Trends in Solar Energy in Africa Right Now

Solar power project development is a multi-stage process involving a multidisciplinary team of experts. First the project developer identifies an electricity market that offers sufficient risk-reward opportunities, then specifies the site where the project will be built and secures land tenure for that site, then conducts two separate rounds of technical-financial assessments (pre-feasibility and feasibility studies), obtains all necessary permits and licences, secures power purchase and feed-in agreements, arranges financing, and selects a team to design and build the project (usually an EPC contractor), oversee the construction of the project, and carry out testing and operation and maintenance.

As the project moves from one stage to the next, the technical financial assessment becomes more detailed until the final design is completed and construction begins PV project development steps depend on site-specific parameters and developer priorities, risk appetite, regulatory requirements and the type of financing support mechanism (i.e. above-market interest rates/subsidies or tax credits) in a given market. The development steps can be broadly divided into four stages as follows.

I. Concept development and site identification

The concept development phase involves the identification of site-specific investment opportunities and the development of a project development strategy. The concept development phase is an iterative process to develop an understanding of the risks, project-specific costs and benefits that will enable an assessment of the project economics. The developer’s goal is to obtain enough information to make an informed decision about the likelihood that the project can proceed. If the project looks promising, the developer is likely to decide to move on to the next stage.

This stage involves confirming the following: identification of suitable sites with good solar resources, land available for purchase or long-term lease, favourable grid access (distance, capacity and access policies) and no environmental or social issues; whether the state and the electricity sector offer sufficient risk-reward benefits to private developers; regulatory support and tariffs, in particular the duration of any solar incentives; availability of funding to undertake a feasibility assessment; identification of offtakers and available infrastructure to determine the project’s generation capacity.

ii. pre-feasibility/feasibility study stage

The purpose of a pre-feasibility study is to develop a preliminary project design and investment requirements in order to further assess the financial viability of the project. This assessment involves more detail than the previous stage and determines whether to proceed with the project and invest additional funds. Given the uncertainty of the data available at this stage, the viability of the project will be determined based on a minimum financial threshold rate.

The scope of this phase is outlined as follows: assessment of the site and boundary area; completion of the conceptual design, including consideration of technology options and their financial implications; approximate costs of land, equipment, delivery, construction and operation and projected revenues; determination of expected tariffs and review of expected terms/conditions of the PPA in the relevant market; further financial analysis; cost and likelihood of achieving grid connection within a defined timeframe; completion of an assessment of the current and assessment of the potential future regulatory environment; initial concept of the project legal/corporate structure; solutions to project challenges; identification of licensing requirements/costs; preliminary project timeline/workflow showing key activity intervals for drafting.

The feasibility phase will build on the work undertaken in the pre-feasibility phase by assessing in more detail using site-specific data (e.g. solar resource measurements) and should consider in more detail any constraints previously identified. If multiple project locations are being assessed, a preferred location will need to be selected. The purpose of the feasibility study is to provide more detailed information on the potential project design, investment requirements and financing and implementation plans. If the results of the study are favourable, the developer should be prepared to commit more resources to take the project forward to the financing stage.

The typical scope of a pre-feasibility study is outlined as follows: detailed site plan; assessment of solar resources, including shading assessment; detailed review of environmental and social factors; detailed review of required permits and licences, assessment of capital expenditure on technology and supplier options; pre-project application discussions with relevant agencies; completion of initial consultations with key stakeholders, including the community; feed-in assessment is completed; forecast electricity production determined; further assessment of expected tariff; financial analysis; preliminary financing plan; project implementation plan developed; option agreement for land use rights (if required) secured; project and project company business structure assessed and conceptualised.

III. Permitting, financing and contracts

Following the feasibility stage, assuming the project remains financially viable, the project will proceed to the next stage. This includes obtaining the final licence, obtaining project financing and pre-implementation activities (commercial contracts). The timing and sequence of this stage varies from project to project, but this stage typically includes the following activities: involvement of the relevant communities or stakeholders; preparation and submission of relevant permit and licence applications and associated documentation for the proposed project; environmental and social assessment (agreed in consultation with the licensing authority and other statutory bodies), which may include a full environmental and social impact assessment (ESIA);

Preparation and submission of grid connection applications; review of designs and any permit/consent conditions; modification of designs or consents as required; decisions on financing methods (e.g. sources and proportions of equity and debt, including construction financing); contracting strategy decisions (i.e. EPC contracts or multi-contracts) and selection and contract negotiations; preparation of PPA documentation and final negotiations; preparation of O&M concepts and related contracts;

Signing of grid interconnection agreements with grid operators or relevant agencies; preparation of detailed bankable financial models covering the entire life cycle of the plant; completion of project risk analysis; finalisation of all land, surface area and tenure agreements and conversion to long-term leases or easements as required land agreement options; finalisation of detailed project implementation plans.

iv. engineering, construction and commercial operations

The EPC contract is most commonly used for the development of PV power projects, where the EPC contractor is responsible for the entire project. This phase requires the EPC contractor to identify the solar resource, complete the detailed design of the PV project, specify its power generation capacity, procure equipment according to specifications agreed with the developer, construct the PV plant, conduct acceptance tests and hand over the plant to the developer/operator for commercial operation.