Opinion: Energy storage solutions, batteries and bankability of those solutions in sub-Saharan Africa

1st October 2021

Opinion: Energy storage solutions, batteries and bankability of those solutions in sub-Saharan Africa

Martin Kavanagh

In this opinion article, Herbert Smith Freehills Africa Group co-head Martin Kavanagh and finance practice senior associate Joanne Elson write about their predictions for the use of energy storage solutions across sub-Saharan Africa, as well as the key areas for consideration when developing and financing those solutions.

In recent years, energy storage systems have emerged to support the provision of sustainable energy. Storage solutions have become an essential environmental technology to increase renewable power use by improving reliability and efficiency and reducing fuel consumption, particularly in industrial and commercial applications operating in remote environments or in markets with unreliable grid infrastructure.

Renewable power solutions are playing an important part in reducing carbon emissions. With carbon neutrality being sought across the globe by 2050, renewable power, together with storage, can help and, undoubtedly, energy storage systems are a solution that is here to stay.

Traditional solutions such as pumped-storage hydroelectric are not a new idea and, indeed, pumped hydro is the prominent solution used in grid storage today, one example of which is the Dinorwig power station in Wales, in the UK, which was built over ten years from 1974. It has an installed capacity of 1 800 MW and is operated to help meet peak loads but also to provide a fast response to short-term rapid changes in power demand or sudden loss of power stations. A visit to the 'Electric Mountain', as it is known locally, has since been the highlight of many Welsh school trips.

In more recent years, a variety of technologies have been developed and are evolving, such as battery storage, heat storage and hydrogen. We have also been involved in a project with an innovative storage solution which lifts and drops concrete blocks as means to store and retrieve energy. 

There has been a recent reduction in the cost of chemical battery storage solutions and notable development in this sector. Chemical batteries are used in most electrical everyday items (like laptops) with the most common being nickel-cadmium, lithium-ion and nickel metal hydride. Battery energy storage solutions use similar technologies with the storage market being dominated by lithium ion batteries. Vanadium flow batteries are another solution commonly used.

Pairing power generating technologies, especially solar, with on-site battery energy storage is likely to become a common trend over the next few years for deploying energy storage.  Undeniably, the technologies which have an identified record for reliability and high performance will have a positive impact on the overall bankability of an energy storage project.

Reliable access to power in sub-Saharan Africa continues to be a challenge and is actively being sought by the market (to date the majority of the solutions are grid connected).  However, given the levels of scheduled and unscheduled power outages from utility power in a number of sub-Saharan African countries, which vary from two to three hours to anything up to 12 hours a day, there is considerable impact on commercial and industrial businesses (C&I).

Considering hybrid projects and energy storage solutions is a way of solving intermittent power issues for those businesses. A number of C&I operators who have invested in renewable captive power for their facilities such as ground mounted solar PV still experience hours of outages which they look to plug with power from the grid or diesel generators. The cost of off-grid solar power is much cheaper compared to on-grid tariffs in most countries and the price of fuel for diesel generators. 

Energy storage solutions can help to bridge this issue. Taking solar PV as an example, the peak generation is usually between 11:00 and 16:00 but this is not necessarily when the peak consumer consumption occurs. Therefore, it is an advantage if this energy generation can be stored to be used at night when consumer consumption is higher, in turn reducing the purchase of power from the grid or fuel to use in diesel generators. Battery storage is easily integrated with solar PV and the market for this solution is growing rapidly .

The battery market is new and evolving quickly with the market for project financing batteries being even newer. However, drawing on our experience to date the key lender concerns relating to BESS in addition to the usual bankability issues arising with any renewable power project can be summarised as: revenue risk; technology risk; recycling; and ESG matters. 

Lenders will likely look to strengthen the financing structure of battery storage projects by requiring shorter tenors compared to a renewables project, requiring front-loaded repayment profiles and insisting on more cash sweep mechanisms.

The C&I market will increasingly be looking to storage solutions to manage the intermittent availability of both its on-grid and off-grid power solutions currently used across sub-Saharan Africa. With increased use the market for batteries will mature and the balance of the risks considered by lenders will be managed more easily.

The Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) in South Africa is technology agnostic and output or performance based and intends to procure 2 000 MW of power. The requirements for the technology are complicated and include that it must provide to Eskom (the utility offtaker in South Africa) dispatchable, flexible generation that meets the required minimum load factor and has the ability to generate between specified hours, plus provide certain specified ancillary services to the system operator.

To date, the private sector has responded by providing a wide range of technology solutions including co-located renewables plus storage technologies or renewables plus gas generation technology.

In other Sub-Saharan African countries there is a desire to replace diesel peaking or emergency power capacity. In South Africa the RMIPPPP intends to provide flexible baseload generation which will in turn enable growth in renewables plus storage solutions and facilitate the stabilisation of grid systems. All eyes are on South Africa and the RMIPPPP and it is likely that sub-Saharan Africa will follow its lead.

*Kavanagh leads Herbert Smith Freehills' energy, natural resources and infrastructure finance team and Elson has more than a decade of experience in the energy and infrastructure sectors.