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Titelmasterformat durch Klicken bearbeiten
Financing challenges for solar
PV investments – Historical and empirical analysis
Janosch Ondraczek
University of Hamburg,
Research Unit Sustainability and Global Change
Solar & Off-Grid Renewables Africa Nairobi, 5 March 2014
Titelmasterformat durch Klicken bearbeiten (1) Introduction
(2) Small-scale PV: Kenya’s SHS market
(3) Utility-scale PV in Africa
(4) Kenya case study
(5) Conclusions
Outline:
Titelmasterformat durch Klicken bearbeiten (1) Introduction
(2) Small-scale PV: Kenya’s SHS market
(3) Utility-scale PV in Africa
(4) Kenya case study
(5) Conclusions
Outline:
(1) Introduction
Annual solar electricity yield per country (kWh/kWp):
Source:
Ondraczek et
al. (2013)
(1) Introduction
Installed solar PV capacity per country (Wp/capita), 2010:
Source:
Ondraczek et
al. (2013)
(1) Introduction
• The “African energy challenge”:
- lack of access to electricity (ca. 70% in SSA)
- rapid increase in electricity demand
- investment required: US$ 16-22bn p.a.
- severe constraints in capital, skills & governance
• Contribution of solar PV in Africa:
- installed capacity likely to increase significantly until 2035:
- PV limited to off-grid electrification in rural Africa due to its high cost?
Financing challenges for PV investments in Africa (1):
Year 2009 2035
Capacity 0 GW 16-34 GW
CAPEX (@ US$ 2.2m/MWp) n.a. US$ 34-74bn Source:
IEA (2011)
(1) Introduction
• The financing challenge for PV investments, e.g. in Kenya:
- 200 MWp of approved PV plants = US$ 500m+ of investment
- major financing challenge for projects and supply chains
Financing challenges for PV investments in Africa (2):
Manufacturing (modules, BoP)
Project development (design, permits, finance)
Installation (modules, BoP)
O & M (tech., comm.)
Sales & logistics (modules, BoP)
Locally sourced and financed?
- sales & logistics (domestic supply chain)
- project development (local developers / offices)
- construction & installation of plant (local firms)
- operation & maintenance (local staff)
Titelmasterformat durch Klicken bearbeiten (1) Introduction
(2) Small-scale PV: Kenya’s solar market
(3) Utility-scale PV in Africa
(4) Kenya case study
(5) Conclusions
Outline:
(2) Small-scale PV: Kenya’s solar market
1970s:
signaling & broad- casting
GoK
1980s:
off-grid electrication & SHS
GoK, donors & households
1990s:
SHS & off-grid eletrification
GoK, donors & households
2000s:
SHS & off-grid eletrification
GoK, donors & households
2010s:
Pico-solar, SHS, off-grid electrification & large on-& off-grid projects
GoK, donors, households & private capital
Evolution of Kenya’s solar PV market since 1970s:
(2) Small-scale PV: Kenya’s solar market
• Kenya, overall market size (installed capacity):
• Segments of Kenya’s solar PV market, 2009:
- off-grid SHS: approx. 6-8 MWp; largely OTC trade
- off-grid institutional systems, telecom, commercial & tourism:
remaining 2 MWp; different funding sources (GoK, donors, private
companies)
• Larger on- and off-grid systems all over SSA will require
fundamentally different funding sources!
Year 1990 2000 2009 2012
MWp 1.5 3.9 8-10 16
Sources: ECA (2012),
Ondraczek (2013)
Source:
Ondraczek (2013)
Sub-Saharan Africa’s PV market dominated by Kenya:
(2) Small-scale PV: Kenya’s solar market
5,000 35,000
97,500
200,000
320,000
0
50.000
100.000
150.000
200.000
250.000
300.000
350.000
1990 1995 2000 2005 2010
Source:
Ondraczek
(2013)
Estimated number of SHS installed in Kenya:
(2) Small-scale PV: Kenya’s solar market
The effect of income on the choice of lighting fuel:
Source:
Lay et al. (2013)
(2) Small-scale PV: Kenya’s solar market
Effect of the prevalence of SHS on the adoption of SHS:
Source:
Lay et al. (2013)
Titelmasterformat durch Klicken bearbeiten (1) Introduction
(2) Small-scale PV: Kenya’s SHS market
(3) Utility-scale PV in Africa
(4) Kenya case study
(5) Conclusions
Outline:
(3) Utility-scale PV in Africa
• Hypothesis 1: “Past financing model won’t work in future”
- new market segments: pico solar and utility or commercial scale PV
- new financing models: pay-as-you-go (pico solar) and long-term funding for
large-scale PV
• Hypothesis 2: “Donor and government funds won’t suffice”
- solar investment until 2035: ca. US$ 1.5-3.0bn p.a. across SSA
• Hypothesis 3: “Availability and cost of long-term private
capital hinder market development”
- sub-Saharan Africa generally not attractive enough for private capital
- available capital very costly and short-term
renders renewables uneconomic and/or drives up required subsidy level
Future capital requirements for renewables in Africa:
(3) Utility-scale PV in Africa
0
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So
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k e
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Weighted average cost of capital in % (2006-11 or latest):
≈
(3) Utility-scale PV in Africa
0
5
10
15
20
25
30
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So
urc
e: O
nd
racze
k e
t a
l. (
20
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)
Weighted average cost of capital in % (2006-11 or latest):
Countries of sub-Saharan Africa
255%
(3) Utility-scale PV in Africa
• Ondraczek et al. (2013) look at influence of solar irradiation, cost of
capital on LCOE of on-grid solar PV in 160 countries:
- three-step approach for calculation of country-specific solar PV LCOEs
Financing costs determine solar PV economics:
Input parameter Value Unit
Plant lifetime 25 years
Investment
cost/kWp
a) global average:
b) Germany:
5,010
2,847
USD
USD
Operating cost 1.5 %
Scrap value 20.0 %
Degradation
factor
0.5 %
1 Globally uniform values: 2 Country-specific solar electricity yields:
3 Country-specific discount rates (WACC):
• population-weighted average solar yield (GHI)
• assuming optimal/fixed orientation based on
Breyer & Gerlach (2013)
• GHI ranges from 1,055 to 2,382 kWh/m²/a
• assumes blend of equity (30-50 percent) and
debt (50-70 percent) typical for project financing
• based on data of World Bank and UNFCCC
• WACC ranges from 3.7 to 255 percent
(3) Utility-scale PV in Africa
LCOE of on-grid solar PV per country (US$2011/kWh):
Source: Ondraczek et al. (2013)
(3) Utility-scale PV in Africa
Influence of solar irradiation and capital cost on LCOE:
Uniform
Irradiation So
urc
e: O
nd
racze
k e
t a
l. (
20
13
)
(3) Utility-scale PV in Africa
Subsidy level required per country (US$2011/kWh):
Source: Ondraczek et al. (2013)
Titelmasterformat durch Klicken bearbeiten (1) Introduction
(2) Small-scale PV: Kenya’s SHS market
(3) Utility-scale PV in Africa
(4) Kenya case study
(5) Conclusions
Outline:
(4) Kenya case study
• Cost of capital is crucial determinant of solar PV economics
determines potential role of this technology in future energy mix
• Ondraczek (2014) investigates potential role of solar PV in Kenya:
- in line with least cost power planning of many countries in SSA (e.g. LCPDP)
- energy planners use social discount rate, not private cost of capital (WACC)
• Availability of capital as much a constraint as cost of capital:
“The most common barrier cited in interviews was securing project financing,
particularly at interest rates suitable for the relatively low REFITs for
technologies other than hydro.”
[Renewable Energy Ventures(K), Ltd and Meister Consultants Group Inc., Powering
Africa Through Feed-In Tariffs, February 2013, page 39.]
Future role of solar PV influenced by cost of finance:
(4) Kenya case study
• Base case solar LCOE estimate
($ct2011/kWh): $ct 21.0/kWh
- average values for CAPEX
and OPEX (Kenya-specific)
- assumes 8% discount rate
• Scenario analysis ($ct2011/kWh):
- discount rate: $ct 16.5-28.4
(5.0-12.5%)
- investment cost: $ct 18.9-30.0
10 15 20 25 30
Base case
Scrap value
Degradation factor
Operating cost
Plant lifetime
Location
Investment cost
Discount rate
Economics of on-grid solar PV projects in Kenya:
(4) Kenya case study
LRMC of power generation projects in Kenya (2010 est.):
6,5 6,9 9,1 9,3 10,2 11,1 11,3 12,7
15,1
21,0 21,7
30,2
0
5
10
15
20
25
30
35
Sources: LCPDP, 2011; Ondraczek, 2013
Peak power Base power
$ct 2
01
0/k
Wh
Titelmasterformat durch Klicken bearbeiten (1) Introduction
(2) Small-scale PV: Kenya’s SHS market
(3) Utility-scale PV in Africa
(4) Kenya case study
(5) Conclusions
Outline:
(5) Conclusions
(1) scaling up renewables poses major financing challenge for
projects and supply chains
(2) larger on- and off-grid systems require fundamentally different
financing models and sources of funding
(3) donor and government funds won’t suffice; private capital is also
needed
(4) availability and cost of long-term private capital hinder market
development and limit the future role of solar PV and other
renewables
(5) more efficient capital and goods markets in ‘Sunbelt’ countries
would improve solar PV economics
Keya financing challenges for PV investments in Africa:
Titelmasterformat durch Klicken bearbeiten
Janosch Ondraczek
University of Hamburg
Research Unit Sustainability and Global Change
Grindelberg 5, 20144 Hamburg, Germany
Phone: +49-40-42838-2053
Fax: +49-40-42838-7009
E-Mail: [email protected]
Internet: http://www.fnu.zmaw.de
Further reading
Full references and working papers available online at www.fnu.zmaw.de >>> Publications
Ondraczek, J., Komendantova, N.,
Patt, A., 2013: WACC the dog: The
effect of financing costs on the
levelized cost of solar PV power; FNU
Working Paper No. 201, May 2013
Ondraczek, J., 2013: The sun rises
in the east (of Africa): A comparison
of the development and status of
solar energy markets in Kenya and
Tanzania; Energy Policy, May 2013
Lay, J. Ondraczek, J., Stoever, J.,
2013: Renewables in the energy
transition: Evidence on solar home
systems and lighting fuel choice in
Kenya; Energy Economics, Nov.
2013
Ondraczek, J., 2014: Are we there
yet? Improving solar PV economics
and power planning in developing
countries: The case of Kenya;
Renewable and Sustainable
Energy Reviews, Feb. 2014
Backup: Input parameters and values for Kenya
Input parameters and values (“base case”):
Input parameter Value Unit Source(s)
Plant lifetime (T) 25 years [1-3]
Installed capacity 10,000 kWp own assumption
Investment cost (It) 2,566 US$/kWp [4]
Operating cost (Ot) 1.5 percent [2-3,5]
Scrap value (Dt) 10.0 percent own assumption
Real discount rate (r) 8.0 percent [6]
Location Mombasa n/a own assumption
Global horizontal irradiation 5.43 kWh/m²/day [7]
DC to AC derate factor 76.9 percent [7]
System output (St=0) 1,374 kWh/kWp [7]
Degradation factor (d) 0.5 percent [2]
Sources: [1] IEA/NEA, 2010; [2] Peters et al., 2011; [3] Schmidt et al., 2012; [4] Hille et al., 2011; [5] Bazilian et al., 2013;
[6] LCPDP 2011; [7] PVWatts