Q&A: Grid instability fuels solar demand

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Power purchase agreements for solar serving commercial & industrial customers may have lower prices than grid power, but because they are often charged in foreign currency local inflation erodes hurts more with time. Yet, demand for self-generated power continues to rise, Eng Julius Dzah, Head of Projects for Infra Futura in Ghana, told Renewables Rising this week.

• Eng Julius Dzah has worked in the solar industry for eight years, starting as a solar design engineer and is now managing solar projects. His proudest moment is winning the Africa Energy Camp competition, where his team designed an innovative solar cold room powered by ice batteries.

• Julius believes that grid challenges will incentivise the C&I sector to adopt solar, and he foresees a growing demand for integrated battery storage solutions.

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Do you primarily provide solar solutions for the Commercial and Industrial (C&I) sector, or also residential?

Eng. Dzah: We primarily work in the C&I space. Residential projects are typically add-ons for clients who are pleased with our commercial work and want a similar solution at home. We don't usually include them in our company profile.

What are some key considerations for the feasibility of a solar project in the C&I space?

Eng. Dzah: First, we assess government policies and regulations applicable to the project area. We then examine site conditions, such as proximity to the sea and solar resource availability. The presence of a grid is crucial, as grid-tie solutions are generally cheaper due to less sophisticated inverters compared to hybrid ones. 

If a financier is involved, we review the client's financial audit reports to ensure their ability to make payments and check for conflicting existing loans. We also consider insurance policies, verifying coverage for the roof and the solar system itself in case of unforeseen events like factory fires. After assessing these aspects, we proceed with simulations, final design, and cost discussions.

Is the C&I solar market in Ghana experiencing high demand or increased competition among Engineering Procurement Companies (EPCs)?

Eng. Dzah: The C&I space is becoming increasingly saturated with EPCs. Initially, there were few EPCs, so competition was low. However, over the past three to four years, especially since the COVID-19 pandemic, many new EPCs have registered in Ghana. Now, for any tender, you might see eight different EPCs bidding, giving clients a tough time in decision-making. Some new EPCs are willing to take projects at no profit just to build their portfolio, driving down costs and making it an advantage for clients seeking cheaper solutions.

How do PPA and lease-to-own models operate in Ghana's C&I space, and what are their challenges?

Eng. Dzah: The two main business models are direct purchase and PPA/lease-to-own. Direct purchase involves an upfront cash payment and is straightforward.

For Power Purchase Agreement (PPA) or lease-to-own, EPCs partner with investors. The challenge in Ghana is currency inflation. While PPAs typically charge less than the grid, local companies pay in Ghana cedis. Due to inflation, the cedi equivalent of a foreign currency-based PPA can triple in value within a couple of years, making the solar component more expensive than the grid, even if the grid tariff has also increased. This makes local currency PPAs difficult for financiers, who often receive funds in hard currency from international sources. Some financiers have ceased operations due to this currency dilemma.

The lease-to-own model is similar to PPA but is a take-or-pay arrangement. The total CAPEX and OPEX, including inflation and discounts, are divided over 7 to 15 years. Clients pay fixed quarterly amounts regardless of consumption. The EPC or financier must guarantee at least 95% availability; failure to do so results in penalties. This model is preferred by industries with consistent, high energy demands.

Do EPC companies still bid below grid tariffs given these challenges?

Eng. Dzah: Yes, clients will not consider solar if the tariff is higher than the grid. Most C&I business owners are driven by lower tariffs, not primarily by the green aspect of solar. If a PPA offers savings, they're generally happy.

Is there government support or incentives for the solar sector in Ghana?

Eng. Dzah: On paper, there are many policies and regulations. A major intervention was net metering, where the Swiss embassy partnered with the Ghanaian government to supply 11,000 net metering meters. However, I've only personally seen one working. The electricity distribution company's monopoly seems to hinder widespread adoption, as they don't see the benefit of behind-the-meter solar feeding into the grid when they might not need it. Despite being in the news, most of our clients haven't received net meters.

What are the import tariffs for solar components in Ghana?

Eng. Dzah: To get a duty waiver, a solar system must be imported as a complete unit, with panels, batteries, inverters, and mounting structures in the same container. Importing only solar panels incurs a low 5% duty. However, if any other component (like inverters) is imported separately, even in full containers, it incurs a full 35% duty. This is challenging for EPCs who source components from different manufacturers in different countries, making consolidation difficult. The government intends to prevent tax evasion by individuals importing batteries for non-solar uses under the guise of solar.

Is there local production or assembly of solar panels in Ghana to address import challenges?

Eng. Dzah: Around 2020-2021, one company in Ghana assembled solar cells. However, this initiative was politicised and ultimately became more expensive than importing from China, even with full duties. Additionally, the company is no longer in operation, nullifying any warranties they offered. This leads people to prefer Chinese Tier 1 panels with longer track records and reliable warranties.

How do you see the overall C&I market evolving in Ghana over the next 5 to 10 years, considering government plans for grid stability and the demand for cheaper, sustainable power?

Eng. Dzah: Ghana faced severe power crises ("dumsor") from 2012-2016. Hasty government decisions, like leasing expensive, crude oil-dependent power barges on take-or-pay terms, solved the immediate crisis but created long-term financial burdens. Currently, we still face power crises, though less severe, due to growing demand and the hydro dam only supplying about 46% of the energy mix. We are now more dependent on thermal plants, leading to debt with suppliers and threats of supply cuts, which cause energy crises.

This impacts solar C&I projects. Previously, 90-95% were grid-tied, which relied on the reliability the availability of the national grid to design our systems. Now, with frequent grid outages due to payment issues for fossil fuels, our grid-tie solar systems also go offline because the grid-tie needs a reference signal from the grid to operate. The emerging solution is adding hybrid controllers so solar can operate with generators as a grid reference. The future will likely involve adding Battery Energy Storage Systems (BESS). 

While hybrid controllers still rely on fossil fuel generators as a backup, BESS would offer a greener alternative, providing power when the grid is off before resorting to generators. We're already seeing clients request battery solutions to reduce generator use and noise, especially for off-hours lighting. This trend will likely increase, though cost remains a significant barrier for widespread BESS adoption.