Sometimes, when you least expect it, you get slapped in the face by something you never, ever expected. I had that happen recently while my wife and I were on a visit to Gambia, a small country in West Africa. In this case, it's something that has potential major implications in the battle against climate change.
Gambia is almost completely enveloped by Senegal. The only part of the country not adjoining Senegal is its border on the Atlantic Ocean. While we were there but a short time, we found the people of Gambia to be very friendly, and especially hardworking. Like much of the rest of Africa, Gambia is growing pretty quickly. Though still very poor, the economic situation is quickly changing.
Which means that the demand for electric power is growing quickly; so quickly, that the country experiences frequent power outages, typically multiple times a day. To cope with these shortages, Gambia and many other sub-Saharan power authorities are investing in emergency power solutions. It's estimated that sub-Saharan Africa already has about 750 megawatts (MW) of such emergency power systems in place. In Angola, it represents 18.1% of total capacity; in Uganda, it's 41.7% of capacity; and in Rwanda, it's 48.4% of capacity! Which leads me back to being slapped in the face.
While at a market in Banjul, the country's capital, we happened to see the ship pictured above. It isn't your typical ship because its principal purpose is to serve as a portable power plant. The Turkish ship, deployed in early 2018, is designed to help address Gambia's chronic power shortage.
The good news is that the "power ship" can be deployed in just a few weeks, whereas the typical power plant takes at least a year to construct, typically longer. Moreover, it supplies power on a very consistent basis because it has very up to date generators.
The bad news is that its power source is diesel fuel. It's helping Gambia and other fast growing countries meet a power shortage, and just as efficiently spewing tons of additional carbon dioxide into the atmosphere.
But that isn't the slap in the face to which I'm referring. Instead, it's that these types of plants may be better at solving Africa and Asia's severe power shortages more effectively, at least in the short term, than state of the art alternative energy such as solar PV and windmills. I find that idea both shocking and disconcerting, and if you're concerned about global climate change, there's a good chance you do, too. So let me explain why that in fact may be the case, and what needs to be done to change things.
Before going any further, let me point out there is huge interest in solar and wind power in sub-Saharan Africa. Many countries are already working hard to build solar generating capacity. For example, Cape Verde hopes to get 50% of its power from solar by 2020; the island of Mauritius has a goal of 65% by 2028; and Madagascar wants 75% of it power to be solar by 2025. They definitely deserve credit for ambitious thinking and goal setting!
But while such solar goals are laudable, are they realistic? An interesting paper by Saule Baurzhan and Glenn Jenkins, published in the journal Sustainability, builds a case that at least in the short term, the best way to reduce greenhouse gases in places like Africa is first to install highly efficient diesel power plants such as the "power ship" my wife and I saw in Gambia rather than a solar PV plant. They acknowledge that at some future point, solar could become the better solution, just not now, and maybe not for 10 or 20 years! Using a conventional net present value analysis, they argue that the diesel plant is the better choice today, and possibly for a number of years to come.
If they're right, those of us committed to the reduction of global greenhouse gases have gotten a giant slap in the face! Not only that, if there's a broad embrace of such thinking, it may serve to limit the growth of alternative energy over the next 10 -20 years in the very places that are on the front lines of the battle against climate change.
So let's look at their argument to see if it makes sense. If not, let's consider why not. At the same time, let's consider the implications if they just happen to be right.
The two authors are PhD economists at a university in Turkish Cyprus. I gave the article to my son-in-law, who also happens to be both a PhD economist and an ardent supporter of greenhouse gas reduction. He raised some concerns about their assumptions, as well as their methodology, discussed further below.
So how do the authors get to the idea that a diesel powered plant could actually be a better way than a solar PV plant, at least in the short run, to reduce greenhouse gases? It comes down to the following factors: 1) the comparative cost of the diesel plant and the solar plant; 2) the "capacity factors" of the respective power plants; 3) the poor quality of the existing power grids in these countries; 4) the lack of ability for the solar plant to provide power at certain times of the day; 5) the expected cost of diesel fuel; and 6) the expected cost of a ton of carbon dioxide emissions.
The inability of the solar plant to work at certain hours, the authors note, means that it has a pretty low "capacity factor". They readily acknowledge that the capacity factor of a solar plant in sub-Saharan Africa is significantly greater than one in Europe, given the fact that the Sun is much stronger in sub-Saharan Africa, but they point out that the capacity factor of a diesel plant is far greater. This is because the diesel plant can theoretically operate 24/7, irrespective of whether or not the Sun is shining. Unfortunately, most solar plants don't do very well at midnight. To be more specific, in their analysis they said the capacity factor for the solar plant would be 17.3, but it would be 66 for the diesel plant, a huge difference! This capacity factor difference makes it possible for a comparatively small diesel plant to replace the old, inefficient system. In the absence of good battery storage, you can't rely upon a solar plant to solve the problem.
The bottom line is that it would take a much larger solar plant to meet the same power needs as a diesel plant. According to the authors, for a given capital cost, the diesel plant will generate 16 times as much power as the solar plant. Much of the differential is due to the fact that the diesel plant can operate 24/7. Based upon their analysis, they conclude that the best solution, at least in the short term, is for these countries to build highly efficient diesel power plants and get these new plants to become the base power source. The power company can then use the old plants in reserve for peak power. Converting these old plants into reserve power would, in and of itself, help reduce greenhouse gas emissions significantly in these countries.
For countries like Gambia, facing both huge power growth needs and limited capital, it may be the economic equivalent of "game over". Not what those of us who know the battle over greenhouse gas growth isn't in Europe or America, it's in places like sub-Saharan Africa, want to hear. Which gets to the question, if the authors are correct, what can be done?
I think there are several possible answers. The first and most obvious is battery technology. The authors did not consider an investment in battery storage as part of their analysis. No doubt, they're right in saying that a solar PV plant without batteries could not serve as the base load for an electric system. But what if you built a plant that either included batteries, or used a solar technology such as "concentrated solar power" that will permit the generation of solar power during the day, but stored until needed as peak power? This is a technology that has been proven in Nevada. The battery revolution led by Elon Musk and Tesla is also changing the economics of storage. Not only that, but Tesla seems to be making a sport of how quickly it can install giant batteries in out of the way places. Such speed could help to counter one of the obvious benefits of the "power ship".
A second possible solution is to address the capital cost problem. The diesel powered plant may be a better solution right now because it stretches the limited money of sub-Sahara African governments, but an alternative would be to provide long term financing using either a zero coupon bond, or a bond with interest payments delayed for a period.
The third possible solution, of course, is the continued reduction in the cost of solar power. The authors of the study cited above estimated that solar would be a better alternative than high efficiency diesel in 12 to 24 years. Solar costs, of course, continue to plummet, so it wouldn't take a great deal of technological change to reduce that 12 to 24 year time frame dramatically.
But there may be something that overrides all of the prior analysis. That is that the core criterion used by the authors – the net present value of the solar plant is negative while it is positive for the diesel plant – may not be the right way to judge the project. Instead, a better criterion might be something my son-in-law reminded of, what is referred to as real options. The argument is that traditional net present value of cash flows is an inadequate method of analyzing an uncertain project. By using a real options model, a project that otherwise has a negative net present value may, in fact, have a positive one. Using real options, it may very well be that the solar PV plant, which appeared to be inferior compared with the diesel plant using a simple net present value of cash flows methodology, is in reality the better investment choice once one analyzes the cash flows using a real options model. Using a real options methodology to value the projects should provide a more thorough consideration of the uncertainties surrounding the project.
Is this a realistic possibility? Yes, particularly given the fact that there is lots of uncertainty surrounding the economics of a solar plant, especially because solar technology keeps getting more favorable, in a way that the diesel plant isn't.
Which brings us back to what I believe is the real question: what do you tell countries like Gambia to do, given a significant and growing power shortage and the need to increase capacity? Things like the "power ship" are extremely attractive when you've got multiple daily power outages, growing power needs, and not much money in the bank. How could you come up with a more attractive offer than the "power ship" that has zero emissions and could become part of the base load of the power grid?
The ideal solution I believe would be some type of rapid installation solar plant and battery storage combination. Or do you settle for an "almost as good" solution: a combination of things like the "power ship" in the short term, coupled with a longer term solar/battery installation? While you may "hold your nose" at the "power ship" solution because it involves diesel, keep in mind that the "power ship" type system offers one very large benefit: the ability to take old, grossly inefficient systems and turn them into backup. The authors found that could be very beneficial as a strategy to reduce greenhouse gases. True, not an ideal solution, but possibly a "good enough" one in the short term.
Probably the biggest challenge for those of us who advocate alternative energy as the best solution is that things like the "power ship" are so enticing. So simple. So easy to install. A quick solution to the immediate problem. But in the long term, it could be "so wrong".
But before proceeding any further, a more thorough analysis than that provided by the Sustainability journal article should be performed. Beyond doing the simple cash flow analysis, as prescribed by the journal authors, a real options analysis should be considered. Not only that, there should be a serious look given both to battery technology, as well as "concentrated solar power".
If you're leading a sub-Saharan Africa country that has a power shortage, and your existing infrastructure is pretty bad, things like the "power ship" are mighty tempting. But when you consider climate change, likely also shortsighted. Which makes it all the more important to help power authorities in places like sub-Saharan Africa do a more thorough analysis, and provide them an easy to implement clean energy solution to the power problem that leaves things like "power ships" in the dust.
