Pre-feasibility study into solar energy rollout in Namibia
14. Conclusion and recommendations
The African Innovation Foundation awarded ANE a grant to create a solar strategy for Namibia. In this study, a number of technologies and financing strategies were evaluated to arrive at the findings presented. The key finding was the a cross-subsidisation model, where cheaper solar water heating, household energy saving initiatives and micro-generation of PV subsidising a utility-scale roll-out of Concentrated Solar power and Solar PV Utility-Scale Farms, was not feasible.
The use of Natural Gas to reduce initial capital costs and gradually replacing the natural gas with solar over a two-decade time period, was found to achieve foreign equity required returns, while saving NamPower on their cost of electricity. The structure also enabled a locally owned buy-out fund and a carbon trust to be created to finance the solar replacement and a nation-wide solar generation programme.
|Technology||Technical feasibility||Financial highlights||Feasibility|
|50 MW Concentrated Solar Power (CSP) Utility Scale Plant||Needs 6 hours of storage. Single cycle thermal efficiency only 37%. Uses 3.6 litres of water per KWh, which restricts it to just three areas||CapEx US$6.00 per watt, expected production 200 GWh. Levelised electricity cost (LEC) of US$0.30 per KWh based on WACC of 12%.||Not financially feasible. It is not in NamPower’s financial interests to agree to replace an 7 USc Eskom imported supply with 30 USc per KWh.|
|50 MW Photovoltaic Utility Scale Plant||Only technically feasible with at least three hours of storage.Round-trip losses are 30% on stored electricity.||Capital cost US$2.50 for PV only, increasing to US$5.00 with storage. Will generate 75 GWh LEC = 33 USc per kWh.||Not financially feasible, and also cannot hedge FX risks, as PPA will be denominated in NA$, with debt in US$.|
|Solar Water Heating with carbon funded insurance and maintenance||Already 2,000 homes have it in Namibia. Excellent local installer base. Stores energy to save during morning and evening peaks.
|A 100 litre system’s target price is US$1,000, which will save 1,000 KWh per year costing 5 USc per KWh – 1/3rd of current residential rate.||Financially feasible with carbon bank. Saves customer 2/3rd of current cost on 30% of their electricity bill. Needs microfinancing innovation.|
|Residential and small business on‑roof PV||Better for farms and small businesses than residential, due to greater daytime demands. Storage possible as are hybrids where wind and solar micro-generation are integrated with batteries.||Cost of 15 USc per KWh comparable to retail electricity, but storage adds 20 USc per KWh. Off grid is more competitive than ongrid, as is diesel genset replacement – which has an average cost of 28 USc per KWh.||Financially feasible with carbon bank. Possible to finance as bolt-on mortgage, especially with new builds. Big opportunity for carbon bank, but does need theft‑proofing on PV systems.|
|Carbon funded energy saving interventions||Simple technologies in households such as insulation, solar cookers and LED lighting. Insulation and lighting require not changes in customer behaviour, while cookers do.||Most systems recover household energy costs in less than 6 months. E.g. solar cooker costs NA$500 after carbon and saves NA$8 per day for wood in peri-urban areas – payback 12 weeks.||Financially feasible with carbon bank. Insulation 100% carbon financed, solar cookers 60% carbon financed. LEDs can installed through a bolt-on mortgage.|
Key findings and recommendations
- The key to a national solar programme lies in the building of a combined cycle natural fired plant on a stranded natural gas source.
600 billion cubic feet of feedstock will be sufficient to run a 300 MW plant for 40 years – delivering three times the volume of a 250 MW CSP plant – at one third of the capex. This new capacity will replace 80% of imports at just 7 cents per KWh – roughly the wholesale price NamPower will pay Eskom in 2012.
- The combined cycle gas plant can gradually be weaned off gas, with the thermal input replaced by CSP over a 20 year period.
After foreign debt has been repaid with international equity investors exiting their investment, the $6 billion of free cash generated over the remaining 35-year life of the plant, will be deployed to a revolving carbon fund, which will invest profits in micro-generation and energy saving.
- A national solar water heating programme is vitally needed by all stakeholders.
Water tends to be heated by residential customers during peak demand times in the morning and early evenings. This electricity can cost NamPower 10-20 times that of baseload. More importantly, solar water heating will reduce household electricity demand by 30% at one third of the cost of the current electricity retail price. (5 USc per KWh vs. 15 USc).
- The cross-subsidy model proposed in the original proposal to fund utility-scale solar will not be politically possible as Namibia cannot afford to promulgate renewable energy feed-in-tariffs in the way that Europe and South Africa have.
- Residential customers are struggling to pay bills at current levels, so will need interventions, such as carbon-funded insulation and solar water heaters to reduce the cost from current unaffordable levels. Just 80,000 of the 350,000 households in Namibia have access to electricity and almost half cannot pay for it at current prices. Forecast electricity price increases of 15% above inflation will hamper rural and peri-urban electrification.
- Off-grid solar will become increasing financially attractive
Especially if a low-cost storage solution can be found. Off-grid solar applications compete with higher residential rates of 15 USc per KWh vs generation rates of 4 USc per KWh and also help the customer to avoid the large premium needed to recover grid access costs in remote areas. NamPower will welcome a large-scale roll-out of off-grid solar, as they are seldom able to recover transmission investment into low population density areas.
- There is an urgent need to use low-carbon interventions to support the energy needs of informal settlements and the rural poor. Namibia has 50% unemployment with half of the population subsisting in rural areas where less than 1% of the land is arable. Solar can play an important role in providing heating for these people in the form of solar cookers, largely paid for by carbon credits. Improved insulation can be funded 100% by securitisation of carbon credits.
Long-term benefits to Namibia
Local electricity security – the proposed 300 MW provision with 85% load factor, more than half of Namibia’s current electricity needs and the extent of the supply gap in 2013. The cost of this natural gas to solar is estimated to be less than Eskom tariffs and 20% less than alternatives.
Foreign direct investment – over US$500 million will be invested in Namibia, with a crosscommodity subsidy package to assist the country with balance of payments challenges that may result from this investment – ANE is proposing that the power purchase agreement be an inflation-linked Namibian-dollar based contract.
An export opportunity for the Namibian Power Services Sector – This use of stranded natural gas, with a carbon-fund is readily replicable – and needed throughout Africa, and Namibians, who participate in the supply of this project, will be well placed to export their skills to other African countries, virtually all of whom face supply challenges in the short and medium-term.
Universal electricity access – the first corporate social responsibility project will ensure that within two years of the plant being operational, that every Namibian household, especially those in peri-urban and rural areas, get access to light, the ability to charge a mobile phone and a radio within two years.
Local ownership of a vital asset will boost local financial institutions as they get the opportunity to finance a large-scale asset with stable, profitable cashflows, while the local ownership model will give rise to local entrepreneurs with capital to re-invest locally.
Corporate social responsibility – the carbon trust will provide finance for universal access to electricity, raising and investing over $6 billion (in 2010 US$) over the combined 40-year life of the project.