eBusiness Weekly
Economy Uncensored with Tapiwanashe Mangwiro
Yesterday President Mnangagwa officially commissioned the Hwange 7 and 8 Units, which have brought a combined 600MW onto the grid, but the country is still far away from attaining self-sufficiency in the energy sector.
Demand for power is already over 2000MW and rising, this means that Zimbabwe still has a big power gap to fill.
Power utility ZESA is on record saying applications of at least 2350MW for extra electricity have been delivered and this is more than the country’s current installed capacity.
These applications are from the mining sector, which needs power for new operations and expansion projects and the high energy consuming Dinson Steel Project, which alone needs over 500MW immediately for its first phase.
So in this piece we look at what is most likely to happen in the next quarter, the current power situation and what is being done.
Prospects for fourth quarter 2023
Electricity in the fourth quarter is generally going to be harder to generate due to the complexities associated with our power stations. Like last year, Kariba is low on water and is moving with the same trajectory as last year.
Hwange Power Station usually faces wet coal problems during the same time and units 1 to 6 are undergoing a US$300 million refurbishment which will keep them out for a significant amount of time.
The Kariba Lake is designed to operate between levels 475,50 meters and 488,50 meters (with 0,70 meters’ freeboard) for hydropower generation. The Lake level is decreasing, as at July 31, 2023 it was at 479,66 meters (29,34 percent usable storage), compared to 479,70 meters (29,63 percent usable storage) recorded on the same date last year.
Using all these matrices we will come to the conclusion that energy in the coming period will be tough to generate and meet demand which is already above our generation capacity.
Current Power Situation
In 2022, energy supply in Zimbabwe was a mix of hydropower (68,17 percent) coal and renewable energy sources (31,83 percent), according to the Zimbabwe Energy Regulatory Authority.
With an installed capacity of 2342 MW (now 2900MW) comprising 55 percent thermal and 45 percent hydro energy, the country is unable to utilise its capacity due to limited access to water and fuel as well as ageing equipment.
Zimbabwe currently uses 1671MW despite a 2200MW installed demand because the country’s industrial base is no longer at the same level it used to be, given the economic downturn in recent years.
Kariba Hydro Power Station and Hwange Coal Power Station (coal) are the main electricity generators. IPPs contributed 4,5 percent of the total energy production in 2022. IPPs grid contribution increased by 193 percent from 131,31GWh in 2021 to 385,38GWh in 2022 mainly due to new capacity at ZZEE and Solgas and increased rain at mini hydro plants.
What is being done?
In an opinion article for Zimbabwe’s Sunday Mail newspaper last year, the country’s President Mnangagwa expressed concern at the energy demand, particularly of the mining sector, that is central to the government’s economic policy.
“We… have to increase our internal power generation, possibly threefold, if we are to avoid throttling our growth, and if we are to lessen our dependence on power imports,” wrote President Mnangagwa.
During the past five years, independent power producers (IPPs) have explored alternative energy sources such as solar, wind, geothermal, biofuels and biomass.
This is being driven by the promulgation of the National Renewable Energy Policy in 2019, whose aim is to raise the share of renewables in the energy mix by creating incentives from supply to distribution and demand, in both urban and rural settings.
In 2021, the government rolled out the National Development Strategy (NDS) Phase 1 (2021-2025) with one of the following targets, to increase power supply from the current installed capacity of 2317MW to 3467MW by 2025, with 1100MW from renewable energy sources.
Government said it will give IPPs tax incentives and guarantees to potential financiers of their projects, among a slew of measures to fix the energy crisis in the country.
Government pledged to work closely with IPPs through a continuous engagement process to increase access to foreign currency and it also extended a package of support measures to IPPs that include expediting licensing of new projects, providing guarantees for projects to potential financiers to mitigate currency convertibility risks and tax incentives for capital goods for renewable energy projects.
According to ZERA, more than 90 licences have been issued to IPPs for renewable energy projects, with only 20 being active.
The Jatropha mobile diesel plant is about 75 percent complete with the final stages involving oil press filter installation, raw material collection, and integration of the various components including the automation control unit are the major remaining aspects to be done before a test run.
Possible Solution
Pension funds are a possible solution to our problem, because they have the funds but they are investing in a few types of investments and holding treasury bills as safe havens.
Infrastructure development makes up a big part of pension funds’ investment strategies but it is the diversity in the type of infrastructure that needs to be looked at if we are to move forward as a nation.
With the country in electricity generation and on a solar power station tender awarding spree, the pension funds can look to tap into the renewable energy space and get better returns.
A feasible return on infrastructure equity investment will be about 10 percent-14 percent in USD terms, depending on factors such as gearing and risk.
What’s especially attractive about such returns is that they tend to be dependable and predictable over the long term in annuity income that can be relied upon to materialise. The cash flows from these investments are also a better match for the liabilities of a pension fund, because they are long-dated and inflation sensitive.
The minister of finance needs to sit down with the pension funds in order to come up with a solution for them to feel quite sure about their investment and the return. It is one of the quickest ways to find a major solution rather than wait for small IPPs.
What does the future hold?
Going by the plan by government to fix our problem, our main hope lies with the IPPs to reduce the gap between demand and supply. Demand will grow twice in the few years to 2025, but production which is said to triple in order to sufficiently meet the growing demand has no major plans ahead.
Load shedding which has become a norm due to ageing plants will continue to be with us in the current decade until the country finds a major solution to the problem. Had the plans for Sengwa Power Plant and Batoka Gorge Hydro plant not been cast into the wilderness we could be talking of major contributions to the grid.
As it stands, Zimbabwe is far out of the woods in terms of power shortage unless gas being explored in Muzarabani becomes our unlikely savior.
Tapiwanashe Mangwiro is a resident economist with the Business Weekly and writes this in his own capacity. @willoe_tee on twitter and Tapiwanashe Willoe Mangwiro on LinkedIn.
