During the past two decades, African countries have initiated and concluded large electrification projects on borrowed funds, however the development has been skewed – less money went in augmentation of energy.
Hurdles for solar projects are seen on pricing side and the project ownership. Most of the Sub Saharan Countries have abundant land for solar projects (many countries practice state ownership of land) therefore unlike India, land for project is not the issue, unless one draws a cost-benefit analysis of land usage for solar power vis-à-vis crop cultivation. Both capital and technology are scare in Sub Saharan Africa. There are no authentic solar project capital cost figures available in the region, however, the on-going solar projects in various African countries are being financed by borrowed funds. Multilateral and bilateral funding has an in-built grant element rendering the cost of funds to .85 – 1.0 percent over a period of 20 years or more. This benefit is available to government owned and sponsored projects only. With the domestic interest rates ranging between 14-21 percent, dearth of local entrepreneurship and political risk premium running high, no private sector project or PPP project seem to be financially viable.
Technology, Operation and Management (O & M) cost and evacuation cost are critical costs for the success of solar project. With no manufacturing base, whole of the project will be imported into Africa. Except South Africa, none of the Sub Saharan African country enjoys a kind of manufacturing base and economies of scale to produce, operate and manage a solar project. Therefore, the project contractor is forced to build such associated project costs into his price bid and carry out O & M activities at a premium after project commissioning. Often, evacuation infrastructure to be set up by the Utility or the project owner is delayed due to lack of resources leading to project time and cost overrun. Summing up all the financial costs and the local purchasing power of the consumer, it is difficult to assume that a Sub Saharan African solar project can break even within 8-9 years of commissioning.
Read full article: Financial Express