Weekend Read: Consolidating growth in Africa

From pv magazine 11/23

As high interest rates, cost of living crises, and the financial disruption caused by war in Europe eat into aid budgets, expansion of Africa’s energy networks is increasingly falling to small solar arrays, with C&I systems leading the way.

The previous emphasis on big solar projects funded by developed countries is making way for a commercial solar revolution as shopkeepers and businesses of all sizes grow frustrated with the intermittent energy supplied by aging grids and debt-saddled utilities.

The sudden scale of the market opening up for C&I solar installers in Africa has driven a wave of merger and acquisition (M&A) activity as solar companies attempt to keep pace with the opportunities in front of them.

In December 2022, oil major Shell completed its acquisition of West African commercial solar installer Daystar Power Group. The latter stated the move would enable it to expand into East Africa and southern Africa with the aim of having 400 MW of generation capacity by 2025.

Major mergers

The Shell deal was first announced in September 2022, the same month plans emerged for the merger of C&I solar companies Starsight Energy and SolarAfrica Energy. With Starsight having operations in Nigeria, Ghana, and Kenya, and SolarAfrica based in the south of the continent, the move was credited with creating “the first truly pan-African renewable energy services provider.” The new business would have 220 MW of installed generation capacity, 40 MWh of battery storage, and a gigawatt-plus project pipeline, according to the press release announcing the deal.

When pv magazine spoke to Hery-Zo Rajaobelina, general manager of Madagascan company GC Solar SA, about the trends emerging in the C&I solar scene, the enquiry proved a timely one. Rajaobelina revealed that GC Solar SA's commercial solar business was about to merge with Anka Madagascar, a female-led company that specializes in mini-grids, founded in 2008.

Rajaobelina explained the merger, currently at the due diligence stage and set to be finalized in the middle of next year, will bring obvious benefits to both parties. “We know that the position between the two companies is completely different because we’re specialized in C&I,” said Rajaobelina. “It seems the better way to address the market because the mini-grid operator didn’t have EPC [engineering, procurement, and construction] expertise in its DNA. For us, it’s the opportunity to expand our market. We can act as an EPC for mini-grids and their customers.”

Surging demand

It is a repeating pattern, noted Adam Fitzwilliam, director of Spark Energy Services. Spark finances C&I renewables systems and energy efficiency projects for businesses in sub-Saharan Africa and is part of London-based private climate and impact fund manager Camco. Fitzwilliam agreed the market is changing as the scale of C&I solar demand surges.

“When the market started it was pretty fragmented,” he said. “There were a lot of smaller developers doing maybe 2 MW of PV. As the market matures, we’re seeing more M&A activity, acquisition of projects from developers as well as acquisition of companies and mergers. A push to attain economies of scale is driving people to buy assets.”

That fragmented nature of the business segment was one of the problems, added Rajaobelina, who said there were too many C&I providers relative to the number of clients who could potentially afford rooftop PV.

Fitzwilliam discussed the example of Daystar, which had grown organically in its home West African markets but needed Shell’s velocity to “get to the next level.” As far as Starsight Energy is concerned, he said, “what’s interesting is it seems to be going along the merger route and partnering with regional experts. They’re bringing in regional competency. Each [African] market is different and has its own nuances. Companies and individuals that understand the individual territory are important.”

Intermittent supply

The bottom line for C&I solar in Africa is a desperate need for reliable electricity. The financial travails of heavily indebted state-owned utilities is a story that has emerged again and again across the continent and the result is that manufacturers and shops, from Nigeria to Madagascar to South Africa can be left without power for hours at a time.

South Africa is a prime example. Cape Town councilor Beverley van Reenen, the city’s mayoral committee member for energy, told pv magazine back in June that the nation’s second city is planning to add 650 MW in independent, non-utility power generation capacity within five years. Cape Town will use independent power producers (IPPs), residential and C&I arrays, third-party dispatchable power plants, and its own solar projects as part of a 1 GW plan to supplement the electricity sourced from cash-strapped state utility Eskom.

Wealthier economies, including South Africa and North African nations, can attract IPPs because of their ability to offer guarantees of payment for the electricity produced, said Madagascan installer Rajaobelina. Elsewhere in sub-Saharan Africa, companies still have the same electricity needs but in the absence of big-solar initiatives, individual businesses are filling the void, often with leasing offers that mean little or no upfront capital cost is required for solar rooftops that, alongside battery storage, can guarantee power when needed.

Hybrid systems

“Power security is definitely a trend we are seeing and C&I for us is not always just solar, we get a lot of requests for solar-plus-battery systems, to work alongside diesel power sources in hybrid systems,” said Spark's Fitzwilliam. “Energy efficiency is another big area for us with projects to make industrial production more energy efficient.”

It is not just security of supply that is driving C&I solar demand, however.

“Power quality is not getting better and is, arguably, getting worse,” said Fitzwilliam. “Utilities are having to increase their prices to recoup some of their Covid and currency devaluation losses.”

It is a view echoed by Rajaobelina who, when asked why his clients typically express a desire for solar, responded, “Because of rising tariffs, because of the unreliability of the public grid, and because of CSR politics.”

The latter point is noteworthy. At the same time as the flow of clean energy finance from the developed world has ebbed in recent years, the corporate social responsibility (CSR) requirements laid down by household brands in Europe are having an effect on suppliers, not least in sub-Saharan Africa. Garment manufacturers and the like are having to do even more with less.

With leased solar rooftop arrays available, that financial double whammy is opening up opportunities for C&I installers big enough to meet the resulting demand.

“Most of our customers are free-zone factories,” said Rajaobelina. “They make products for [English department store] M&S, [French luxury brand stable] LVMH and similar companies which want their factory sub-contractors and their supply chains to reduce their carbon emissions for CSR responsibility.”

Utility travails

While African state utilities are struggling under mountains of debt – a situation that was already evident before being exacerbated by government orders restricting their ability to cut off customers during the pandemic – the opposite is true when it comes to price pressures for independent renewables suppliers. Fitzwilliam said the price of solar panels, inverters, and batteries is generally following a downward trend, giving business the option of taking reliable, clean electricity supply into their own hands.

That is welcome news for Rajaobelina, who was caught by the spike in panel prices and shipment costs that occurred as demand rebounded in the wake of easing pandemic restrictions in 2021. He pointed out, however, that supply chains are still not back to their pre-pandemic state.

“Now, the price of solar panels has decreased again but if we want to buy from JinkoSolar, or JA Solar, or Suntech, the Chinese companies cannot maintain their price above one month, sometimes two weeks,” he said. “If we wait two weeks, it may rise again. We have acquaintances at Total Energy and Engie and, if they want to buy 200 MW or a gigawatt of solar panels, they can’t get a price for a year ahead. It’s impossible to get a price one year, three months, or two months ahead.”

The situation for inverters can also be difficult. Rajaobelina said his company made a 100% payment for SMA solar components in July 2022 and delivery was also delayed.

Big solar

Fitzwilliam believes the lack of large-scale, often publicly and donor-funded solar projects in Africa will ease once a business model can be found that will solve the conundrum caused by the threat of non-payment. “We’re just trying to figure out the right structure and the risk management solutions,” he said.

The Spark Energy director told pv magazine that governments are also increasingly acknowledging the role private sector companies can play in filling in the gaps in energy provision. He also emphasized the need to avoid considering public utilities and privately-installed off-grid solar providers as opponents.

“There will always be a need for the grid,” he said. “One of the frustrations of working in the sector is the usual dichotomy: C&I versus the grid. The two can coexist pretty well.”

While donor funds and African governments grapple with how to make big solar attractive to backers again, the surge of demand for PV that is being driven by companies which have lost patience with their utilities is set to continue. That appears likely to drive more consolidation among the sector and could change the face of African clean energy.

“A load of money has been raised to deploy C&I solar in the next five years,” said Fitzwilliam. “My gut feeling is we’ll see another step change in C&I provision in the next five years, particularly in some of the larger markets which have poor power quality, such as South Africa and Nigeria. But also, we’ll see development in some of the smaller markets, driven by smaller developers, including those formerly focused on mini-grids and rural electrification, which look to increase profitability.”