Authors: Christophe Lefort and Mathias Dantin
The following article was first published in the May 2021 edition of The Lawyer – The In-House Issue
According to the International Renewable Energy Agency, renewable energy capacity in Africa could reach 310GW by 2030, which would make Africa the world’s top producer of green energy. If this prediction comes true, it would be the result of a strongly proactive political approach that was already visible in 2015, when member states of the West African Monetary and Economic Union (also known under the French acronym UEMOA) set a goal to produce 82 per cent of their energy from renewable sources by 2030.
The rapid increase in energy production capacity (whether from renewables or other energy sources) is exacerbating existing power grid concerns, such as network congestion, inability to extract the totality of the power produced by independent power producers (IPPs) for buyers using grids, and lack of noticeable improvement during peak consumption periods. The intermittent nature of renewables adds a further challenge.
Energy storage is key for integrating renewables onto the grid – however, there is currently no applicable regulatory framework
With the backing of the World Bank and in coordination with the concerned governmental authorities, the West African Power Pool is looking into launching calls for tender for the development of large-scale regional solar parks with storage capacity in Burkina Faso and Mali to help to smooth the flow of solar energy and redirect some of the power produced during the day to evening peak hours.
This approach of combining renewable energy production with storage can be used immediately by private operators in any country that allows private power generation, since producers can both inject and withdraw power from the grid. However, the regulatory or contractual framework must address the need to encourage producers to use the power plant’s storage system (especially during periods of peak demand) so that they are better able to meet energy demand from the market. In particular, energy storage has a pivotal role to play in the deployment of mini-grids by enabling supply and demand optimisation on a small scale, in parallel with the development of self-sufficient energy solutions (including, for example, residential solar PV systems).
Energy storage can also play a key part in grid management (reduction in voltage and frequency deviations, capacity mechanisms to safeguard the security of electricity supply during peak periods, management of surplus energy production, etc, thereby reducing the need for costly grid infrastructure investment), usually via services agreements entered into with the local transport system operator.
The involvement of private sector actors, notably via services agreements, could help to address some of the challenges that we have identified in the development of energy storage capacity in sub-Saharan Africa.
In most jurisdictions, there is no clearly defined regulatory framework governing the role of energy storage operators, including the related taxes/fees for use of the grid. The existing rules relate to energy production and trigger the application of public procurement regulations (i.e. PPPs and concessions).
Investment costs (and related financial fees) form the largest component of expenditure in the implementation of energy storage, particularly when compared to the low operating costs. The scale of the installations, the duration of the services agreements and the level of services required will therefore have an impact on investment costs and on the level of attractiveness for private investors.
In addition, as for other types of infrastructure investment in sub-Saharan Africa, relevant private sector actors are sensitive to key risks such as the non-payment risk from national companies, political risk, currency risk and security risk.
As a result, there is an urgent need to define a new contractual and regulatory framework which brings together private sector energy storage developers and operators with other industry players in order to optimise power grid usage and efficiency.
For this purpose, we can flag that the International Finance Corporation is working to finalise a roadmap for integrating independent energy storage systems in Burkina Faso.
We are keen to speak with you about how we can help you achieve your strategic goals in the African renewable energy space. For more information, please contact the lawyers below or your usual Herbert Smith Freehills contact: