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Bright future for solar

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Eskom increases make off-grid power more affordable

PUBLICATION: FINANCIAL MAIL | DATE: 01/03/2018

The developers of the Mall of Africa in Midrand could never be accused of not thinking big, writes Johann Barnard. Take, for example, its 4.7 MW solar rooftop installa­tion that is expected to produce 7,800 MWh of electricity a year - enough to cover the daily power needs of the 131,000 m2 retail shopping space.

The scale of this installation illustrates the appetite for self­generation projects, and high­lights funders' appetite to back renewable projects for which the investment case is becom­ing clearer by the day.
This is why Michael Meeser, head of power and infrastruc­ture finance at Investec Spe­cialist Bank, is placing more emphasis on funding commer­cial and industrial projects.
'We are seeing a lot of peo­ple now installing solar panels, for which the payback period is shorter as the cost of the pan­els has come down. I think, over time, you'll see every shopping centre and commer­cial property have some form of self-generation capacity'.'

The case for self-generation, he adds, has been strengthened by lower-cost technology and has been really advanced by Eskom's tariff increases. The above-inflation increases it has enforced over the past number of years have narrowed the gap to make green-energy pro­jects increasingly affordable by comparison.

The vast amounts of costing, engineering and financing knowledge picked up through involvement in the renewable energy independent power producer procurement pro­gramme are now being applied to the self-generation model.  

Paul Semple, portfolio man­ager of Futuregrowth's Power Debt Fund, says it is inevitable that these types of projects will take off.
"There is a lot of potential, but it's in its infancy in SA in terms of investment being made on a big scale;' he says. "Often, companies just do it off their own balance sheet so they don't need dedicated finance for that. Having said that, there are opportunities coming up where larger pro­jects are being developed'.'

One of the advantages of smaller-capacity self-genera­tion projects is that different technologies and energy sources can be employed. Semple says one recent project Futuregrowth funded was a waste-plastic-to-energy con­version plant that has conclud­ed an off-take agreement by a leading industrial fuel company. Defined-term contracts - which in this corner of the market may be for 10 years or more - help to simplify the investment decision, but Sem­ple says the biggest consider­ation tends to be around the people involved.

"Track record is important;' he says. "It's very rare that we'll invest in a start-up business, certainly from a debt point of view. This waste-plastic-to-oil deal is all equity-funded at the moment, but in time we'll con­sider putting debt in!'

Though it's early days in the shift to small-scale self-gener­ation, this trend could spell even more trouble for Eskom. Saddled with nearly R400bn in debt, and two new coal-fired plants, it needs to see an increase in demand, not a drop. "If Eskom continues hiking tariffs at above the rate of infla­tion, electricity from the grid won't be competitive any more;' Semple says. "I don't think we're there yet, because a lot of private generation is being done as a backup in case Eskom isn't able to supply.

"But it's fairly marginal whether it's cheaper to go off­grid or to go the Eskom route. It depends on whether the tar -iffs continue to go up at the same rate that they have done. Then it's only a matter of time before there's a tipping point and more people go off-grid than rely on Eskom power'.'

While the case for self-gen­eration in SA has been accel­erated by Eskom's decline, the rest of Africa is crying out for solutions to the absence of electrical grid infrastructure.
This was a key point of dis­cussion at the Africa Energy Indaba at the Sandton Conven­tion Centre in late February this year. The ability to set up localised and minigrid installa­tions, at reasonable cost and in far less time, makes solar a popular solution.

According to data from the energy conference, more solar energy has come on line glob­ally in the recent past than any other energy source. The case for solar projects is supported by the International Energy Agency (!EA) predicting that solar photovoltaics will contin­ue to grow strongly through to 2022. By then, global renew­able electricity capacity is fore­cast to have grown by 43% to more than 920 GW.
Off-grid solar installations in Asia and sub-Saharan Africa, the !EA predicts, will triple by 2022 to more than 3,000MW. 

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