Renewable Energy is the Exigency of our Times

In the same year, the worst floods in history swept through KwaZulu Natal, South Africa, drowning homes and causing 435 deaths and damage to infrastructure. A heat dome in the northern part of Morocco caused record high temperatures, sparking a fire that engulfed the communities of Larache and Taza. Drought worsened the humanitarian crises and conflict in Ethiopia that displaced at least 2 million people while Botswana recorded a heatwave and experienced early winters.

According to Carbon Brief’s analysis of disaster records, extreme weather events in Africa have killed at least 4,000 people and affected a further 19 million since the start of 2022. However, the impacts of African extreme events often go unrecorded – especially heatwaves – and so the true figures are likely to be much higher. If such messages weren’t strong enough, the UN’s climate change report by the Intergovernmental Panel on Climate Change (IPCC) said the unprecedented impacts of anthropogenic global warming could already be irreversible.  So, what can be done?

Researchers from the University of Oxford suggest that three quarters of global greenhouse gasses come from energy alone – that includes producing electricity, fuelling cars and other transport, powering industry and heating homes. That is to say that for our posterity, the future of energy needs to be greener. The world’s shift to renewable energy has been slower than expected, albeit there are green shoots of renewable projects in Botswana and the global front, giving comfort that the wheels remain in motion.

Wind has now become the cheapest source of electricity, recycled cooking oil is powering planes, and green hydrogen could soon clean up transport and Industry. Biomass, such as the burning of wood, is fuelling old coal plants and owing to mass production, the price for solar panels has more than halved. Contrary to popular expectation, the transition from coal has significantly slowed down due to the global dependence on the fossil fuel to provide baseload power. Coal thermal generation will remain a significant part of the energy mix and a source of heat for homes. There is still a long way to go but not a great deal of time to make the necessary adjustments.

Perversely, the effects of climate change are stymying our ability to generate electricity. Consider hydropower plants at Zambia’s Lake Kariba, which generates close to 70 percent of the country’s electricity demand but is expected to operate at half generation capacity of 300MW because of the drop in water levels due to extreme drought. This is set to impact electricity supply to the business community and mines in the Copperbelt, and by virtue of the lake straddling the borders of Zambia and Zimbabwe, Zimbabwe is not spared the electricity shortage as the country is also expected to reduce its generation capacity at the South hydro station until water flows into the lake. It is expected that the reduced generation capacity is set to affect electricity supply into the Southern Africa region. Botswana, as a net importer of electricity from South Africa and Zambia, will not be spared the impact.

Borrowing from global COP 27 held in Egypt, also known as the African COP, Botswana – like all other African countries – is a small carbon emission producer and the accelerated transition from fossil fuels to renewables leaves an undesired taste as African political leaders argue that the resource the continent is being asked to abandon could narrow the gap and help the continent’s development to catch up with its global peers.

For Botswana, green transition is not an option in its scenarios but a key priority. According to a report by Bloomberg, Botswana’s electricity at peak demand sits at 600MW and renewables currently generate only 6 percent of the demand. In line with Botswana’s Integrated Resource Plan (IRP), the country is looking to self-sustain and add an additional generation input of approximately 795 megawatts into the grid by 2040, of which 61 percent will be from renewable generation. It is pleasing to note that most, if not all, of government-backed energy generation projects that are currently being developed or are being planned to be developed in the long term are renewable and include photovoltaic (PV), concentrated solar (CS) as well as wind.

That is not to say that Botswana has closed the door on fossil fuels as there has been a recent announcement of an award for the only coal thermal energy generation project. The biggest question to be answered remains what has been the challenge in accelerating adoption of renewables in the context of Botswana?

In so far as the country has made significant strides in accelerating the adoption of renewables into the energy mix, many renewable sources remain in early stages of technological development, which means higher prices for equipment and installation. Worthy of note is that these costs will fall in time as equipment becomes mass produced, supply chains solidify, and technologies are perfected.  Considering the favourable endowments such as the significant solar potential and advantageous wind power density, the sector has not been shy of challenges and has experienced increasing input costs that have slowed its pace as follows:

Land cost

Areas required by solar power plants, be that rooftop or ground-mounted, are significant. While solar power has some critical sustainability advantages over fossil-based thermal power (coal or natural gas based), one of the key drawbacks of solar is that it recovers energy from a relatively diffuse energy source, sunlight. A 100MW thermal power plant, for instance, would require less than 10 percent of the total land area than a 100MW solar PV power plant would.

That depends on the amount of kW of MW you would like to accommodate. A simple rule of thumb is to take 100 sqft for every 1kW of solar panels. Extrapolating this, a 1 MW solar PV power plant should require about 100000 sqft (1 hectare).

With that said, land costs around substations are on the rise due to the bargaining power that landowners have as they get approached by various bidders looking for the closest point to connect to the grid to reduce power wheeling costs.  Other costs that are incurred would include Environment Impact Assessment, soil testing and so on. An option to consider cutting down costs may be to go into long term lease agreements with the land board that will allow the solar farm owner to pay a unitary/rental fee in line with the Purchasing Power Agreement or lifespan of the solar panels.

Grid Connection

In electric power transmission, wheeling is the transportation of electric power over transmission lines of the grid. The solar plant owner then pays the owner of the transmission line based on how much power is being moved and how congested the line is. These charges are called wheeling charges.

A solar PV plant owner who generates power cannot own the power transmission lines as only a connection point to the network or grid is required. However, post connection, the transmission infrastructure ownership is automatically transferred to Botswana Power Corporation (BPC). The solar plant owner is expected to construct the transmission power line from the solar plant to the connection point as specified by BPC, and this requires a significant capital outlay that is incurred before the commercialisation of power.

The capex for the transmission line must be factored into the financing model, which at times may become uneconomic to pursue, given that there are specific connection points.

Runaway costs

According to the Cambridge Dictionary, runaway costs is the rapid increase in costs in a way that is not under control. Notably, as an effect of the COVID-19 pandemic coupled with the protracted Russia-Ukraine geopolitical war, there has been a rapid increase in inputs, including machinery and logistical costs at sea that have impacted the financing models and thus delayed implementation of some of projects. The majority of EPC contractors have had to put in place price control mechanisms to ensure that the scope and expected time to delivery are met.

The exciting news is that despite the inflation concerns due to the COVID-19 pandemic in China, solar panel prices continue to be on the decline. Erring on the side of caution, the International Energy Agency recently raised concerns that China manufactures over 80 percent of all the main elements needed for solar panels: polysilicon, ingots, wafers, cells and modules. This heavy concentration of the PV supply chain in one region of the world does not bode well for a secure, risk-free transition. Many hopes are on the Inflation Reduction Act (IRA), signed by US President Joe Biden into law in August of 2022, to spur the US solar industry. The IRA will provide financial incentives that encourage domestic manufacturing and deployment of solar technologies. Hopefully Botswana can adopt the same and harness the benefits.

An accomplishment worth popping the cork on a bottle of carbonated bubbles is that individually in traditional Botswana, we have always incorporated renewables, i.e. the use of windmills to generate energy to draw water out boreholes, solar power lights to illuminate our homes and biogas generated from composite material used in cooking. Fast forward to today, there is a growing adoption of solar rooftop installation for both residential homes and commercial properties, truly its marvelously exciting not only because it is healthier, safer and cheaper but also because there are remarkable feats of engineering coming our way.  Which begs the question of what are we doing to become part of the transition?

As a pan-African bank, Rand Merchant Bank has a full scope of understanding of challenges that Independent Power Producers are faced with. With a team of highly skilled infrastructure finance experts, we pride ourselves in having executed large scale renewable projects across the region that have not only illuminated homes but have supported key industries to drive economic growth in multiple jurisdictions. In Botswana we continue to walk the journey with several IPPs through provision of tailor-made solutions to manage currency and operational risk in a rapidly changing market. With RMB, IPPs’ vision is made possible with the Bank as the lead arranger, funder and provider of a comprehensive debt package as well as cover any hedging requirements that may be required for their projects. We maintain traditional values whilst delivering innovative ideas.

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