Zim seeks to de-risk energy investments

ZIMBABWE is moving towards a Government-backed competitive public procurement system for investments in renewable energy projects as a de-risking strategy aimed at lowering the cost of power from domestic power plants.

According to the Zimbabwe Energy Regulatory Authority (ZERA), the strategy would be pursued once Government has adopted a renewable energy policy. The policy has already undergone final stakeholder input ahead of presentation of the draft document to Cabinet.

This comes as Zambia recently concluded agreements with contractors for solar power plants, backed by the World Bank, which will supply power at less than 7 cents per kilowatt hour, reflecting the effect of low risk perception by investors.

Government is crafting a renewable energy policy to encourage the exploitation of this renewable source of energy, create right conditions for increased uptake and provide guidelines on how the country’s energy sector should be structured.

“From now we will prefer a procurement system, which will allow us to de-risk the project by assuring them that there will be off take and once the price is agreed a licence will be issued; and the project would be developed,” ZERA chief executive Engineer Gloria Magombo said in an interview.

The country will cough up over half a billion dollars to extend Kariba South by 300 megawatts. Questions have often arisen why the cost was significantly higher compared to the cost of similar projects across the Zambezi River in Zambia.

Zimbabwe’s energy regulator contends that the involvement of Government in procurement, through provision of certain guarantees and assurances, was critical for de-risking investments into all future renewable energy projects.

The energy-starved Southern African nation requires $12 billion to resolve its power deficit and meet the future needs of vibrant industry and economy, when fully recovered, according to ZERA.

The energy regulatory authority said it has licensed a total of 30 new independent power producers intending to build new power plants with potential to generate 6 786 megawatts, to complement projects Government is working on. Fifteen of the projects are solar plants with capacity for 734MW.

“It provides certainty in terms of saying once the person is said to have won a bid from a competitive procurement system, they are then given a licence.

“There are so many things now, which become assured and this helps the financiers de-risk the project because if you they are coming on their own they have to negotiate for power purchase agreement, yet a competitive procurement process, when probity is said to have won, it also relates to tariff it will have won on,” she said.

While competitive procurement lowers the risk and therefore eventual tariff, some renewable energy projects have been awarded at nearly 20 cents per kWh. However, Government has since requested a review of the initial tariffs.

The electricity feed in tariff for Zambia is around 18 cents per kWh compared to Zimbabwe’s 12 cents per kWh. According to ZERA, Renewable Energy Feed In Tariffs (REFIT) are used to benchmark the price at which power may be sold to the country’s State utility.

“Zambia received bids and the lowest project (on price) was on 7 cents per kWh. Prices in Zimbabwe are high because we do not use competitive procurement. In Zambia, you find that renewable energy feed in tariff is higher, but when they went through a procurement process backed by World Bank, it then brought the prices lower,” Eng Magombo said in an interview.

Demand for electricity in Zimbabwe stands at an average 1 600MW, but is current production stands at just over 1 000MW. The deficit is covered by imports from the region. The highest demand for power was 2 000MW in 1999.

Source: The Sunday Mail

Post Author: MISA Zimbabwe

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