Zambia’s first solar PV wheeling project nears financial close

From the newsletter
Serengeti Energy, a pan-African renewable energy company, & Western Solar Power, a Zambian energy developer, have signed an implementation agreement for the 25 MW Ilute solar project in Zambia. The project secured $8m in funding last year & is projected to achieve financial close & start construction in the first half of 2025.

• The project will serve as a pilot for GreenCo's (a renewable energy buyer and trader) energy aggregator model under Zambia's electricity company’s (ZESCO), open grid access framework. GreenCo will purchase electricity from the project under a 25-year Power Purchase Agreement (PPA), selling the energy into the Southern African Power Pool's (SAPP) Day-Ahead Market (DAM).

• The project received grid connection approval from ZESCO in December 2024 and will utilise ZESCO's transmission lines to wheel power to SAPP.

More details

• Approximately 60 GWh of electricity was traded monthly in the SAPP Day-Ahead Market in November 2024. This is a 68%increase from the 34 GWh traded in the same period in 2023, but lower than the 178 GWh traded in November 2018. 

• Historically, the SAPP has often experienced a situation where demand exceeds supply, leading to upward pressure on prices. However, this sometimes can vary depending on factors such as rainfall patterns (affecting hydropower generation), economic growth, and the pace of new generation capacity coming online.

• November 2024 saw an imbalance in the Day-Ahead Market (DAM), with two times more buy bids (321 GWh) than sell offers (137 GWh). Despite this demand, only 76 GWh of the available 137 GWh were successfully matched, achieving a 55% matching success rate. This means 45% of potential trades fell through due to mismatches in price and volume. Sellers were asking for prices higher than buyers were willing to pay,  hindering market liquidity. Furthermore, even when matches were made,  grid constraints limited the actual traded volume to just 58 GWh out of the successfully matched 76 GWh.

• Prices within the SAPP are determined through a competitive bidding process in the Day-Ahead Market, where buyers and sellers submit bids and offers for electricity. The market clearing price is established based on the intersection of supply and demand curves. Last year, an imbalance between supply and demand led to an increase in average off-peak prices from $7.8 to 15.4 cents/kWh, average peak prices from $9.1 to $32.5cents/kWh, and average standard prices from $8.7 to 23.7cents/kWh between April and November.

• The SAPP has been grappling with an energy deficit, largely due to South Africa's severe load-shedding crisis in 2023. This has strained the regional market,  reducing the overall power supply as South Africa prioritises its domestic needs.

• But, on the brighter side, the Eastern Africa Power Pool (EAPP) is set to launch its own Day-Ahead Market in 2025, promising increased regional integration and potentially impacting the supply and demand dynamics within the broader Southern and Eastern African power markets. This interconnectedness in addition to the regional increase in power generation is expected to enhance energy security and potentially moderate price volatility in the long term.

Our take

• The Ilute solar power plant is just the beginning of energy projects targeting regional electricity trading markets. With Southern and Northern Africa experiencing different climatic conditions, when the sun is shining in the north, the south may have less solar power but more abundant hydropower. This complementarity can help balance supply within the regional power pools and stabilise prices.

• International power trading opens a big opportunity for investors. However, countries need to harmonise their policies to allow for power wheeling between their national power utilities and the private sector. This will enable investors to easily enter the market, generate electricity, and trade across borders, especially when demand in their location is low, but energy resources are plentiful.