The Electricity Economics of Solar Powered Electricity Generation for Augmenting Grid Electricity Supply and Rural Electrification

This study aims to assess the economic feasibility of introducing solar photovoltaic (PV) facilities in capital constrained African countries. This is carried out in the context of the falling prices and costs of the solar PV technology. The economic analyses are done comparing solar PV technology with the low-carbon fossil fuel technologies such as combined cycle (CC), and diesel power plants in terms of their economic net present values (ENPV) and environmental impacts. The economic analyses are carried for both on-grid and off-grid applications of solar PV technology. The feasibility of off-grid solar PV systems in sub-Saharan Africa (SSA) is analysed focusing on five major issues: cost-effectiveness, affordability, financing, environmental impact, and poverty alleviation. Solar PV power systems are found to be an extremely costly source of electricity for the rural poor in SSA. It is estimated that it will take at least 16.8 years for solar PV systems to become competitive with conventional small diesel generators. Moreover, the cost of reducing CO2 emissions through solar PV electrification is far in excess of the estimated marginal economic cost of CO2. In this context, investing in thermal plants powered by heavy fuel oil (HFO) would be two times as effective in reducing GHG as the same value of investment in solar PV plants. The results show that ENPV is negative for solar PV plant, whereas it is a large positive value for the thermal plants. Even if solar investment costs fall as anticipated, in such a situation without subsidies it will take 9 to 28 years of continuous decline before solar generation technology will become cost-effective for many electric utilities in Africa. Given the current costs of solar PV plants and the falling prices of solar PV systems, it is not advisable for such electric utilities in Africa to invest in this technology (unless subsidized from abroad) until the solar PV plants become competitive with thermal plants. If unsubsidized, it is the relatively poor consumers of Africa who will pay for these inefficient technological choices. Keywords: Solar PV, Electricity Generation, Africa, Greenhouse Gas Mitigation, Cost-Benefit Analysis.