24 May 2019

Zimbabwe: Achieving Self-Sufficiency in Zim Power Generation

opinion

ZIMBABWE is entering its third week of electricity blackouts under the national load-shedding programme announced by the country's power utility, Zimbabwe Electricity Supply Authority (Zesa).

The experience for various consumers seems like a déjà vu as rolling power cuts had been a daily norm from 2000 up until 2013 when prepaid meters were introduced.

The power utility communicated that the power cuts are a result of demand and supply mismatch, low water levels at Kariba hydro-electric power station, generation constraints at Hwange Thermal Power station and limited imports of electricity from traditional suppliers in the Southern African Development Community region. Zimbabwe is currently generating less than 820 megawatts (MW) from three power stations against a daily peak demand of 1 600MW in winter and 1 400MW in summer. Harare and Bulawayo thermal power stations are not generating electricity at the moment.

Zimbabwe imports at least 50MW daily from Eskom of South Africa and 100MW from Hidroelectrica de Cahora Bassa (HCB) of Mozambique to meet the supply gap, but can access up to 450MW from the two regional power utilities if it pays off its arrears which amount to US$80 million. As a result of outstanding debts, the two suppliers have reduced exports to Zimbabwe by 50MW and 100MW respectively until their dues have been cleared. The situation has been made worse by low water levels in Kariba Dam, where Zimbabwe and Zambia share equally less than 1 000MW currently being generated by Kariba Hydro-electric Power Station.

Zimbabwe has five power stations which have a combined generating capacity of 2 400MW. Years of mismanagement, poor planning, underinvestment and corruption in tenders to upgrade aging power stations or develop alternative renewable energy sources have taken the country back to a familiar problem.

The country now pins its hopes on the ongoing 600MW Hwange Power Station expansion funded to the tune of US$1,5 billion by China Exim Bank, being undertaken by Sinohydro from China. The project is expected to be complete by March 2022.

The 2 400MW Batoka Gorge hydro-electric scheme (being developed jointly with Zambia) is still to commence and should be completed by 2025 if the US$5 billion funding is secured on time. However, there are a lot of initiatives that Zimbabwe can push to ensure self-sufficiency in electricity generation in the next three to five years. These include:

Electricity tariff review

The overarching goal for the government is to ensure that the tariff charged for electricity consumption allows Zesa to break even and keep the cost of production in the economy at optimum levels. Currently Zesa charges $0,0986 per kilowatt hour ($0,028 when using the inter-bank rate) while it costs $0,11 per kWh to produce electricity locally.

Eskom and HCB charge $0.13 per kWh, slightly below the regional average cost of $0,14 per kWh. This mismatch means that Zesa will continuously sink into debt in order to sustain electricity consumption locally. Added to that, consumers owe Zesa over $1,2 billion in unpaid bills and it owes suppliers its US$500 million in turn.

The first task is to streamline Zesa operations and complete restructuring of operational costs to ensure that the organisation operates efficiently. After that, Zesa should be allowed to charge just above $0,14 per kWh to domestic consumers (non-commercial consumers) and a subsidised rate of 20% to 40% cheaper for agricultural, mining, commercial and industrial consumers depending on electricity usage in production.

The benefit for such a tariff would be to foster discipline in electricity usage for domestic consumers and pursuance of renewable energy solutions (solar) for commercial, industrial or institutional consumers.

More importantly, a competitive tariff allows independent power producers to invest and supply the national grid at competitive rates.

According to newZWire (2019), the sub-economic tariff is one of the major issues keeping energy investors away. Over the past five years, the Zimbabwe Energy Regulatory Authority (Zera) has licensed over 51 independent power producers (IPPs), but those projects remain grounded due to low tariffs, which make no business sense for financiers to fund local energy projects.

Investors also demand a bankable power purchase agreement (PPA), a long-term offtake agreement with a creditworthy buyer of the electricity. Zesa is not seen as creditworthy enough to allow debt repayment or a predictable and sustainable revenue stream. This may, in turn, affect securing favourable credit lines for the funding of other upcoming schemes such as Gwanda, Insukamini and Munyati solar projects, Batoka Gorge hydro-electric and Gairezi hydro-electric projects.

Red tape in licensing

Once tariffs are reviewed upwards, the government may then structure tax holiday schemes in exchange for electricity supply to the national grid with independent power producers for solar, wind and gas projects.

To ensure this, there is need to shorten the licence application processes for IPPs with the Ministry of Energy and Power Development, Zera, Environmental Management Authority (Ema) and Zimbabwe Electricity and Distribution Company (ZETDC) all involved in licensing new players over and above the usual institutions and local authorities.

Zimbabwe is endowed with abundant natural energy sources and local electricity production from clean energy sources is way cheaper than importing power from regional suppliers. If all the planned projects by private players are implemented in the next three to five years, Zimbabwe has potential to be self-sufficient in electricity generation and export excess capacity.

Repowering projects

Zesa is currently engaged in repowering projects for Munyati, Harare and Bulawayo power stations. The entity recently cancelled a US$133 million tender for the repowering of Munyati Thermal Power Station awarded to an Indian company, Jaguar

Overseas and local partner Intratrek, after the firms failed to secure funding for the project four years after winning the bid. Efforts to get the same contractors to begin work at the US$104 million Harare Thermal Power Station have stalled as the contractors want guarantees from Afreximbank that there is funding for the project, while so far only US$52 million has been secured from the regional bank and requires agreements between the contractor and the power utility so as to be released.

After securing US$110 million from India's Eximbank, Bulawayo Thermal Power Station repowering has been stalled by contractual dispute between Zesa and Bulawayo City Council. In order to resuscitate these projects, Zesa may need to re-tender and start afresh with an eye for private-public partnerships with potential funders. This allows potential funders locally and internationally to be partners in the management of the project to ensure efficiency in electricity generation. This route is largely dependent on the tariff of the day for return on investment.

Full smart metering

In order to grow revenues and ensure sustainability, Zesa needs to smart meter all electricity consumers as a critical success factor. Smart metering allows the struggling entity to collect steady revenue inflows to pay for power imports in the mid-term while servicing credit lines used in repowering aging power stations.

Zesa so far has less than 700 000 smart meters countrywide against a possible number in excess of 2,5 million. The entity has licensed close to 20 firms to help meet smart meter demand by new customers.

However, the ongoing foreign currency shortages have stalled the project. The smart metering project is a game changer for the power utility as it brings the power utility up to date with international best practices and allows them to supply electricity to prepaid consumers.

A review of the electricity tariff therefore provides a firm foundation for economic production of electricity on the local market. It will allow independent players to commence and complete planned projects while ensuring optimality for Zesa even when the country fails to receive good rains for powering Kariba hydro-electric power station.

Zimbabwe has massive electricity generation potential to ensure self-sufficiency and that potential needs private players to come on board for full realisation. This may take the form of PPPs, joint ventures or various other models with the power utility hence the need to complete the smart metering project to guarantee effective demand and payment of electricity.

Victor Bhoroma is a business and economic analyst. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or alternatively follow him on Twitter @VictorBhoroma1.

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