Oil & Energy
‘African Solar Panels Are Cost-Competitive With China’
Africa is home to 60% of the world’s highest quality solar resources, but has only 1% of the world’s installed solar power production capacity.
An under-developed industrial sector has deterred solar power developers from taking advantage of the continent’s massive solar power potential, but in a world with rising energy demand and ever more urgent calls for decarbonization, the renewable energy industry can no longer afford to ignore Africa, and Africa itself can no longer afford to be ignored.
Nearly half of the African population – roughly 600 million people – lacked access to energy as of 2021. As the continental population grows (by 2050, one in four people on the planet will be in sub-Saharan Africa) and the region industrializes, African energy demand is expected to increase by a third over the next decade. Meeting this demand will require a ten-fold increase in power generation capacity by 2065.
The question, then, is how to solve the African energy trilemma: how to make sure that the energy supply is sufficient, affordable, and sustainable.
The need is enormous, but so is the economic opportunity. The good news is that the African continent has massive renewable energy potential, but fully tapping into it will be extremely challenging.
Hurdles to developing the African solar power value chain include “limited access to finance, lack of supportive policy and regulatory environment, infrastructure constraints, limited local supply chains, and a lack of skilled workforce and technical expertise”, according to Amir Bahr, programme manager at UN Energy, as he was recently quoted by Energy Monitor.
Despite these serious multiple challenges, interest in developing the African renewables sector is growing fast. In recent years, international investors have been rushing to get an early foothold in what is certain to be a rapidly expanding industry.
Russia and China have been investing in emerging African energy markets for years, and Europe is increasingly pushing into the Sahara to build mass-scale solar farms.
As a result, after decades of decline, manufacturing in sub-Saharan Africa is on an upward trend. In fact, it has quadrupled in value since the turn of the century, making it the fastest-growing manufacturing sector on the planet.
But, considering that the continent is getting such a late start compared to European and Asian markets, will Africa be able to compete in solar supply chains?
The short answer is yes. A recent report from Sustainable Energy for All (an UN-backed organization) finds that solar module manufacturing in some African countries is “already cost competitive with equivalent manufacturing in China.”
Chinese manufacturers currently dominate global solar supply chains, in large part because they can produce panels much more cheaply than the West due to more developed value chains, a chokehold on rare Earth minerals markets, a less powerful currency, and economies of scale.
While photovoltaic panels produced in Africa are not quite as cheap as those in China, they are amazingly close.
“While it costs US¢16.3 for one watt of PV module assembly in China, it costs only marginally more in markets including Tanzania (US¢17.9), South Africa (US¢18), Namibia (US¢18.1) and Ghana (US¢18.3),” Energy Monitor reports.
This cost-competitiveness is in part because Africa is home to a huge concentration of the rare Earth minerals required for manufacturing solar panels.
Moving photovoltaic manufacturing to Africa would not only be a win for the companies looking to produce a cost-competitive model, it would also be a boost to local economies, as it would serve to concentrate value addition within the countries and regions that have ample silver, copper and silicon for manufacturing.
Exporting primary materials as opposed to processed and manufactured downstream components is one of the key identifiers of an undeveloped economy.
However, boosting solar manufacturing in Africa may do little to help the African energy trilemma if all the produced parts and energy are destined for international markets, instead of the local grids that so desperately need them.
The PV gold rush may certainly boost certain African economies, but it won’t help the continent to breach energy gaps or decarbonize the continent’s energy mix without targeted political efforts.
International development specialists stress that African countries must be in control of their own development or risk being exploited for their abundant energy resources without controlling the benefits.
Zaremba is an online reporter.
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
