The benefits of wind for Africa
The fact that the technology is mature, and that Vestas is guaranteeing the output from turbines (provided the wind is available), technical risk is reduced. Up to 97% of the theoretical technical output is guaranteed in Vestas’ service contracts.
On the economic side, Africa’s average cost of generating power is US$160-180 dollars per 160-180MW per hour. This is in comparison to Brazil’s power auctions where prices are in the low 50s per MW per hour. “While Africa may not ever meet this kind of price level for various reasons, they can definitely compete with what’s already in the system. Any wind power that you put in will reduce the average cost of generation,” explains Dalsten.
The low operating costs of wind power cannot be ignored. This natural resource provides a great deal of certainty with regards to the price of power since it is immune to the volatility of gas and oil prices.
Africa is also host to significant wind resources. Sub-Saharan Africa has a 7GW of wind power potential which is yet to be harnessed.
Slow to invest
Despite this, investments are not coming into the country fast enough. This is due mostly to the fact that wind farm owners are expected to run their farms for 20 years on average. Owners are placed in a vulnerable position if the host government alters the price it is going to pay for wind power. Often, buyers are state-owned power utilities which are often on the brink of financial collapse. This makes it difficult to get banks to finance projects.
This uncertainty could be what is chasing investors away. However, this issue has been recognised as a major issue and experts are assisting private companies to overcome this challenge. Financial de-risking-insurance providers are now covering breach of contract.
To get renewable energy off the ground, you need bigger investments, explains Dalsten. In order to resolve this, political de-risking is recommended. By engaging with governments, one can instill “TLC” (Tranparency, Longevity and Certainty) into their energy policy:
Transparency-creating a policy framework that includes all stakeholders from the start
Longevity-creating a policy framework that covers the length of investment which is usually around 20 years
Certainty-being assured of awards and receiving a decent return. This aspect should not be subject to political interference every other year. Dalsten is quick to point out that Vestas does not advocate excessive payments or returns since this will not be sustainable.