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Ministry to Take a Solar Powered Trip to Africa

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According to the Ministry of Commerce, the Chinese government is supporting Chinese solar companies' plans to invest in the solar power market in over 40 African countries. It is reported that in the next three years the Chinese government will allocate 200 million RMB for International cooperation on climate change mainly to help African countries promote energy-saving products.

Africa makes up less than 1% of market share

In 2011, the total export revenue for Chinese solar products reached $35.821 billion. Of this total revenue only 0.82% was from the African market, far below Europe's 56.94%.

The investment statistics from 2011 are in sharp contrast with this year's. Wenhang Huan, department head for the China Department of Climate Change, Office of International Cooperation and Exchange (Development and Reform Commission), explained that Africa is now China's fourth largest overseas investment destination. By the end of 2011, foreign direct investment to Africa was $14.7 billion and the number of companies that had started operations in Africa had surpassed 2000.

Based on the current growth of the solar photovoltaic (PV) industry, Africa has great economic potential. Experts at the 2012 African "PV SUMMIT" said that equator countries near the Sahara desert offer some of the world's best conditions for the development of the solar power industry. African solar power development is of course becoming increasingly urgent as is emphasized in a report by the International Energy Agency, which states that power demand in Africa will increase ten-fold over the course of the next 20 years.

Still, 2011 data shows that of the world's 27.7 GW of power generated from PV installations, only 1% was generated by African countries. Even though several African countries have built PV module manufacturing facilities, the production capacity is no more than a few dozen megawatts.

Huang said that the Chinese government is encouraging solar companies to develop new strategies and work together to gain access into the African PV market. The next step in what has been dubbed the "South-South Cooperation" assistance plan, Huang said, is to include solar PV products in future African assistance packages.

Chenggang Hu, vice general manager for overseas systems projects for Jinko Solar, told reporters that renewable energy subsidies and relevant tax incentives can guarantee low costs for the installation of solar PV project in African countries and an internal rate of return (IRR) of more than 20%.

Investment risks are unavoidable

Yet, Hu was quick to point out that currently the only African countries with low financing costs (FC) are South Africa, Algeria and Morocco. In many parts of Africa, people have no access to electricity and traditional fossil fuels are under-utilized. A stable government-supported investment environment for renewable energies in these areas is still a long ways off.

In fact, there are several barriers to investment in certain regions. Many countries are starting from the ground up, purchasing power is next to nothing, and an unstable environment are all problems faced by Africa.

The Chinese solar industry is already approaching the bottleneck in both domestic and foreign markets. Even in Africa, the current solar market situation is an unavoidable issue. In recent years, the Export-Import Bank of China has been providing loans for Chinese companies investing in Africa, but most loans are for infrastructure and communication and other traditional investment sectors; the threshold for solar PV investment is still rather high.

Changhui Zhao, chief quantitative analyst from the Export-Import Bank of China said that when investing in African solar PV projects there needs to be certainty that the energy produced will be used, but for most African countries this is still an uncertainty.

Loans from World Bank are guaranteed and therefore investment risk is minimized, but for young, unstable governments there is no guarantee on loan collection. This is something that companies and financiers must take into consideration.

Hu said that against the backdrop of anti-dumping and countervailing probes launched by the United States and Europe, there is great potential for the African solar power market. However, in the process of promoting solar projects, the government also needs to help companies create stable financing mechanisms. At the moment, financial stability is still the biggest obstacle for solar enterprises.

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