The country’s GDP expanded 0.4% in the April-June quarter. Seven of the 10 sectors tracked by Statistics South Africa registered growth in the latest three-month period, as the economy benefited from an unbroken stretch without power cuts for the first time in years. The factory activity, however, slumped in August 2024, indicating that business conditions remain highly volatile in key sectors.

International Finance will provide an in-depth analysis of the power cuts and their significant impacts on South Africa’s labour market.

What’s going on with SA’s power sector?

Haroon Bhorat, Professor of Economics and Director of the Development Policy Research Unit, University of Cape Town and Timothy Kohler, Junior Research Fellow and PhD candidate, Development Policy Research Unit, School of Economics, University of Cape Town, recently analysed the labour market effects of scheduled electricity outages in South Africa, referred to as load shedding.

They found that power outages have had negative effects on employment, as well as working hours and monthly earnings among those who remained employed. Effects on employment have been larger than effects on working hours or earnings, highlighting the threat that load shedding poses to job preservation and job creation efforts.

“These effects were not, however, the same for all firms. Workers in the energy-intensive manufacturing industry appear particularly vulnerable to losing their jobs. Also, small and large firms responded differently. Small firms tended to favour reducing working hours rather than introducing layoffs. Lastly, effects varied by load shedding intensity. Low levels of load shedding don’t affect the labour market strongly, but high levels did,” the duo observed.

Load shedding, since 2007-end, has become a consequence of frequent breakdowns at the national utility, Eskom, due to a combination of poor long-term planning, a lack of financial resources, rampant state capture and corruption, and ageing coal-fired power stations.

The year 2023 became the worst one on record for both the utility and the country, as load shedding occurred for 289 days. Eskom, however, stated in August 2024 that South Africa could have no scheduled power cuts over the next seven months if the state-owned utility’s unplanned electricity losses stay at their current level.

Eskom managed not to implement power cuts in more than 150 days, since late March, after a big improvement in the performance of its fleet of mainly coal-fired power stations. Apart from increased electricity availability at Eskom coal stations, renewable energy projects operated by independent producers have also delivered more electricity over the past year. The utility’s CEO Dan Marokane said Eskom should be able to say early 2025 when “load-shedding at the chronic level that it is behind us,” with an additional 2.5 gigawatts of generation capacity coming online in the next few months.

Despite the positives, worries remain

Eskom’s turnaround, to some extent, is praiseworthy. However, the damage already done is huge. In 2023, scheduled blackouts reached record levels and cost the already floundering economy about $90 billion and over 860,000 jobs, particularly hitting its mining and manufacturing sectors. Even at the micro level, South Africans have had to mould their lives around daily power cuts.

“Over the past five years, the worsening energy crisis has threatened the survival of businesses, including KFC, the popular American fast-food joint, and required costly fixes for companies that need a steady supply of electricity. Grocery retailer Shoprite recently reported spending $28 million in six months on diesel generators to keep its lights and refrigerators on,” Foreignpolicy.com reported.

To partially cover the shortfall in electrical output in 2023, Eskom ramped up its use of costly diesel-powered generators, further compromising its already unsustainable financial position. According to the utility, the unit cost of electricity from diesel generators is 14 times higher than the utility’s coal plants.

Eskom is now using its diesel-powered turbines to help meet surges in demand during the morning and evening peak periods. According to Eskom, it spent 1.1 billion South African rand, or roughly $60 million, on diesel in May 2024, a notable decline from the 3.1 billion rand spent in the same month in 2023.

Most notably, Eskom has brought several units of the Kusile power plant, located in the Mpumalanga province, back online. The utility was granted regulatory approval to temporarily operate those units without technologies that prevent toxic sulphur dioxide emissions. This has effectively increased Eskom’s available generating capacity by as much as 2,100 megawatts (MW), which is more than the average supply deficit throughout 2023.

In addition to Kusile, the rest of the utility’s coal fleet has remained in slightly better shape due to increased maintenance over the summer months (between October 2023 and March 2024) when electricity demand remains typically below average. Both of these have contributed to a meaningful decline in the number of unplanned outages so far in 2024.

“Meanwhile, a decrease in overall demand, owing to the weak economy and a boom in private renewable energy investments, has also helped. Eskom estimates that solar panels with a cumulative generating capacity of 5,500 MW have now been installed on the roofs of South Africa’s malls, office blocks, warehouses and households. Of that amount, roughly 2,100 MW was added in the last year alone—the vast majority of which is for self-use as the country doesn’t yet have a national feed-in policy,” Foreignpolicy.com added.

James Mackay, chief executive of the Energy Council of South Africa, a business group that is working with the government to resolve the power crisis, termed the reprieve as “a genuine shift and result of 18 months to two years of hard work.”

He reflected renewed efforts to clamp down on corruption, a fresh Eskom leadership team that has political support, an improved culture at the utility, and a stronger maintenance programme. The private sector’s involvement, partly in the form of capacity building, is also making a difference.

While the country’s electrical grid remains vulnerable, power cuts will be less severe going forward, Mackay predicted. By 2029, South Africa eyes to have a liberalised electricity sector, by ending Eskom’s century-long monopoly. The Electricity Regulation Amendment Bill, introduced in August 2024, will allow non-Eskom electricity trading for the first time and require the establishment of a fully competitive wholesale market within five years.

The government has suggested delaying coal plant shutdowns for the foreseeable future, despite the blockbuster $8.5 billion energy transition funding deal it agreed to at the COP26 climate conference in late 2021.

However, Eskom’s recent turnaround still provides an opportunity to accelerate South Africa’s green energy ambitions, to deal with the economic blow of the European Union’s impending carbon border taxes. As things stand, South Africa will be hit harder than any other nation due to its heavy reliance on coal.

President Cyril Ramaphosa wants to attract private-sector investment worth $110 billion in the next five years as South Africa leans more on its BRICS partners, while also seeking to maintain close ties to the United States, the United Kingdom, and Europe. To successfully court investors and reignite the moribund economy, South Africa needs to close the chapter on its load-shedding nightmare.

Bhorat and Kohler found that load shedding was significantly and negatively associated with employment, working hours and monthly earnings. On average, periods of load shedding were associated with a 2.6% lower chance of being employed, 1.3% fewer working hours per week (equal to about half an hour), and 1.7% lower real monthly earnings. These are large effects. The monthly earnings reductions were also driven by fewer working hours.

Low levels of load shedding (stages 1 and 2) did not have these associations. But they were markedly worse with higher levels (level 3 upwards). Stage 3 was associated with 1.9% lower employment, compared to 3.6% for stages 4 and 5 and almost 6% for stage 6.

Manufacturing, a relatively energy-intensive industry, was worst off by far. Here, load shedding was associated with nearly 17% lower manufacturing employment, about 6.5 times larger than the average of all industries. While most industries suffered from loss of working hours due to power cuts, workers in large firms were vulnerable to all outcomes. In contrast, those in small firms were only vulnerable to reductions in working hours, but not to job losses or wage cuts.

“One might expect larger firms to be less vulnerable, as they would have more resources to pay for alternative energy sources. While that’s probably true, large firms are more likely to operate in energy-intensive sectors. Our analysis suggests that small firms have tended to reduce working hours rather than laying off staff, an outcome which is not unique to South Africa,” the duo commented.

The “Electricity Regulation Amendment Act” envisages a hybrid market model, where competition, along with various pricing models will emerge and shape the sector’s health. New kinds of businesses will come up, such as traders in electricity, “prosumers” (consumers producing electricity for sale into the grid), market and system operators.

Load shedding has been devastating for South Africa’s economy, weakening the rand and contributing to inflation. South Africa’s central bank estimates that it has cut 2% from the country’s economic growth rate in 2024. In April, some 80% of public healthcare facilities said they were now affected by power cuts.

People have taken matters into their own hands. South Africa’s installed rooftop solar PV capacity increased from 983MW in March 2022 to 4,412MW in June 2023, registering a 349% increase in a little over a year. Other government data shows that in Q1 2023, the country imported five times as many batteries as it did in 2022, as consumers looked for more ways to retain power during outages.

The South African Government is actively encouraging the uptake of new rooftop solar with targeted policy, including a new rebate scheme announced in February 2024, which allows individuals who install new panels onto their homes to claim rebates equal to 25% of the cost of the panels.

The latest research from Morgan Stanley suggests that the decline in South Africa’s coal generation, coupled with the boom in private power supplies, means electricity generated from the private sector will exceed output from Eskom by 2025. This can be considered a rare silver lining, as the Ramaphosa government gears up to end the state-run utility’s market monopoly.

The post Power cuts: The demon affecting South Africa’s growth appeared first on International Finance.

According to experts, a strike by Eskom workers added to the utility’s woes including breakdowns of its aging coal-fired power plants, insufficient generation capacity and corruption.

The prolonged power cuts are hitting South Africans in the winter months of the Southern Hemisphere when many households rely on electricity for heat, light and cooking.

Small and large businesses have had to close down for prolonged periods or spend large amounts on diesel fuel to operate generators. Anger and frustration is widespread among business owners and customers at the power cuts, which Eskom calls load shedding.

The power blackouts are here to stay, say, experts, who warn it will take years to substantially increase South Africa’s capacity to generate power. South Africa mines coal and relies heavily on coal-fired plants, which causes noticeable air pollution.

The country is looking to increase power production from solar and other renewable sources. Hilton Trollip an energy expert said, “The big picture is that we were at least expecting (heavy power cuts) this winter”.

“Eskom told us at the end of last year that there was a chronic power shortage…What that means is that until we have a substantial amount of extra generation on the grid, we will continue to be at the risk of load-shedding at any stage. The question then is how bad will the load-shedding be?,” he added.

He lamented the impact of the blackouts on the economy. The power cuts are costing South Africa well over $40 million per day and deterring investment, say, economists. South Africa’s economy, Africa’s most developed, is already in recession and is suffering a 35% unemployment rate.

Buhle Ndlovu, a teacher at a nursery school in Soweto, Johannesburg’s largest township, said the power cuts increased her costs to run the school.

“We cater to about 40 children here. We need to feed healthy meals to them daily. At the rate we charge we can’t afford to take on additional costs to buy gas in order for us to cook. Loadshedding has really made it difficult for us”, Ndlovu said. She said it is a challenge to take care of children by candlelight until parents come to pick up their kids well after dark.

Eskom chief executive Andre de Ruyter said at a press conference that the crisis was receiving serious attention and that he had personally briefed President Cyril Ramaphosa about what the company is doing to keep the lights on.

Equitable load shedding

Load shedding will affect either all or part of a grid – and there has been some debate about whether electricity is rationed on an equitable basis, with evidence to suggest that load shedding is unevenly allocated.

One study, for instance, found that in Karnataka, India, rural and non-urban feeders experience more load shedding than urban feeders serving cities like Bangalore, the state capital. And even within the same city, different groups may be rationed different amounts of power for political, ethical or commercial reasons. For example, utilities may provide higher service levels to feeders serving embassies, hospitals, and districts with a high number of commercial and industrial establishments. There may also be areas that receive better service due to political connections or bribes.

A team from the University of California, Berkeley, is studying different feeder lines with different levels of priority in Accra, Ghana, as part of the Energy and Economic Growth-funded GridWatch project. The team has identified priority feeders designated as ‘Exempted Essential Feeders’ that have experienced significantly less load shedding than other feeders. For example, in 2015, some customers experienced an average of 120 hours of load shedding per month, while others experienced an average of only 19 hours per month, depending on the feeder they were connected to.

Emergency power provision

In 2021 Ramaphosa offered an action plan to develop additional power generation capacity in the short to medium term. The government announced eight successful bidders for gas, wind and solar projects under the 2,000 megawatt Risk Mitigation Independent Power Producer Procurement Programme. In theory, bidders are required to be able to generate electricity by August 2022. But given that solar and wind farms typically take two years to become operational, the stipulated roll-out time is too short. Most of these projects will only be supplying the grid in 2023.

The Renewable Energy Independent Power Producer Procurement Programme is a mechanism initiated 10 years ago under which private developers competitively bid for the rights to construct new electricity generating plants and then sell the electricity to Eskom at predetermined rates.

The programme successfully established South Africa’s renewable energy sector through three bid windows. But it stalled after 2015 when these new technologies began to threaten the interests of politically well-connected interest groups in the coal and nuclear sectors. Projects for a fourth bid window finally received clearance in 2018 following the departure of former president Jacob Zuma, but enthusiasm for renewables has waned again under the current Minister of Mineral Resources, Gwede Mantashe.

The long-awaited fifth round has just been announced after inexplicable delays. Prospective solar and wind farm developers have until August 2021 to submit bids for projects generating in total 1,600 MW of wind and 1,000 MW of solar capacity.

The successful bidders may be announced before the end of the year but will need to demonstrate financial closure before starting to construct facilities. Renewable builds typically take about two years to complete. This means the round five projects are likely to come into operation only in 2024. That is two years later than set out by the 2019 national electricity plan.

The 2,600 MW added to the system in round five are with intermittent technologies. They only function when the sun is shining or the wind is blowing. They will therefore only be adding, on average, slightly under 1,000 MW. That is too little to overcome the existing power deficit.

Future procurement rounds

The last (2019) installment of the South African Integrated Resource Plan for Electricity envisaged between 1,600 MW and 2,600 MW of renewable capacity added to the grid almost every year from 2022 to 2030. With the existing delay, the process to effect upcoming annual additions must be accelerated.

But an early catch-up is unlikely, because the minister only committed to one further renewables round, of the same scale, “within the next 12 months”. It’s therefore expected that future rounds will only happen annually, with no more than 2,600 MW being rolled out each time.

At that rate, the wind and solar power contributions to South Africa’s electricity will remain below 10% of the national total for several more years. Renewables won’t make a decisive impact to alleviate the country’s power shortage for at least five years.

More gas, coal and nuclear?

In addition to the emergency and new renewable rounds, Minister Mantashe has also announced that procurement for 1,500 MW of new coal plants and 3,000 MW of gas plants will begin soon.

In view of their role in global warming, sentiment against new coal plants is now so strong that investment in such projects is extremely unlikely. Nuclear plants are not seen favourably globally either because of their high building costs and a reputation for severe construction delays. Gas is viewed as more attractive, but is an expensive energy source that is mainly envisaged as a backup for emergency situations. None of these technologies offer rapid solutions.

The small-scale option

It’s not expected that sufficient alternative power sources will be operational until about 2026. Power cuts look set to stay for the coming years.

On the positive side, this is likely to act as a catalyst for growth in small to medium-scale solar installations. These may take the form of domestic rooftop installations or even mini-power plants on the roofs of shopping malls or adjacent to mines and industrial plants. Municipalities will also soon be able to set up their local power generation facilities. So some may escape the power cuts earlier – but investment in such solutions is only for those who can afford it.

The post South Africa’s crippling electricity problem appeared first on International Finance.

It is reported that the transaction worth $336 billion is South Africa’s biggest infrastructure-refinancing transaction. Investec Group was the lead arranger on the deal, according to a statement released on the website. 

The ACWA Power Solafrica Bokpoort Concentrated Solar Power plant is located in South Africa’s Northern Cape province. The plant generates 50 megawatts and it was commissioned in the initial rounds of the country’s bid programme to source renewable energy. 

In another development, Amazon is planning to generate its own renewable electricity which will be fed into South Africa’s state-owned Eskom grid. It is the first project to be approved by the South African energy regulator to enhance power generation. 

Amazon founder Jeff Bezos in a statement said “With a total of 127 solar and wind projects, Amazon is now the biggest corporate buyer of renewable energy ever. We are on a path to running 100% of our business on renewable energy by 2025, five years ahead of our original target of 2030.”

The technology giant has estimated 28 gigawatts of solar energy, which is enough to supply more than 3,000 households with electricity, media reports said. The electricity will be transmitted from Amazon’s  project to the Eskom grid. This will mark a significant shift for the latter which heavily focused on generating electricity from coal.

The post South Africa prides itself on enhanced electricity generation appeared first on International Finance.

The transition will incrementally take place over the next three decades, and the government said that the utility’s transition must be in line with the economic sustenance of communities living around its power stations. Eskom is responsible for producing 95 percent of the country’s power. However, the power generated is largely from coal-fired plants.

Demand in power was significantly slashed in South Africa during lockdown, media reports said. Now the forecast for the utility for 2021 is worse than expected. The coronavirus pandemic has weighed on the country’s power demand and the utility has recorded $1.3-billion for the financial year through March.

The utility has recorded its third annual loss despite being the highest power generator in the country. It is reported that the utility expects to see long-term improvements after next year and it will return to profitability in 2023.

Eskom’s efforts to cut carbon emissions will be done in a way that it does not impede socio-economic development, media reports said. More recently, the utility’s Unit 2 at the Kusile Power Station reached full commercial operation status.

Bheki Nxumalo, Eskom’s group executive for capital projects, told the media, “The commercial operation of Unit 2 is a major milestone that signifies the progress being made by Eskom towards the completion of the Kusile Build Project, on which lie the nation’s best hopes to bring stability and ensure security of electricity supply to power the South African economy.”

The post Eskom follows suit in emissions cut by 2050 appeared first on International Finance.

However, in the last decade, we have seen an explosion of renewable energy-based solutions in the African continent. In the last couple of years, we also seen a number of off-grid renewable energy startups pop up throughout Africa. With an estimated combined economy of $1.5 trillion, the African continent presents huge opportunities for businesses and investors alike across the renewable energy sector. While it is certain that renewable energy will be part and parcel of Africa’s energy mix, what role will renewable energy startups play in fixing Africa’s reliable energy supply deficit? And will they co-exist or compete with the grid?

As Africa grows, so does its energy needs

Africa’s economy is growing and it is growing fast. Also, its population is among the fastest-growing and youngest in the world. The adaptation of rapid technological changes, changing business environment and changing demographics will hugely contribute to the growth of the African economy. As Africa grows over time, so does its electricity needs.

Seven African countries namely Nigeria, Ethiopia, the Democratic Republic of Congo, Egypt, Tanzania, Kenya, and South Africa will soon hold half of the continent’s population, and 43 percent of Africans across the continent will belong to the middle or upper classes. As the spending capacity of these socioeconomic groups increase, so will the demand for electricity. According to the IEA, electricity demand in Africa will increase to over 1 600 terawatt-hours (TWh) by 2040. The big question is ‘how can Africa meet its growing energy needs?’ The IEA report also indicates that by 2030, almost 530 million Africans could still lack access to electricity. The technology landscape in Africa is also booming and the operational prowess of the players in these sectors very much depends on the availability of reliable electricity.

For Africa to achieve inclusive and sustainable development, the continent would require tripling the average number of people gaining access to electricity every year from around 20 million today to over 60 million people.

So what can solve Africa’s electricity problem? Given Africa is plagued by grid failures throughout the continent, the grid cannot be expected to meet Africa’s energy needs on its own. African grids need a major overhaul and huge investment for modernisation. So can renewable energy come into play in such a scenario, given Africa possesses huge potential when it comes to renewable energy sources such as wind, water and solar?

Mikhail Nikomarov, an energy expert and the chief executive at Bushveld Energy, believes at the current GDP growth rates, the Sub Saharan African electricity needs is going to double. He told International Finance, “Most African countries are facing high growth potential, both because of massive population growth and on average improved political and regulatory regimes. Policy rather than technology is going to determine how much of that is filled by non-State Owned Enterprises (SOE). It would seem logical to outsource to the private sector whatever could be funded by non-government firms. I believe that more than half of the growth will come outside the SOE structure and it may be much more than that.”

So, to meet the growing demand of its economy, what Africa needs is to create a balanced and sustainable energy-mix that relies on its grids, biomass as well as on renewable energy. No doubt Africa needs to overhaul its power grids, which is a complex task, but economists and policy makers in Africa also need to understand the potential of renewable energy and consider it as a major source to meet its energy needs rather than an alternative.

Africa’s problem of grid failures

According to the IEA report, electricity demand in Africa in 2019 stood at 700 terawatt-hours (TWh), with the economies in North and South Africa accounting for over 70 percent of the total. According to the International Renewable Energy Agency (IRENA), Africa currently meets its energy needs from sources such as biomass and fossil fuels. While biomass meets around 50 percent of Africa’s primary energy needs, coal and natural gas account for 14 percent each and oil accounts for 22 percent.

To become sustainable, Africa needs to increase its power generation capacity by 6-7 percent gigawatts a year, which is 10 percent of its current total capacity. But electricity grids across Africa continue to perform poorly and provide poor coverage, which inversely impacts the economy. South Africa’s state-owned utility company Eskom is among one of the biggest in the world. The company accounts for almost 90 percent of South Africa’s power generating capacity from sources such as coal and nuclear. However, the company finds itself in the middle of a crisis as its debts continue to rise. Also, the operating cost of Eskom is too high. With debts of $30 billion, the company is on the verge of a total shutdown.

In January 2020, the Nigerian national grid too collapsed leaving the whole country in a blackout. Even though only 40 percent of the Nigerian population is connected to the national grid, a collapse is still a matter of grave concern as it cripples the industrial sector. Grid failure across emerging economies in Africa is a common occurrence. Economies such as Kenya and Uganda too have been plagued by grid failures. In Uganda, its power grid reaches just 23 percent of the country’s 40 million people, according to power distributor UMEME.

Mikhail Nikomarov said, “The grid is an issue, as in some markets there is more than enough generation, but evacuating that power and delivering it to distributors has proven a challenge. Part of that is technical capacity and part is financial. It will mean that some customers and communities may be better off never connecting to a ‘central, main grid’. Before, this was really not a cost effective-option.”

Off-grid renewable energy penetrates grid untouched areas

Amid all the energy crisis, grid failure and blackouts in Africa, off-grid solar technology has come as a sign of relief for many Africans. In many parts of Africa, off-grid solar has reached people that reside in areas where the grid has not arrived yet. It helps many poor Africans in rural areas access electricity at a very reasonable rate. The global off-grid solar market has grown considerably over the years to be worth $1.75 billion serving 420 million users. In the last few years, many startups have raised funds in Africa in a bid to bring off-grid solar solutions to the non-electrified areas of their countries. While most of the startups were based in East Africa, it’s only recently that startups have started tapping into the potential in the Western side of the continent.

According to the World Bank, more than 700,000 solar systems have been installed in Sub-Saharan Africa. The market is growing exponentially in Africa with over 5 million pay-as-you-go home solar systems sold in the continent in the last four years with over one million systems sold over the first six months of 2019, according to business consultancy Kleos Advisory. The report further reveals that the commercial opportunity for off-grid solar power in Africa is $24 billion per year.

Liliane Munezero Ndabaneze, chief executive at Women’s Initiative for Delivering clean Energy to Africa (WidEnergy Africa) told, “The Pay-go model has tremendous potential especially if you look at how well it has performed in other parts on the continent, especially Eastern Africa where millions of households have now access to clean energy. For markets with vast territories such as Zambia, the grid access will simply not reach some of the areas we are targeting and this represents great opportunities for WidEnergy Africa and other players in the market.”

In Africa, renewable energy possesses the potential to change the very energy landscape of Africa. However, much depends on how this potential is tapped into and also the value of investments made into the sector. Opio David, who co-founded Ugandan pay-as-you-go (PAYG) solar startup gnuGrid Africa told International Finance, “The efficiency of renewable technologies, the speed and cost with which they can be deployed and the continuous rise in investments in renewable energy make it a scalable solution to this problem.”

According to Jan Albert, co-founder and chief executive at Solarise Africa, “The costs of solar have come down dramatically. Solar can now be offered as a cheaper supplement to the grid, under the condition that there are finance solutions available. The availability of adapted finance, as well as the availability of good quality Energy Performance Contracting (EPCs) are the elements that are crucial to make it truly scalable.”

How do the offgrid renewable startups fill energy gaps?

WidEnergy Africa, is a Zambia-based women-led initiative focused on providing clean, reliable and affordable energy solutions. According to Liliane Munezero Ndabaneze, WidEnergy’s vision is to become a regional strong women-led brand in household clean energy distribution. The Women in Energy hub (WeHub) project launched by WidEnergy is a multipurpose woman operated solar-powered store, serving as distribution hubs for its products while serving as a community microgrid where it’s located. WeHub unique value proposition is ‘Empowering women entrepreneur, with Energy’. In the next five years, the startup plans to reach between 70,000 to 100,000 households, thus impacting more than 400,000 lives, Liliane Munezero Ndabaneze added.

Another Uganda-based off-grid solar startup gnuGrid is disrupting the market by integrating technology to increase power efficiency. Launched by David Opio and James Dailey, gnuGrid has developed Solar Sentra, which is an amalgam of a PayGo platform and IoT enabled hardware. With the PayGo platform, transactions are swift and effortless through digital payments thus enabling instant access to power post payment by the end-user.

Opio David, who serves as the chief executive said, “The PayGo platform also allows for installation mapping that facilitates seamless tracking and extension of maintenance and after sales services by the solar companies’ technical team to troubleshoot any faults in the solar systems.” In short, Solar Sentra bridges the gap between solar companies and their clients and perpetuates timely service delivery.

Solar Sentra can be integrated into a wide array of solar products which allows for a faster penetration into the solar power market. gnuGrid sees a growing PayGo solar home system market as well as new prepaid microgrid models and leasing or subscription models.

Opio David believes gnuGrid Africa will be among the main drivers of energy inclusion to millions of households in and outside Uganda expanding into markets such as Kenya, Tanzania, Rwanda and Northwest Africa in the next five years. gnuGrid also signed a partnership with MTN and SolarWorx in Liberia in a project to provide solar energy to 500,000 Liberians in a period of five years.

Solarise Africa, a pan African energy leasing company, too is helping to bring clean, reliable, high quality and low-cost energy to Africa’s commercial and industrial sectors. The Kenya-based startup provides smart financing solutions through its partners to commercial and industrial (C&I) clients. Solarise aims to solve the financial hurdles for captive rooftop and ground-mounted solar projects ranging from 100kW to 3MW. According to Jan Albert, C&I projects are either too small for big financers or too complex for local banks or leasing companies. Also, this is where Solarise is coming in and solving the financial problem faced by such projects. He told International Finance, “We offer finance products that are adapted to the needs of the end user. Our finance offering is integrated in the offering of the developers and EPCs. We jointly target the clients and come up with an integrated proposal and create a one stop shop for the end user.”

African renewable energy startups face funding squeeze

Funding is a challenge for off-grid solar startups in Africa. Renewable energy startups are only able to raise 20 percent of the funding they need per year. Existing funding is insufficient and concentrated in other fields for instance only 11 percent of World Bank’s total energy access funding for Africa between 2011-2014 went to off-grid renewables. Mikhail Nikomarov said, “The successful ones get capital from overseas, so if you are an African entrepreneur without access to Silicon Valley, getting high risk capital is not easy. Another is creating a business that is scalable and one that can be carried across national borders. All too often, companies have business cases based on specific regulatory rules and in Africa, there are at least 54 sets of such rules.”

Liliane Munezero Ndabaneze believes it is very difficult for off-grid solar startups to raise funds in Africa. She said, “One thing to remember is that more than $500 million have been raised by the industry in the last five years. What is the percentage of that went to the startups, founded and managed by the locals, especially women? The figure will tell you how ‘easy’ it is for African owned startups to raise funds. Yes, there is a need for more investment, but more investment by African investors is still equally challenging.”

Manfred Hafner, professor of international energy studies who teaches at the Johns Hopkins University School of Advanced International Studies and Giacomo Falchetta from the Catholic University of Milan believe that in order to be successful and sustainable, renewable energy startups must take a set of actions aimed at tackling some of the greatest challenges of doing business in the sector in the context of developing countries of Africa. The first action is coordination and continuous interlocution with the government. Secondly, investments must be tailored to the specific setting such as potential supply variability and demand change is necessary. Finally, startups must ensure that their business model is encouraging a regular payment of customer bills or government agreements and subsidies that enable firms to repay costs and scale-up their infrastructure.

Mini-grids linked to national grids; the future

The outlook for renewable energy as well as renewable energy startups is positive. In the next five years, Africa is expected to better understand its renewable energy potential and its resources and make good use of them. While Sub-Saharan regions have good potential for solar energy, the coastal regions hold potential for wind energy. Opio David said, “As technology costs are slowly reducing, with an increasing trend of investments in technology research and development plus attraction of renewable systems over diesel generators grows, there is bound to be exponential growth for off-grid renewable energy startups over the years.”

Liliane Munezero Ndabaneze said, “If we look at last years’ Pay-go systems, the southern African region is last on the chart, with less than 1 percent contribution. So increasing this to 5 or 10 percent is definitely achievable in the short term and should be an industry effort. Once again, factors such as mobile money penetration will determine how fast we can scale up.”

According to Jan Albert, the outlook for off-grid solar startups is still positive. However, the only successful off-grid renewable energy startups will be the ones that are well managed and have sufficient capital to see them through. In the end, it is all about implementation.

Mikhail Nikomarov, on the other hand, believes the future of renewable energy is the mini-grid. He said, “These small grids will likely feature multiple technologies, including solar PV, possible another generation source if it exists locally (mini-hydro, wind, and gas) significant amount of energy storage (large batteries) and, in wealthier areas, some back-up power support in the form of diesel and HFO generators.”

Manfred Hafner and Giacomo Falchetta believe if properly planned, mini-grids have the benefit that they can at a later stage be linked to the national grid and become an integral part of it. In this scenario, the local renewable generation capacity can still continue on providing the baseload power needed locally, while the electricity from the central grid can step in to fill the demand-supply gaps.

The post Mini-grids: The future of African energy? appeared first on International Finance.