PV Talk: Pioneering new solar business models for Africa

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Solar4Africa is a new platform set up to expedite the deployment of on- and off-grid commercial PV projects in Southern and East Africa through the benefits of standardisation. James Irons, MD of parent company NVI Energy, spoke to PV Tech about how the model works and the potential he sees for growth in Africa’s commercial solar sector.

James Irons, MD of Solar4Africa

What’s the thinking behind Solar4Africa and its approach?
NVI started in 2011 to develop renewable energy solutions for private sector businesses in Africa. We quickly found out that developing these projects on an individual basis just doesn't really work financially. The soft costs involved, the bespoke legal agreements you've got to go through each time – it's a lengthy and costly process to fund these things individually. So we then came up with a model that's basically a platform connecting installers, funders and power users that can make a lot of these private sector projects work. The overall goal is to create projects that in aggregate are now fundable, whereas individually they were very hard to raise finance for. What's key to the idea is the standardisation of agreements for the project.

Why is standardisation so important?
The ultimate goal is to create projects that have an identical look and feel from a financier's perspective. So the same legal agreements are quite an important aspect. These are expensive documents, especially if you want to get large financiers involved – they want all the parties vetted, they want to know local criteria involved, so you normally have to go through two, three legal counsels to get there. We try to minimise the time that's involved in reviewing a project from the financier's perspective.

Secondly operating and maintaining these projects is key. To minimise those costs, we try to standardise on technology; we have a set of technologies we'll use, for both off-grid and on-grid. So the standardisation allows us to lower the soft cost, achieve some price advantage through the aggregation of equipment – we've brought in a couple of suppliers now who've given us very aggressive pricing.

Who do you partner with on your projects?
We separate them into two buckets. We have what we call design-and-install companies, and these will usually be local entities. And for those partners, we would take them on, but be quite involved from the design review perspective. So the cost structure we apply to that kind of partner is slightly higher. But what we do is uplift a local installer to the same level as an EPC contractor would be, giving them the support with procurement and the financing plans that they now have available. The advantage we get is their network in terms of being able to access local projects. We also involve EPC contractors – these are larger firms and our pricing structure through to them is slightly different, because a lot more of the work can be done by them without much of our support.

What sort of options do you offer?
We have three plans that are driven by ownership. We've identified that usually a private off-taker who's now convinced that solar is cheaper would want to finance it in three different ways: they'd want to buy it themselves, they'd want to finance it through some kind of finance lease, or they'd want to never own it and just buy the power. And the three plans are there to cater to those three variants.

The ‘development services’ option is really a turnkey approach – we pass on all the benefits of the platform down to the end user and through to the technical partner. We then enter into a three- to five-year maintenance plan; most of our margin is made in the maintenance plan. And the client is given quite a competitive purchase price. The ‘pay-by-solar’ option is a sort of in-between, where we get some of the upfront from the client initially, and then we'd sign about a 10-year agreement, which is based on power production. The big advantage under this is that the client receives a lot of the tax benefits. And then the power purchase agreement arrangement would be very similar to what you'd be familiar with in the UK.

You’ve just completed a PV project providing power for a safari camp in Kenya – which of the three plans was this?
Tortilis Camp was a PPA – we find that a lot of these off-grid sites tend to favour the PPA approach. The platform is fairly new, but we've now completed one of each of the plans. So it's worked out pretty well – it shows you've got to cater to different needs in the market.

A 46kW PV array at the Tortilis safari camp in Kenya, one of the first projects completed via the Solar4Africa platform. Image: Solar4Africa.

Is there an optimal project size or range of sizes you’re looking to back?
The market we define is the 200kW to 5MW market. And anything in between – usually that ends up being about a 500kW type of system. We're getting a few of those come through now.

What is the potential size of the market for these projects in your target regions? 
This year we're looking to do about 4MW – there is potential to do a lot more than that, and there's a lot of those projects that may not come through. It is still such a new space that there's a major amount of education we have to do to the end user – what is solar? These sorts of questions; it's really basic discussions we often have with the potential clients. We need to be realistic in terms of the markets at the moment. The commercial/industrial space in Southern and East Africa is relatively small still, if you think about what's been done and what we're doing. Even with the small amount of projects we've done, we've captured a fairly large percentage of the market. But where the market is going, I think we'd like to be a large percentage of that market.

There’s obviously a huge amount of potential for commercial solar in Africa. What are your hopes for how it will take off, and what will be the catalyst for that happening?
I think technology could play a huge role; storage could be a serious game changer. The only limitation that could affect us would be new legislation that would impact whether or not we could connect these kinds of systems to the grid. The hope for feed-in tariffs and other government subsidies, our business has never been, and I don't think we'd ever like to be, very reliant on those kinds of schemes. So the future volume is going to be driven purely by a commercial rationale, and that could be increasing prices of grid power and/or the adoption of cheaper storage alternatives.

Are you looking beyond East Africa? 
West Africa is an area we're getting a lot of inquiries about. We are stopped from accessing or taking full potential of that market purely in terms of our resources. It is on the horizon, but it’s parked for now, so that when we do enter that market, we know our service will be effective and professional.

You’re speaking at Solar Energy East Africa next week. What will you be talking about?
I'm doing a piece on alternative business models for the financing of solar projects, educating the market on what we offer and how we do it. It's a lot harder than it sounds, but it's a very exciting space to be in – it's a market that has huge potential, great solar resources, it is a very early stage market. But we are putting every bit of energy we have into growing the model.

Solar Energy East Africa will be held in Nairobi, Kenya, on 10-11 March. Organised by PV Tech's publisher, Solar Media, the event will feature high-profile speakers from industry and government. To find out more on the event, including details on last-minute bookings, click here.

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