Upcoming energy developer, Shumba Energy, has secured approval for a 100MW solar power plant it intends on spending about $80 million (P880 million) in developing in the Tati area.
BusinessWeek has learnt the company, which has extensive coal licences in eastern Botswana, has positioned the solar project as its number one priority and plans to secure funding for the first 50MW phase within the next six months.
Shumba Energy CEO, Mashale Phumaphi told BusinessWeek the plant, which will sit on a 300-hectare area near Francistown, will target the Southern African Power Pool (SAPP), the region’s common marketplace for electricity.
The region has been facing a power deficit for years and while several projects are in the pipeline in different countries, Shumba Energy’s plant will be the first solar development targetted at the region at that scale.
“I would think it’s a good opportunity and one of the issues we are trying to address is that traditionally the different countries have been relying on utilities to do procurement for new power generation and in turn, the utilities have relied on giving out government-backed power purchase agreements,” Phumaphi said on Monday.
“One of the biggest issues with this approach is that government has to keep on giving out guarantees for these large scale projects and it means the government has less financial resources for other parts of the economy. “It would not be a problem if the power purchase agreements were for seven years or so, but these projects are usually for 15 to 20 years, which can be quite cumbersome and most of the utilities in the region are not in a good financial state.”
He added: “We feel there’s an opportunity to take the power shortage head-on and try to supply into the pool or market where there are a number of existing customers and where there is always a market.”
Currently, different electricity utilities in the region can sell power in the SAPP, which operates as a real-time market to make spare generation available and plug deficits. Shumba Energy expects to enter into an arrangement with the Botswana Power Corporation for the use of its network in exporting power into the SAPP.
Phumaphi said discussions were advancing with financiers and it was expected that agreements would be reached allowing the plant to be operational by the end of next year.“We have ongoing discussions at the moment and it may happen that we do both phases at the same time,” he said. “However, the bigger the project, the more difficult it is to do at once. “Sometimes, it’s better to do it in phases and the advantage with solar projects is that with time the costs of panels on average are going down and it may be possible to have a cheaper second phase. “The demand for this power is there given the deficit in the region and the fact that several countries are load-shedding.”
By being the pioneering plant selling solar directly into the SAPP, Shumba Energy will be the first to test the pricing around renewable energy, at a time when nearly all the power available in the market is coal-fired. However, solar plant capital and operating costs have been sliding in recent years and in some regions are even lower than fossil fuels.
“The challenge we have is that sometimes there’s power that can be bought in the SAPP, but the prices are too high for the utilities to afford and they opt to load-shed.
“The cost of load-shedding is not just lost revenues to the utilities but the lack of productivity that happens in the economy and also the loss of future productivity because once a country does not have enough power, it loses future investments.
“The outlook on electricity tends to be myopic or simplistic like only looking at the cost of power and profits from selling it. There are knock-on effects of electricity shortage because you cannot have manufacturing, the service industry and others and this means you are losing jobs.
“In Botswana, every person with a job is supporting four or five people and these are the knock-on effects we have to look at.”