Both feed-in tariffs and competitive auctions are playing an important role in procuring on-grid renewable energy for sub-Saharan African countries.

Innovative energy solutions are needed to help address Africa’s infrastructure shortfall, which has resulted in over 600-million people on the continent still lacking access to electricity. In response, a number of countries in sub-Saharan Africa now encourage greater involvement by independent power producers (IPPs) through various renewable-energy policies and support programmes. These policies and programmes are often uniquely designed and customised for capacity needs and available resources of the region.
While one-off negotiated concessions between governments and IPPs are still common, this approach comes with many risks when not coordinated with holistic infrastructure plans and can result in long-term overpriced contracts for electricity. Fly-by-night developers may be the first to approach local government and push for a project, but government has the responsibility to compare that project to the cost of alternative procurement options and its impact on ratepayers. A more organised approach to procuring renewables is often needed to ensure the best projects are chosen transparently and built. The two most common and successful programmes enabling renewable-energy IPPs in the region to date have involved either a competitive auction with long-term power purchase agreements (PPAs) or renewable-energy feed-in-tariffs (Refits) for various generation options. These programmes come with unique pros and cons.
Refits tend to be simpler and work better for small and medium-scale projects of less than 20 MW, where the cost of a competitive auction programme is not justified. For example, Kenya has had a feed-in-tariff for several years and differentiates tariff amounts based on project capacity (typically above or below 10 MW) and resource or technology used.

Refits, however, rely on accurate cost estimates for tariffs, which can be challenging for rapidly advancing technologies like solar photovoltaic (PV). To resolve this, Uganda opted to replace its solar Refit with a competitive auction early this year to keep up with the dramatic price drops seen in the industry in recent years.
Zambia is also diversifying its energy mix and published draft Refit rules in September for small and medium-scale projects with a capacity of up to 20 MW. While most renewable-energy resources are included, the programme details have yet to be finalised. Further clarification is also needed on how the programme will integrate with other initiatives in the country, such as the World Bank’s IFC Scaling Solar Initiative (two 50 MW solar PV projects of about 50 MW, likely to be procured through a public–private partnership auction) and KfW’s potential Global Energy Transfer feed-in-tariff (likely to be a top-up to existing Refit values, as in Uganda). Nevertheless, Zambia’s President, Edgar Lungu, sounds committed to renewables, and solar, in particular, announcing his intent to procure 600 MW of solar as quickly as possible. This urgency is understandable, given the impact of an ongoing drought on hydropower output and the economic impacts of load-shedding in Zambia.

Embedded generation tariffs are another form of Refit for small-scale generation and often used as an alternative to net-metering in some countries, such as South Africa. Several municipalities in South Africa currently have an embedded generation tariff for small-scale projects of less than 1 MW. These amounts vary from municipality to municipality and are adjusted yearly with regulatory approval. South Africa’s National Energy Regulator solicited feedback in early 2015 on a consultation paper for national embedded generation regulatory rules; while the release of the final rules has been delayed, the rules are expected to be published before the end of the year.
Competitive auctions, such as South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), have been highly successful in terms of incentivising competitive prices and attracting international investment from IPPs, despite some delays. Auctions, however, are costly for both the administrator and bidders, so only large, utility-scale projects exceeding 20 MW are often worthwhile. Projects from the REIPPPP tended to be fairly large, with averages of 68 MW for solar PV and 111 MW for wind projects in Round 4. Auctions can also create a challenge for transmission and distribution expansion, as projects tend to be located near the resource than near customers. The Northern Cape, with significant solar resources, now hosts the most solar capacity from South Africa’s auction.

While competitive auctions have lately proved more successful at ensuring fair PPA prices, especially for large-scale projects, both Refits and auctions will continue to play an important role for sub-Saharan Africa’s energy sector in coming years, if rolled out in a stable and transparent way. In addition, governments that want to rapidly address infrastructure shortfalls in the region should remove regulatory barriers to customer-sited generation (both on- and off-grid), and encourage greater grid flexibility for distributed energy resources that add the most value for it.