Pre-feasibility study into solar energy rollout in Namibia

Namibia Gas-to-Solar Strategy: Executive summary

Background

Africa New Energies (ANE) was invited by the Namibian Government to assess the viability of setting up a 250 MW concentrated solar power plant (CSP) in Namibia. As Namibia currently imports over 60% of its electricity from neighbours with acute supply shortages, it is looking to secure local supply. With the world’s highest levels of solar irradiation, along with one of the world’s lowest population density, the government is keen to embrace solar and off-grid micro-generation.

Brief

The African Innovation Fund (AIF) tasked ANE with assessing the feasibility of:

  1. A 250 MW CSP plant
  2. A 250 MW utility-scale photovoltaic (PV) solar power plant
  3. A national residential PV micro-generation scheme
  4. A national roll-out of solar water heaters
  5. Energy saving interventions that could be funded by carbon credits
  6. Other carbon-saving technologies that have the potential to be financially viable

The task was to find a financing mechanism that would deliver required investor returns, while at the same time not result in increased electricity inflation, using cheaper interventions such as solar water heating (5 USc per KWh) to fund the CSP plant (30 USc per KWh). The AIF stipulated that the model was to be designed to be repeatable elsewhere in Africa, especially in Angola.

Overview of the Namibian electricity market

The key market participants are the state-owned utility NamPower, the operator of the generation and transmission assets. NamPower paid an average of 4 USc per KWh for electricity imports in 2010 and less for internal generation, thanks to a historically advantageous agreement with Eskom of South Africa and a more recently one with ZESA of Zimbabwe. NamPower charges regional electricity distributors (REDs) an average of 7 USc per kWh, who in turn charge residential customers an average of 15 USc.

As NamPower inherited its generation assets for $1 at Independence in 1991, it has accumulated large net cash reserves – equivalent to 18 months of revenue. Electricity inflation has averaged at 15% above inflation over the last three years and is forecast to remain at these levels for the next three. Such electricity price rises are politically unsustainable, with over half of Windhoek’s residential customers in arrears. The mining sector, which uses a large minority of Namibia’s electricity, indicated that they would not contribute towards renewable energy feed-in-tariffs.

They will not buy directly from renewables companies, as it could harm their relationship with NamPower on whom they depend for cheap electricity.

Technology Technical feasibility Financial highlights Feasibility
250 MW
Concentrated Solar Power (CSP) Utility Scale Plant
Needs 6 hours of storage. Single cycle thermal efficiency 37%.

Uses 3.6 litres of water per KWh, which restricts it to 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.
250 MW
Photovoltaic (PV)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 Better for farms and small businesses than residential, due to greater daytime demands. Storage possible as are hybrids where wind and solar microgeneration 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 on-grid, as is diesel genset replacement – which has an average cost of 28 USc per KWh. 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 microgeneration 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 on-grid, as is diesel genset replacement – which has an average cost of 28 USc per KWh Financially feasible with carbon bank: Possible to finance as Bolton 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 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 be installed through a bolt-on mortgage.
Dry cooled gas-fired combined cycle power station with gradual solar conversion Dependent on finding local inexpensive 500 bscf natural gas deposit. Water consumption zero. 85% capacity factor. 180 MW gas turbine, with 70 MW Rankin cycle using waste heat. Capex including gas processing = $2.00 per watt, with 250MW plant delivering almost 2TWh per year. Investor US$ returns =35% with 5 year exit. Raises $6 billion over 40 year life for revolving carbon fund. Financially feasible with international financing package – use of MIGA, debt equity ratio 70/30. FX exposures can be hedged over 5 year debt exposure period.

Key findings and recommendations

  1. The key to a national solar programme lies in the building of a combined cycle natural gas-fired plant on a stranded natural gas source. 600 billion cubic feet of feedstock will be sufficient to run a 250 MW plant for 40 years – delivering three times the volume of a 250MW 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. But it would cost $885 m to build, which is too expensive for Namibia.
  2. 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.
  3. 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 base load. 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).
  4. The cross-subsidy model outlined in the original proposal to fund a utility-scale solar plant will not be politically possible as Namibia cannot afford to promulgate renewable energy feed-in-tariffs in the way that Europe has – 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.
  5. 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.
  6. 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.

ANE’s solution – overview

The ANE development technique was applied to Namibia to produce a carbon-light, cost-effective solution, using stranded natural gas, and replacing it with solar over time by:

  • Identifying potential stranded natural gas sites – 6 were found with potentially sufficient reserves for a 250 MW plant, close enough to transmission lines.
  • Proving the reserve using emerging “Surface Exploration” technologies such as “Airborne Transient Pulse A-EM Surveys” “Passive Ground Tellurics,” “Windowed Radiometric Surveys” and geochemical sampling as well as low-cost exploration well drilling techniques.1
  • Using the natural gas in a combined cycle gas plant, which will produce over 50% of Namibia’s needs in 2013, replacing 80% of high risk regional electricity imports.
  • Swapping foreign ownership, by enabling a consortium of local owners to give international investors a year five exit, with a low-risk leveraged buy-out fund.
  • Extending access to electricity using solar micro-generation – starting with a Universal Basic Electricity Access Programme (U-BEAP), giving the two-thirds of the population with no access to electricity, access to LED lighting, ability to charge a mobile phone and listen to a radio, followed by a national solar water heater roll-out, insulation and energy saving programme and finally solar PV residential roofs.
  • Adding to plant capacity with concentrated solar (integrated solar thermal) and utility-scale photovoltaics with battery storage to supply peak periods.

With a foreign investment of just 4% of GDP, this strategy will achieve the following:

  • Grid-wide generation cost reduction of 20% in the first year of plant operation.
  • 100% of the population getting basic access to electricity within two years.
  • Immediate savings of 500k tonnes of carbon emissions per year with each $1 of foreign investment will result in carbon re-investment of $5.50 – delivering in 100% electricity access within 25 years, where 70% of households derive more than 50% of their energy needs from solar.
  • ANE’s development strategy is replicable throughout Africa, which has a surplus of flared and stranded natural gas: For instance, converting 50% of Angolan and Nigerian flared natural gas will increase electricity production by 350% increasing each GDP by 30%.
  • With a foreign investment of just 4% of GDP, this strategy will achieve the following:
  • Grid-wide generation cost reduction of 20% in the first year of plant operation.
  • 100% of the population getting basic access to electricity within two years.

Immediate savings of 500k tonnes of carbon emissions per year with each $1 of foreign investment will result in carbon re-investment of $5.50 – delivering in 100% electricity access within 25 years, where 70% of households derive more than 50% of their energy needs from solar.

 


Leave a Reply

Your email address will not be published. Required fields are marked *