Crisis highlights need for flexible energy systems
• Says with government funds under strain, PPPs will be the way to go
The Covid-19 crisis has highlighted the need for Africa to develop flexible energy systems in which renewables and decentralised technologies play a far larger role, Standard Bank Group has reported after finding a gap in the market.
The Bank says the pandemic has led to a global decline in electricity demand as commercial and industrial activity slows and people work from home. In South Africa, electricity demand reduced by as much as 7,500MW on average in March and April, the height of the national lockdown. In response, power stations were taken out of service to keep the system stable.
Head of Power at Standard Bank, Rentia Tonder, noted that they have, however, realised that demand is recovering in most African states as economies reopen. “Considering that numerous African countries entered the crisis with a shortfall of energy supply, governments will need to procure more power in the months ahead,” she said.
Tonder said the fastest and most cost-effective way to address the supply gap is through more flexible technologies and renewable power projects, meaning the crisis may prompt African nations to deploy renewables at a much faster rate than before. “Given that renewables are currently the most economically viable source of energy in most countries, we expect that the Covid-19 crisis will accelerate the pace at which these technologies are adopted on the continent, with hydro, wind and solar being the most attractive technologies,” Tonder observed.
According to the International Energy Agency (IEA), renewables are the only energy source set for growth in demand in 2020, with solar and wind generators best placed to weather the storm due to cost competitiveness and the flexibility they offer - renewables are able to adjust more easily to fluctuations in demand.
According to Tonder, the renewables segment is proving its resilience in the face of a crisis, and this further strengthens the case for economic recovery strategies to be underpinned by investments in renewable energy. “Increasing the participation of renewable technologies in the energy mix will also ensure a more flexible system in general,” she emphasised.
While renewable energy units have historically only been able to provide an intermittent supply of electricity, Standard Bank says they will become increasingly reliable, influenced by rapid advancements in storage technologies, which are becoming more affordable. For the time being, it is reported that there are no utility-scale battery storage facilities in Africa.
With electricity demand recovering, South Africa’s Department of Mineral Resources and Energy recently announced that it was preparing bid documentation for emergency procurement of 2,000MW of generation capacity. Given the time constraints, renewables may be best suited to plug the gap, and there are signs that these projects could include investments in storage technologies, which would further enhance the flexibility of these systems. Gas to power projects will also be able to provide dispatchable power solutions, complementing renewables.
In countries such as Nigeria where the electricity self-generation market is 55 percent larger than the main grid, Standard Bank says they expect that countries will start to seriously consider pivoting to decentralised renewable solutions as oil subsidies near an end, so as to decrease the supply shortfall and better service the large and geographically fragmented population.
This, they explain, is because African nations are well placed to implement a ‘green stimulus’ strategy as the European Union and other markets have done. “This approach would increase the potential to secure additional green funding for the continent’s Covid-19 recovery measures,” said Greg Fyfe, Head of Energy and Infrastructure Finance at Standard Bank.
Fyfe noted that with government finances under strain amid the pandemic, public-private partnerships will be essential for the energy infrastructure programme to be a success. Banks will need to work closely with governments, development finance institutions and other financiers to mobilise funds and expertise. “Given the heightened focus on environmental, social and governance (ESG) factors, as well as sustainability, we would also expect global investors and financiers to continue to pursue opportunities in the renewables space,” he added.
Standard Bank is of the view that the addition of more modular, decentralised energy solutions will diversify current technology mixes and ensure greater flexibility of supply going forward.