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Africa Energy Futures: Mozambique

By Kaina Mussagy Arentsen

Over the last 5 years, how has the energy mix changed, and what have been the key drivers?

In 2009, Mozambique approved a policy on new and renewable energy, and subsequently the regulation establishing tariffs for new and renewable energies. The regulation applies to independent power producers (IPPs) using renewable sources in projects of up to 10 MW and provides a model tariff that promotes the diversification of the energy mix through attractive tariffs which stimulate investments in mini-grids powered by renewable sources.

Mozambique has good conditions throughout the year for hydro and solar power projects. Currently, the majority of the electricity in Mozambique is generated from hydropower stations, despite large deposits of thermal coal. At present, no electricity in Mozambique is generated using fossil fuels. Wind projects can only be implemented in certain locations in the south of Mozambique.

The main legislation that has contributed to the trends described above include:

  • Paris Agreement on Climate Change – following the ratification of the Paris Agreement, the country launched a Partnership Plan for Climate Action, aimed at supporting the implementation of policies and measures on climate-related targets for greenhouse gas emission reductions, known as the Intended Nationally Determined Contribution for the period of 2020 to 2025. It highlights an ambitious mitigation commitment to reduce about 76.6 metric tons of CO2 per year from 2020 to 2030 and also determines the development and financing of 2200 MW of renewable energy projects.
  • Regulation for Reducing Carbon Emissions from Deforestation and Degradation – it provides for the issuing, transferring, transacting and withdrawing of emission reduction securities / carbon credits.
  • National Strategy for Electrification 2018 to 2030 – this resolution was followed by the launch of the Mozambique Electricity for All Project, also known as ProEnergia, replacing the MOZA-LIGA Project (which had essentially the same purpose). ProEnergia’s main goal is to ensure energy access for all citizens by 2030 through increasing and improving the generation, transport and distribution of electricity. This goal is to be materialized in part by the diversification of the energy mix through the development of renewable energy sources. According to FUNAE, the National Energy Fund, the country has more than 2.7 GW of potential solar power, of which 599 MW with grid connection capacity. Electricidade de Moçambique (EDM), the national electricity utility company, has already launched two pioneering solar projects, the Mocuba Solar Power Plant (40 MW) and the Metoro Solar Power Plant (30 MW).

What is the outlook for the energy and natural resources sector in the next 5 years? In particular:

Key policy decisions

In 2020, the President of Republic of Mozambique led the eagerly anticipated ceremonial launch of the renewable energy initiative. This initiative is part of the Promotion of Auctions for Renewable Energy (PROLER), which aims to achieve greater capacity for generating renewable energy resources at a lower cost, for the benefit of the end-consumer. With a call for bids under a public tender system, the government intends to provide greater transparency and competitiveness in the renewable energy sector, attracting national and international investors.

The development of energy mix will be pursued through several key policy decisions:

  • The amendment of the electricity law – the current law dates from 1997. It needs to be amended in order to reflect the evolution of the sector in the last decades. Significant steps to achieve this have been taken, including an advanced draft which is expected to be approved by the end of 2021. It is anticipated that EDM will be maintained as the sole electricity off-taker.
  • Approval of new legislation on new and renewable electricity projects – the regulations on renewable energy are ongoing. Currently, the country does not have specific legislation governing the licensing of new and renewable electricity projects. Thus, renewable projects are subject to the same cumbersome requirements applicable to conventional electricity projects.
  • Strengthening the domestic supply of natural gas to generate more electricity – it is expected that the natural gas extracted from the Rovuma Basin may also feed local industries including more gas-fired power plants.

Main policy challenges

There is a need to inject confidence into Mozambique’s electricity market. This can be achieved in part by approving, without further delay, the necessary additional legislation mentioned above. In particular, the electricity law, where the government should adopt an ambitious approach. As is, the draft bill proposes to liberalize mini-grids of only 1 to 5 MW, while Mozambique’s neighboring countries are liberalizing up to 100 MW. With such limited scope, it will not attract the investment the country is seeking; the capacity of eligible projects will need to be expanded to avoid this outcome.

In addition, insufficient infrastructure for transmission and connection to the national grid may demotivate investors in the power sector.

The anticipated role that renewables and/or new technologies will play

With the growth of new and renewable energy projects in Mozambique, it is expected that there will be increased investment in energy projects and related infrastructure, as well as the entry into the market of new and more IPPs.

The launch of PROLER is the first milestone for widespread rural electrification, a government goal in the electricity sector.

What are the key investment opportunities in the energy and natural resources sectors over the next 5 to 10 years?

Distribution capacity is one of the biggest challenges in the power sector. The solution is the construction of better interconnection infrastructure, a process that demands significant investment, given that the existing infrastructure comprises many small transmission lines. Some projects are already underway, including the Temane Transmission Project involving the construction of 563 km of a 400 kV line.

Mozambique has the goal of becoming an energy hub in southern Africa with the production of hydrogen. Cheap energy used to produce hydrogen would be a real motivator for the construction of the long-awaited Mphanda Nkuwa Dam on the Zambezi River, a project that exists since the colonial era.

The country has yet to benefit effectively from its natural gas assets, as the relevant projects are still in an early stage. This presents an opportunity for investment in the gas sector, including for the use of natural gas as such and in the implementation and management of LNG infrastructure projects.

With particular focus on sustainability, and on reducing carbon emissions, how will the energy and natural resources landscape change over the next 5 to 10 years?

Significant changes regarding sustainability and reducing carbon emissions are not expected. Mozambique has the corresponding basic policies and legislation in place, although the speed of implementation is still uncertain.

In the next years, the country is expected to: (i) implement an array of new and renewable energy projects to meet ProEnergia’s targets; (ii) increase the number of gas-fired power plants as the major gas projects start production and secure domestic supply; (iii) increase financing and refinancing transactions through the issuance of green bonds or other green instruments; (iv) gradually consider and implement green hydrogen investments; and (v) increase the export of electricity to South Africa as it gradually closes its coal-fired power stations.