continent’ we actually focus on the specific region of sub-Saharan Africa. There are many things happening in several African countries when it comes to solar energy and a comparison can help develop a better understanding of the developments in South Africa.

 

600 million is the number of people in sub-Saharan Africa—six out of ten—estimated to have no access to the electric grid.

 

Before looking at any future outcomes, first we need to address the current situation. “[…] estimated 1.1 billion people in the world live without power […]” [Edison, Hayden, 8 December 2015]. Nearly half of them live in sub-Saharan Africa. Of all the parts in the world sub-Saharan Africa has the largest amount of people with no access to electricity. Up to 600 million is the number of people in sub-Saharan Africa—six out of ten—estimated to have no access to the electric grid, according to a McKinsey report published one year ago [2015]. Some estimates are a bit more optimistic, but also present drastic numbers, saying it’s more likely to count up to one third of the population and this has tremendous implications on people’s lives. The difference between having and not having access to electricity is unparalleled.  “[it] means severe limits on health care, education and economic opportunities for more than 600 million men, women and children” [Herscowitz, 6 December 2015]. This number however does not include another group of the continent’s population that is connected to a grid that is terribly unreliable. “[These numbers] don’t include the millions who live in cities with irregular electricity supply, sometimes in the dark for months on end, because electric grids and the governments that fund them haven’t kept pace with Africa’s rapid urbanization” [Adegoke, 17 February 2016].

 

The International Energy Agency estimates that the annual electricity consumption per capita in Africa for 2012 was around 600 kWh, compared with the world average of 3,064 kWh.

 

Another fact about the African continent is that actual energy usage per person is quite small compared to the rest of the world. “The International Energy Agency estimates that the annual electricity consumption per capita in Africa for 2012 was around 600 kWh, compared with the world average of 3,064 kWh” [Vidal, 7 December 2015]. The average African consumer uses five times less electricity than the rest of the world does on average. This fact directly relates to the previous one. An average like this, differing so much from the world average, is explained by the large amount of people who do not use electricity at all.

 

Already these two facts [600 million people without access and 600 kWh annual consumption] address the key features of the current situation in sub-Saharan Africa:

  • an enormous amount of people with no access to electricity

  • another large amount of people with no access to secure electricity

  • a failing electricity grid; either non existent or available, but not reliable

  • and a growing [urban] population and growing electricity demand

 

One striking fact is that the amount of people with no access to electricity is growing. The Africa Progress Panel [APP, 2015] explains that the international community has set its goal of achieving universal access to modern energy by 2020. However, for the African countries, this goal will only be achieved by 2080 if the current trend is followed. “sub-Saharan Africa is not on track to achieve that target. It is the only region in which the absolute number of people without access to modern energy is set to rise, by 45 million for electricity and 184 million for clean cooking stoves.”

 

So how come the amount of people is only rising in this part of the world? APP explains is’t due to Africa’s energy crisis at large.  “The social, economic and human costs of Africa’s energy crisis are insufficiently recognized. Energy-sector bottlenecks and power shortages cost the region 2-4 per cent of GDP annually, undermining job creation and investment. Companies in Tanzania and Ghana are losing 15 per cent of the value of sales as a result of power outages. Most of Africa’s schoolchildren attend classes without access to electricity. In Burkina Faso, Cameroon, Malawi and Niger, over 80 per cent of primary schools lack access to electricity” [Africa Progress Panel, 2015].

 

This however does not mean that also the need for electricity is dropping. To the contrary, demand has only been rising. To not be connected to the grid, does not mean that you are not in need of electricity. The growing [urban] population automatically puts a higher demand on the electricity grid. At the same time the development and the affordability of electrical devices is moving at an even faster pace, resulting in an exponential growth of electricity users.

 

Is the future development of energy parallel to the one of mobile phones?

 

Of all electronic devices, the mobile phone was most successful taking root. Hower [2015] explains higher household demand by the increasing penetration of power-hungry mobile phones. Mobile phones have become very affordable over the years and many people in sub-Saharan Africa have [access to] a mobile phone. Some articles are critical about this development in terms of poverty and development.  “The world’s poorest families are more likely to have access to a mobile phone than a toilet” [Kuo, 15 January 2016]. Or as is continued in the same article “sub-Saharan Africa may be catching up with the rest of the world in mobile phone usage, but it is falling behind when it comes to access to the internet.” This should however not so much be a comparison of parallel development. First toilets, then internet, then mobile phone. Why would that be logical at all? When compared to European development perhaps, but those types of comparison are biased and lacking understanding of other perspectives.

 

To me this shows yet again that things work differently in other places, other contexts. The constant factor though is the device, the mobile phone has lifted off, because it works in that place and context too. This applies to the mobile phone, but will ultimately also apply to electricity needs. This theory is backed by the BoP Shop located in Mozambique. They believe that the future development of energy is parallel to the one of mobile phones. “[They] believe that distributed energy services companies can follow the remarkable trajectory of mobile network operators. In 2005, just 5 percent of sub-Saharan Africans had a cellphone. Less than 10 years later, two-thirds of households in the region have at least one mobile phone, as the sector grew to over 300 million unique subscribers and saw revenues hit $50 billion in 2014. Energy entrepreneurs have grounds to be optimistic. As solar and battery costs continue to fall, and mobile money changes the way people can pay, the last couple of years we have seen off-grid energy companies start to hit commercial scale and attract significant international investment” [Davies, 19 October 2015].

 

In a 2015 article Fehrenbacher estimates that more and more people will be in need of off-grid energy solutions. “ 2 billion people are estimated to need off-grid electricity.” That’s more or less the sum of all people with no grid connection plus the ones who do, but lack secure supply [Fehrenbacher, 22 December 2015]. These small scale, often solar powered, solutions will imply smart, affordable and durable devices that have already been developed and are ready to install.

 

Continue reading the full report “Small scale solar South Africa, it’s a sure thing” at minimalmass.earth

 

Eskom for sale: privatizing the national energy company

It has been a scenario to consider in South Africa for decades: selling the national energy company and thus privatize energy generation as a way to with two major national problems: the national debt and the national energy crisis.

 

When looking at trends in public opinion over the last two decades on this subject, funny enough, it hasn’t changed much. In the years 1999-2002 protests were held against government plans to privatize multiple SOE’s, including the state owned energy company: Eskom. “The privatization of electricity is not something that citizens have demanded nor wanted. In South Africa thousands marched during a two day general strike to protest privatization, which they labelled “born-again apartheid”. [Beder, 2005]. Protesters then mostly feared unemployment.

 

Colourful_cooling_towers_of_the_decommisioned_Orlando_Power_Station_Privitizing Energy

Cooling towers art, Orlando Power Station, South Africa. Source: Wikipedia

 

Also today, there’s concern for privatization of the energy sector. The National Union of Mineworkers [NUM] announced [March 29, 2017] to “mobilise mass protests across the country in an effort to prevent the privatization of Eskom through the involvement of independent power providers [IPPs]. Still there’s fear for massive job losses‚ and also electricity price hikes and the possible collapse of the livelihood of people in coal-mining communities.

So did nothing happen in these 18-20 years of governance and public opinion? According to RW Johnson in these years an African bourgeoisie has come about “the real winners of liberation”, he calls them.. “[..] the post-1994 settlement has seen the rise of a dominant state-sponsored African bourgeoisie, partly private, partly public sector. [..] but the huge resources pushed their way have only worsened inequality and produced little if any development because both these elements are essentially parasitic. But this bourgeoisie is the key motor force behind all post-1994 governments and it would react with fury if its wings were clipped, or even if the state just stops pumping extra resources in its direction.”

The public opinion seems to serve only a segment of the population. Moreover, the sentiment is based on fear instead of facts. This segment is fearing to lose their job, income or other benefits it seems to have acquired at the expense of the masses.

 

What’s to gain?

For South-Africa there are a number of things to gain when the national economy is concerned. The most important one is efficiency. If privatization can be a means to accomplish this, then it can be successful. Efficiency in the way electricity is managed, produced and distributed. And stable energy flow is very important for the economy to grow. To not worry about factories and offices shutting down because there is not enough electricity. Costs of power outages are estimated by the government from $1.7-billion to $6.8-billion a month [Brown, 2015]. This is a wide estimate, but immense and unnecessary costs for a modern economy.

Another important step in efficiency would be to reach full market potential. Still about 7,5% of the population has no access to electricity. Don’t they use it? Of course they do. Everyone has a mobile phone, tv or refrigerator these days. And the need for electricity is growing very fast, especially in off-grid areas. Not only would the energy sector gain customers, also these citizens would be able to contribute more to national economy. Get better education, start a business, simply for having access to electricity. “The actual difference between having and not having access to [regular] electricity is unparalleled and influences all aspects of social and economic activities [and] also causes tremendous economic costs [..] estimated up to 2-4 per cent of the national GDP’s [on the African continent as a whole]. [It] leads to stagnation in job creation and investment. It’s a negative spiral and the problem is only on the rise when you see that the demand for electricity is growing [..]” [Minimal Mass, 2016]

 

Creating jobs

The public opinion and fear that privatization will lead to more unemployment is actually a farce. Employment numbers are already sky high and this has not improved in last couple of year under the current policies. You might say, these policies are the root of the unemployment, especially those related to energy governance.

One of the main reasons for South Africa’s recent credit rating downgrade was “[..] state energy company Eskom [..] causing too much government debt“ [Minimal Mass, 1 June 2017]. According to Engerati, 26 January 2016 privatizing this SOE would take financial pressure off the state by getting private investors to help fund electricity generation.” And it will have a positive, and not negative effect on jobs. “[..] it will also increase efficiency in the sector by introducing competition. And as the industry grows, it has real potential to also create a large number of jobs, particularly in the renewable energy sector.” RW Johnson agrees. In the long term the economy will benefit from a privatized energy sector. However in the beginning it will have severe impacts on government jobs. “Even though these measures would kick-start the economy again and raise growth, they would be painful at first.”

The renewable energy sector is a major job-booster worldwide. The industry is more labour intensive than centralised power production. Research has already estimate a huge impulse of job creation when South Africa would adopt more renewable sources and more efficiency. “The switch to renewable energy and greater energy efficiency is predicted to lead to 27% greater job growth overall than a ‘business as usual’ scenario [Borel-Saladin, Turok, 2013].

Privatization goes hand-in-hand with shifting towards more renewable energy. The country is committed to reducing greenhouse gas emissions by 34% by 2020 and 42% by 2025 [Borel-Saladin, Turok, 2013]. And given the developments over the last couple of months and weeks in particular, South-Africa is highly affected by climate change. Extreme droughts, heavy storms and bushfires have a devastating impact on the country. Not that South Africa has caused the effects of climate change by itself, but South Africa is a very dirty country. When it comes to energy it’s relying almost fully on cheap coal for its power generation. “South Africa is the 14th biggest emitter of greenhouse gases in the world, but was ranked 27 in terms of GDP in 2011. [Borel-Saladin, Turok, 2013].

 

Mind the infrastructure

When looking at other countries on the continent, many successfully privatized their energy production. “Private power is opening up throughout Africa and there are many pioneer countries including Kenya, Nigeria, North African countries [especially Morocco], and the Ivory Coast, amongst others.” Says Engerati, who calls it Time to privatise South Africa’s power sector. And it is possible, even with high unemployment rates. Kenya [40.0%] has a far higher rate than South Africa [27.7%] at the moment [Trading Economics]. And in Kenya, that is still in the process of privatization and liberalization, it has already led to immense growth in access to electricity [from 10% to 25% of the population] [Africa Oil And Power, 5 May 2016].

The biggest issue though is infrastructure. If IPPs join the market and sell electricity to the grid, they need to be aware of the risks in infrastructure. The chances of not being able to supply to the grid [delays] or having to make extra costs funding infrastructural maintenance are very likely. The prestigious and largest wind park in Kenya, Lake Turkana, shows that perceptions of investors and contractors are very naive. Your PPA [power purchase agreement] will be worth nothing if there’s no [working] grid connection. These projects require not only land, capital, technology and a PPA’s. It is essential to make sure you can let the electricity flow. Especially since these projects entail enormous volumes and storage is not an issue. It’s either on or off and for the Kenyan project, the newly installed wind turbines will be off until 2018. [ESI Africa, 8 June 2017]. This shows ignorance and not grasping the full scope of these efforts.

In the case of Nigeria only after the ownership of power producing assets was made official in 2013 it became clear how bad the state of the infrastructure was and how this would severely impact the investments that were made. “Problems emerged when investors realised that poorly kept expense logs contained records of extensive debts and the state of the crumbling infrastructure was much worse than expected. [Africa Oil And Power, 11 May 2016]. There is much excitement in Nigeria and also in other countries that are making steps towards privatization. This is mostly because of the potential. “Growing and hungry markets” demand massive amounts of electricity in the next decade. However the risk of infrastructure is very real and should be taking more seriously.

Coming back to South Africa again governmental power also plays a role. An investor value in PPA’s of ZAR 58 bn/USD 4.2 bn is waiting to be signed by the government and government keeps missing it’s deadlines to do so. Who’s served by these delays? It certainly is not addressing the issues of efficiency that is needed so badly. In the logic of RW Johnson this seems to be again the small, but powerful segment of the population. If South Africa is moving towards more equality, it’s bourgeois should give way to create prosperity for the masses. In terms of jobs, in terms of access to stable electricity, and a stable economy. But since it hasn’t happened in the last two decades, Johnson questions if it will change any time soon.

 

Up for grabs

From an end-user perspective the political power on national and international levels are very hard to grasp and even more difficult to influence. Yet the end-user is desperately looking for better ways to organize secure electricity access. How will this come about when already waiting so long for the national government and bourgeois, who clearly want to leave things as they and certainly do not want to privatize and address efficiency? Or when international investors are looking to start projects they can not guarantee will eventually serve the end-user, for the electricity might never flow their way due to infrastructure issues? It seems odd that the unhappy -tax and electricity bill paying- end-users have no say in this. They have the power to demand their government to serve the public’s best interest. Yet they don’t seem to use it. But don’t be fooled. South Africans are going to take a different approach after a long wait for their government. It’s up for grabs really, take action yourself or wait for the rest of your life. And South Africans are seizing the opportunity.

Solar energy technologies are rapidly improving and prices are dropping massively. These technologies are becoming affordable to more and more people. Small scale solar companies are active in several market segments. They are catering low income rural consumers, grid-connected consumers that want to be independent, as well as large companies that can no longer take the financial risk of the blackouts. Rooftop solar has grown from 35 MW to 159 MW in the last year alone. It seems to be happening very quietly, in the margins of the energy domain. But the growth is exponential, while system prices are still dropping and businesses are taking root. Even self-regulation was initiated, since the government was not keeping up pace in this area either.

Perhaps this is the purest and most efficient privatization South Africans could chose: to shift to private access, to decentralized generation of power. “The opportunity [..] lies in off-grid solutions, a money making industry, instead of a money swallowing [centralized industry].” [Minimal Mass, 2016]. Giving end-users the solutions to their electricity needs. Creating jobs and boosting the national economy. And addressing its environmental impact all in one. Watch this development, for it is the biggest commercial opportunity in energy in decades.

At Minimal Mass we’re making electricity available and renewable energy tech affordable in South Africa. Contact us for Market Research, Partner Sourcing and Expert Sessions.

South Africa: junk status fuels renewable energy

Capetown

The recent events of South Africa gaining Junk status (April 2017) by two leading rating agencies, has damaged the image and support of the government even further. Far less than an economic situation this has mostly been seen as political, making thousands of South Africans protests already before the actual downgrade was made official. In an interview in Quartz Africa a KPMG economist argues that there should not be panic about the downgrade, but about what it symbolizes. “It symbolizes political risk and uncertainty and the impact that’ll have on the economy.”

 

What I want to know is how the recent events affect the national energy situation and what opportunities lie in it for renewable energy in South Africa.

 

At the centre of all the commotion seems to be the national energy company, Eskom. Eskom is already facing immense challenges. Like many African governments, it is failing in

  1. updating the current grid, because it can’t afford too, it’s too expensive
  2. failing to continuously raise capacity to meet the demand of its growing, and more electricity demanding population
  3. failing to expand the grid to cater to off-grid communities and reach full market potential

 

Recent events lead to believe that not only the effects of the junk status are severe for the country’s political stability, also it hints that the national energy company is at the root of it, leading it’s country into political turmoil.

 

There is already a very strong public desire to gain independence from the national energy company due to annual rising prices of 10% or more and continuous power-outs throughout the country. The recent outcome of Eskom being at the root of yet another setback for South Africa’s political situation can actually be a boost for it’s young and promising renewables market: pushing more consumers and businesses to adopt to self regulated, stable and affordable small scale electricity systems even faster.

 

Energy situation

When you listen closely to the needs and complaints about electricity in South Africa, you learn quite a lot. I’ve interviewed many people [business owners, consumers, researchers, students, government officials] and one of the most important need for electricity in South Africa they all mentioned was secure electricity supply. Security from electricity flow [availability] and security from price changes [affordability]. Many people fear electricity prices will continue to rise causing electricity to become unaffordable. Another fact I learned about electricity in South Africa is that it is not considered a basic human need by the national government. Meaning that if you don’t pay your electricity bill, you are cut off. In the last couple of years the electricity prices for consumers rose with 10% or more annually. These are frightening increases that alarm almost all consumers.  

 

In the same period these consumers also face continuous power-outs. At irregular times and for long periods at a time. The highest uncertainty is in the Gauteng province where also demand is the highest in the country. Sometimes the “black-outs” were scheduled and people were informed prior. However the energy company did not always follow the schedule, causing people to be unprepared, and in the dark for hours [or even days in a row]. It’s leading to feelings of fear and unsafety. And on top of that the failing energy company is also costing the South African economy a lot of money. Power outages cost the country between $1.7-billion and $6.8-billion a month [Brown, 2015]. And the dissatisfaction goes a lot further.

 

I’ve heard many people pleading for freedom from Eskom.

 

Intransparent electricity organization, unclear bills and high taxes are other frustrations South Africans are dealing with. Contributing also to doubt and losing faith in the national energy company. I’ve heard many people pleading for freedom from Eskom. Simply put: the customer pays a lot for electricity and for taxes, but is not satisfied with the product and service in return and fears the developments for supply towards the future.

 

Among the consumers of the national energy company, that are also the country citizens, a large part of the population is not represented. Estimated 4 million people in South Africa are waiting to get connected to the national grid. They are facing electricity problems at a whole other level and given the circumstances and outlook, probably will be waiting for their government to service them for a long time.

 

Many of my respondents see [affordable] solar energy as a solution to their electricity problems. Also Vergunst [2015] believes South African consumers are increasingly ready to seriously adopt renewable energy. He narrows it down to the following motivations.

  • avoiding the massive annual price hikes we’re currently enduring
  • the opportunity to start making money by selling power back to the utility
  • avoiding load-shedding
  • for use in extremely remote areas where electricity is not available
  • environmental consciousness and concerns

Lastly I would like to add one more reason that was explained to me by several South Africans:

  • independence from the national energy company and thus the government

 

Current events

The country’s balance in debt is now so severe that South Africa’s credit rating has been cut to junk status. Rating agencies S&P and Fitch lowered its credit rating on South African government debt from BBB- to BB+, which makes the debt “non-investment grade” or “speculative”, or in the shorthand term, “junk”. Official reasons for this where that state energy company Eskom is causing too much government debt and due to political upheaval that further endangered the economy. Especially the unstable finance department [..] giving South Africa its fourth finance minister in 16 months. When Fitch downgrades South Africa to junk status the agency said that the cabinet’s reshuffle was “likely to undermine, if not reverse, progress in state owned enterprise [SOE] governance [meaning Eskom], raising the risk that SOE debt could migrate onto the government’s balance sheet”. Also it expressed concerns that the nuclear programme was likely to move relatively quickly under a new cabinet, which included a new energy minister, meaning a substantial increase in government guarantees to Eskom.

 

It is clear that the national energy company is at the root of the situation costing too much, delivering too little

 

While put so elegantly by the rating agencies, it is clear that the national energy company is at the root of the situation costing too much, delivering too little. The financial downgrading is likely to make it more expensive for South Africa to borrow money on the international markets, as lending to the country will be seen as riskier. Meaning also to borrow money by or for a state entity will become more expensive. Making solving its problems and meeting its customer’s demands even more expensive.

 

At the African Utility Week earlier this month the World Bank, hesitant to address the South African situation, warns South Africa that it “is always better for power utilities to be self-sufficient and not depend on government subsidies to avoid becoming trapped in a vicious spiral when debt gets out of control.” And this is exactly the spiral Eskom has found itself in. With these recent developments the balance in debt will continue to shift into the wrong direction, becoming even more heavily in debt. The alternative, a situation where no more money would go to Eskom, will only worsen the current energy crisis. This country desperately needs solutions for its energy market.

 

Outlook

From a financial perspective a junk status an sich is no reason for panic. The BRICS [Brazil, Russia, India, China and lastly added in 2010 South Africa] are a group of promising newly industrialized nations that represent 40% of the world population. Three of the five BRICS nations now have junk credit assessments at S&P Global Ratings. In a study published by Bloomberg in April 2017, Mark Gilbert argues that South Africa’s Downgrade Is a Sideshow. Over the last decade BRICS were not performing well in currency against the dollar [saying more about the dollar being strong], but stable both in equity and bonds, especially South Africa.

 

Even brighter is the outlook for the renewable energy market. The strong public dissatisfaction with its government in general and it’s energy company in particular is fueling the renewable energy market in South Africa. And that this sector is getting traction indeed was made clear on the African Utility Week. ToMa-Now reports the African Utility Week had specific focus on the Energy Revolution Africa. Meant as a framework to explore the transitioning energy landscape in Africa. Focussing on community-scale projects, powered by disruptive technologies, renewable energy integration, and the rise of a new, more agile and more cost-effective energy model to service the rural and large energy user sectors.

 

The development towards renewable energy we see happening now are multi-megawatt projects, generating electricity for the grid. However consumers will not feel any effect of these developments. Whether you suffer a blackout from a nuclear or a solar source, does not make a difference. It’s not only about the input, but more about the infrastructure [keeping in mind also the failing generating capacity.] The 4 million aspiring consumers not yet connected to the grid will not benefit from these efforts either. In a recent publication I’ve asked why anyone would bet their money on grid-based energy investments in South Africa, when you have powerful and simple alternatives at hand in small scale renewable energy.

 

This is where the market is

 

Most promising developments in South Africa are all bottom up approaches. The small scale solar companies active in several market segments, catering both low income rural consumers, grid-connected consumers that want to be independent, as well as large companies that can no longer take the financial risk of the blackouts. This is where the market is. This is where you reach consumers and actually address the issues that they are facing.

 

Even under the current Junk status acquiring money will be far easier for the government to accomplish than winning back South Africans, who, as soon as they get the change, will choose to be independent from the national energy company, choosing to generate their own electricity. Enabling its citizens by fully focussing on renewable energy will be the only way to win back their support and to have a healthy and future proof energy market.