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3 Reasons Why Africa Is Going Solar

By Jay Yao - Dec 31, 2013 at 9:05AM

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Why solar energy is poised to grow in the birthplace of humanity.

In many ways, Africa is the final frontier. Although humans originated from Africa, technology is often the last to come to Africa. 

In the West, we take light bulbs, refrigerators, and other appliances for granted. While those products were invented a long time ago, they have yet to make their way to the majority of Africans. According to the International Energy Agency, almost 60% of Africans still do not have access to electricity.  

As Africa modernizes and solar costs trend lower, solar energy is poised to play an integral part in Africa's electrification.

Perfect environment
Because of its proximity to the equator, Africa gets more sunlight than other solar markets such as Germany or China. Greater solar radiation makes solar power more affordable. Africa also has a lot of desert land next to major population centers. That close geographic proximity allows utility-scale power plants to be built without major detriment to farming and power to be transmitted economically.  

No resource curse 
In many parts of Africa, rent seeking and corruption go hand in hand with drilling for oil and natural gas. The diversion of money away from better places for growth is a big reason why many countries with great resource wealth have trouble developing their economies. 

Unlike drilling for oil and natural gas, diverting funds from solar energy projects is much harder. One can count the number of solar panels on rooftops or in utility scale projects as opposed to generally not knowing how much oil has been pumped from an oil field. Because of solar energy's greater transparency, international agencies such as the World Bank and IMF may be more willing to finance solar projects versus other methods.  

Less need for infrastructure
In many places, access to fresh water is the rate limiting step to electricity generation. A great deal of water is needed to generate power from coal, nuclear and natural gas. Getting water from the ocean is not an option because salt water is too corrosive to metals. Because fresh water is scarce, many African communities use their meager water resources for growing crops and for daily living requirements rather than for producing electricity.

Generating electricity from coal, nuclear, and natural gas also requires an adequate power grid to transport power to homes. For many countries, building such grids for rural areas is cost prohibitive.   

Solar panels do not require water or an adequate grid to produce electricity.

The bottom line
Solar power is not perfect for Africa yet. When the sun goes down, solar power runs dry. Battery costs need to come down for solar to be widely adopted in Africa.

That being said, the long-term trend is very good. Africa's population is set to double to around 2 billion people by 2050. 

Most of those people will at some point have access to electricity. Solar economics and lower battery costs will eventually make solar energy very competitive in providing electricity.

First Solar (FSLR -3.01%), whose specialty is making affordable utility scale power plants, will benefit. 

Chinese solar companies like JinkoSolar (JKS 0.74%) and Canadian Solar (CSIQ -3.15%) will also do very well since China is Africa's largest trading partner. 

Because of its wealth, South Africa is currently very active in developing its renewable energy resources. It is a leading indicator of a future trend.

Total, the majority owner of SunPower (SPWR 1.02%),  was recently selected to build a 86-megawatt project in South Africa. 

JinkoSolar has already won a large order of 274 megawatts in South Africa. 

First Solar has stated that it will bid on South African projects next year. 

The increase in solar adoption in South Africa should presage broader adoption in other African nations. As Africa electrifies, investors of leading solar companies and Africans themselves will benefit greatly. 

 

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Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
FSLR
$66.10 (-3.01%) $-2.05
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$15.81 (1.02%) $0.16
Canadian Solar Inc. Stock Quote
Canadian Solar Inc.
CSIQ
$30.14 (-3.15%) $0.98
JinkoSolar Holding Co., Ltd. Stock Quote
JinkoSolar Holding Co., Ltd.
JKS
$67.74 (0.74%) $0.50

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