Between 28 February and 2 March 2018, the fourth Powering Africa: Summit took place in Washington DC. Despite the US government’s ambivalent attitude towards the Paris Climate Agreement and renewable sources of energy, US officials re-affirmed their commitment to incentivising private sector investment for renewables in Africa through a combination of technical support, loan guarantees and financing. The Summit also provides a good opportunity to reflect on existing regulatory and industry frameworks in Africa that have acted as a catalyst for the growth of private investment in solar energy. This law-now considers the examples of Morocco and Zambia, who have benefited from government backing, well-run procurement exercises and the support of public international organisations.
Morocco has been a leader in renewable energy for many years. Its ambitious Moroccan Wind Power Plan (2010) and Moroccan Solar Plan (2009) target the installation of 3 GW of renewable energy by 2020, and aim to establish Morocco as one of the world’s top five countries in the world for investment in renewables. Morocco plans to generate 14% of its energy from solar by 2020. Its flagship project is the Noor Solar Complex in Ouarzazate, which will be one of the largest CSP projects in the world once it is completed.
Equally as impressive is Morocco’s leadership in off-grid solar energy, which aids rural communities too remote to connect to established infrastructure. On 15 January 2018, the Morocco Solar Home Systems project was completed. This off-grid solar project is estimated to bring electricity to nearly 20,000 homes in 1000 rural villages in Morocco, taking the rural electrification rate above 99% (compared with 18% in 1995).
Among the notable features of Morocco’s solar energy market are:
- Its high sun exposure gives it a natural competitive advantage in the promotion of solar energy, a feature shared with many African countries.
- The restrictive foreign exchange regulations limit foreign currency payments, creating the impetus for a more independent and self-sustaining energy market as opposed to one which relies on foreign imports.
- Following the passing of Law 13-09 in 2010, private individuals and companies can generate and export electricity to the high-voltage grid, and sell surplus output to the grid up to 20% of their annual production. This was extended in 2016 when the government opened the low-voltage grid to solar energy installations, further incentivising the private generation of electricity. The project authorisation regime only requires a “declaration” for projects with a generating facility capacity of between 20 kW and 2 MW; the more stringent authorisation regime is applied for projects with more than 2 MW capacity.
- The Research Institute on Solar Energy and Renewables (IRSEN) monitors, coordinates and finances joint research projects, involving universities and industry.
- There is no Feed-in-Tariff system in Morocco; generators of electricity contract directly with MASEN (Moroccan Agency for Solar Energy), which acts as the offtaker, senior debt provider and minority shareholder in the project SPV. However, a range of fiscal incentives to attract inward investment are available, including:
- total exemption from corporate tax for any new industrial business;
- implementation of at least one Export Processing Zone (EPZ) per region. These are areas which are exempt from customs regulations, foreign trade and exchange control and other restrictive regulation;
- granting of the EPZ advantages to big export companies even if they are not established in an EPZ; and
- recognition of the indirect exporter status (for big export groups’ subcontractors – exemption of corporate income tax on export turnover during the first five years, and application of a corporate income tax rate of 17.5% for the following years).
- Investors and financiers have deployed capital in Morocco, providing others with an additional sense of business confidence in the country. For example, the Noor Solar Complex, discussed above, attracted funding of over $1 billion from the World Bank, the African Development Bank and the German government-owned development bank KfW.
The above factors create an environment that fosters and precipitates the development of solar power. Morocco’s stability and long-term commitment to renewables has allowed it to attract a range of foreign investment.
Zambia’s transition to a low-carbon economy is at a different stage to Morocco’s. After decades of generous government subsidies, Zambia faced a critical shortage of electricity between 2015 and 2016. Since then, its electricity generation sector has been transformed as a number of steps have been taken including:
- In 2015, the IFC (a member of the World Bank Group) launched the “Scaling Solar” project to attract investment in two large-scale solar projects with a total capacity of 76 MW. The auction attracted 48 solar power developers, seven of whom submitted final proposals which secured the lowest solar power tariffs in Africa up to that point. In June 2016, one of the successful bidders offered to sell power at just USD 0.06015 per kWh for 25 years. Scaling Solar’s appeal lies partly in the transparent system of oversight and the low transaction costs. The implementation of pre-negotiated bankable contracts avoids the high transaction costs associated with negotiating individual contracts.
- In 2017, ZESCO - the vertically-integrated, government-owned energy company - announced an increase in electricity tariffs of 75% in an effort to reduce government subsidies for electricity, estimated at $500m; this released valuable tax revenue for the Zambian Treasury, enabling it to channel resources into electricity infrastructure, as well as other sectors.
- In December 2017, the World Bank Group approved an International Development Association loan of up to $2.8 million to leverage around $48 million in private sector-led development in solar energy in Zambia. This guarantee will support the development of a 34 MW solar PV plant by Ngonye Power. The backing of public international organisations has given renewed confidence to foreign companies investing in the Zambian energy sector. One such example is Enel Green Power which is set to achieve financial close on its 28.2 MW solar project in the coming months.
However, Zambia’s recent success is not solely due to external investment and guarantees by public international organisations. In early 2018, the Zambian government will launch a competitive two-stage auction for up to 100MW of solar PV capacity as part of the GET FiT Zambia programme. Applicants will be free to select project sites, provided that they are within 10 km of the feed-in point to the ZESCO network and the maximum project size is 20MW.
Nevertheless, barriers remain, such as the low rural electrification rates, limited national transmission and distribution infrastructure, as well as a bundled state utility.
At the Powering Africa: Summit, Senator Enyinnaya Abaribe from Nigeria stressed the challenge African countries face in transmitting generated electricity to consumers. Strong local government and innovative technologies provide potential solutions to this challenge. Off-grid solar systems, with the additional flexibility of battery storage, allow isolated communities to access electricity without extensive transmission and distribution infrastructure. Innovative technologies can further improve the viability of off-grid projects; for example, the Internet of Things enables generators to send and receive real-time data, which has acted as a catalyst for the rise of “pay-as-you-go” solar home systems. However, clear government oversight is needed so that the potential of these technological advances can be fulfilled; Morocco and Zambia may provide blueprints for other nations to follow in this regard.
Co-authored by Andrew Sawbridge