Behind-the-meter renewables in Africa
In European and North American markets consumers (especially large industrial and commercial consumers) are increasingly producing their own renewable power rather than simply importing all of their electricity needs from the grid. Consumers are investing in solar PV and possibly battery storage capacity on the customer side of the meter. The term ‘prosumer’ is commonly used to describe this new type of behaviour. This trend is driven by a number of factors (which vary by country and region) including incentives for renewables, mitigation of retail energy costs, and customer preferences for renewable energy.
The larger numbers make this trend most obvious in more developed markets, but does it translate to less developed markets, such as those in sub-Saharan Africa?
There are strong fundamental drivers for behind-the-meter generation in Africa
A growing number of companies are installing behind-the-meter renewables across Africa. This is particularly prevalent in the largest and most developed markets (especially South Africa), but increasingly is evident across a wider range of markets in West and East Africa as well. What is driving this trend?
As with projects on the utility side of the meter, cost reductions are a major driver. The large fall in the cost of solar PV and battery storage technologies is shaking up the electricity sector globally. The latest IRENA analysis of renewable power generation costs reports that the capacity-weighted average total installed cost of solar PV fell by a further 10% in 2017 compared to 2016. Lazard’s 2017 analysis of battery storage costs suggests that lithium ion battery costs are likely to fall by ~10% p.a. on average for the next 10 years.
In many countries in sub-Saharan Africa, high energy costs are a factor. High energy costs result both from high charges for grid electricity and the high cost of back-up generation. Tariffs vary hugely across the continent and are frequently not cost-reflective, but even where tariffs are not cost reflective they can be sufficiently high to support the business case for behind-the-meter solar PV. The graph below shows the wide range of energy tariffs for medium sized MV-connected businesses across the continent. Note that these are energy charges only. In Botswana, for example, the energy charge is low, but there is a larger maximum demand charge, which could strengthen the business case for a behind-the-meter battery storage system.
Another driver of behind-the-meter installations in Africa is resilience. Behind-the-meter back-up generators are nothing new and have long been a staple requirement for businesses requiring dependable power supply across much of the continent. Battery storage technologies offer companies the opportunity to store solar power, which is much cheaper than the diesel generation previously used to provide back-up. More companies are now switching to solar and battery storage installations to meet their resilience requirements.
Supply-side factors are also important. The pace at which utility-scale and grid-tied projects move continues to be slow in many countries in sub-Saharan Africa. Behind-the-meter projects offer companies the chance to bypass many of the regulatory and bureaucratic barriers that slow down the development of IPP projects. Many IPPs are developing their own offerings targeted at industrial and commercial end-consumers of power.
Africa could provide a test bed for innovations to manage a more distributed grid
Behind-the-meter projects are not without risk. Many of the drivers noted above rest on the high cost of energy in sub-Saharan Africa today. If utility’s generation mix evolves (e.g. with more investment in renewables) to bring down the cost of grid-based energy this could adversely affect the business case for behind-the-meter projects. However, the business case for such project in many parts of the continent is strong. The small size of many of the markets means that behind-the-meter installations could very quickly contribute a significant proportion of total power generation in some countries. In proportionate terms, Africa could overtake more developed markets in this respect, providing a test bed for innovative solutions to manage a more distributed grid.