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Why Zambia’s 6 cents is more significant than Dubai’s 3 cents

Gevorg Sargsyan's picture


Last week Zambia set a new price record for utility-scale solar-generated energy in Africa with the support of the World Bank Group’s (WBG) Scaling Solar initiative. The auction for 100 MW (2x50 MW) resulted in a price as low as 6 cents/kWh.
 
This is good news for the country, which much like the rest of Sub-Saharan Africa faces acute electricity shortages. Nearly 700 million people in Sub-Saharan Africa don’t have access to electricity.
 
Zambia’s solar auction result followed a series of headline-making auctions in India, Mexico, Peru, and Dubai. In Dubai’s case, the price was as low as 3 cents/kWh -- the lowest price ever offered for solar power. Solar auctions are effectively a competitive bidding process to build power plants and supply a specific quantity of electricity at a pre-agreed price over a specified period of time.
 
There are a few reasons why Zambia’s outcome is more significant than Dubai’s.
 
First, Zambia’s 6 cents/kWh price is fixed and won’t increase for 25 years. This makes the average price in real terms an even more astonishing 4.7 cents/kWh.
 
Second, there aren’t any implicit or explicit subsidies involved in the deal, neither Zambia has a sophisticated and liquid financial market. The WBG simply helped structure the auction based on the best global practices – taking into account local specifications and providing a guarantee to back-stop the obligations of the national utility to pay for the electricity being supplied.  
 
Third, Zambia has about 2400 MW of mostly hydro-based generation, compared to much larger systems in other countries with successful auctions. It also has a distressed macroeconomic situation coupled with weak institutional capacity in the energy sector. The Bank’s guarantee is critical to address the risks associated with these factors.
 
Most importantly, these results are dramatically shifting perceptions that low costs for renewable energy are unattainable in poor countries with weak institutions, underdeveloped laws and regulations, and high costs for conducting business. According to the Doing Business report, Zambia is ranked 97, compared to the United Arab Emirates (UAE), which is ranked 31.
 
While all the legal and financial agreements still need to be signed, this auction has launched a new era for clean energy in Africa and the rest of the world. As long as countries put in place a well-structured, transparent bidding process, mitigating country risks using guarantees and other financial insurance instruments, we can expect to see even lower prices in the months and years to come.
 
Scaling Solar is a World Bank Group solution that makes it easier for governments to quickly procure and develop large-scale solar projects with private financing. It includes a ‘one-stop shop’ package of technical assistance, templated documents, pre-approved financing, insurance products, and guarantees. Scaling Solar is designed to allow governments to get fast, affordable, utility-scale power up and running within two years of engagement. It has financing support of USAID’s Power Africa, the Ministry of Foreign Affairs of the Netherlands, the Ministry of Foreign Affairs of Denmark, and the Infrastructure Development Collaboration Partnership Fund (DevCo).

Comments

Submitted by Luiz Maurer on

Excellent piece
No more saying that competition in renewables is a luxury that only middle income countries can afford - which was tantamount to saying that countries like Zambia would be doomed to paying an outrageous feed in tariff or have to accept unsolicited offers. - lets just look around other deals that we are financing or are about to finance

The role of the WBG is really transformational in this case
Shall we establish a period after which WBG would no longer get involved in deals for NCR whose.price was not set by competiton?

Submitted by Peter Mockel on

This is a great success for scaling solar. We may be fast approaching a time when any new capacity will be by default PV as the lowest cost option globally - and without subsidies.

Submitted by Sydney Kaluba on

Fantastic news! There's no reason a developing country this small shouldn't produce enough affordable clean energy for it's citizenry.

Submitted by Om prakash Nayyer on

Vigorous efforts are needed in distance rural India to meet necessary supply of solar electricity.

Submitted by Gideon Goudsmit on

Another reason why this figure is more significant is that total hours of sunshine and sun intencity are far less in Zambia than in Dubai , if comparing this rate per hour of average sunshine hours per year 2836 in Zambia and 3510 in Dubai and the sun intencity is stronger in Dubai as well with its desert climate

Submitted by Clement Gavi on

Yes, you are right the point your highlights is critical to see how the mind that sees unconsciously 6 as something that must be heavier than 3 has here the opposite meaning.

Submitted by Mukonki on

We need alternative sources of energy other than depending just on the government utility firm ZESCO. This development is great news.

Submitted by Benny Soko on

This is very positive news for Zambia and hopefully there are many other bigger projects in the pipeline to support growth in all sectors of the economy

Submitted by Siddharth on

Excellent piece of information and aafirmative evidence for those working towards energy revolution and for poor,low income people upliftment keeping sustainability as a key feature

Submitted by Ismaila A. Hassan on

700millions off grid is too much in today's world, electricity is vital to poverty reduction, without which development policies would be unrealistic and hindered.

Submitted by frits olsen on

What degrees now support US education and R&D cooperative/colaborative work that builds infrastructure as well as take public into small non-profits, a community effort. Logistics can lower costs and get more people off the grid.

Submitted by Chapita Mbuzi on

Very progressive development for Zambia. energy diversification way to go and well-done for the deal

Submitted by Nupur Mankala on

I am an analyst at helicalpower.com and I can vouch for the fact that 6 cents/kWh is a pretty amazing price. I feel ecstatic when I see how the government pf various countries are opting for renewable resources of energy keeping in mind the finite sources of the organic fuels we have mined from the earth. Kudos to Zambia!

Submitted by Mr. Mustapha Samateh on

Excellent.....

Submitted by Angapat Raghu Menon on

In Africa it is very good and more will become porular with in coming Years. In Zambias effort is very good and Popular. Sustainable Energy, wind mill and Solar power is the most popular in African Copuntries. It is a sucess story with the healp of World Bank to bring it to produce in lower prices not more than 6Cents. It more appricating price. Power grid should be made and distribute to the People and make the development.Excellencey World Banks Presidents visit to India made a mile stone to Indias govt: for Renewbale energy(Solar Power) funding of US$ 1 million. Indias a great effort in this matter. Hope this Project will become sucecess with in no time.

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