Case Study Details - Playbook of Solutions - National and Multilateral Development Banks Funding to Investors

Challenges to investment

In 2018, the Government of Mozambique (GoM) endorsed the 2018–2043 Master Plan for Electrical Infrastructure (Plano Diretor de Infraestruturas Elétricas 2018-2043). This plan aimed for renewables to comprise 20% of the national electricity generation, as a low-cost solution to ensure a more diverse energy mix and greater energy security. Though the sectoral policy set a clear target, a more robust regulatory framework was required to enable private investment in renewable energy projects. Without a clear, formal process and associated auction scheme for private investment, development of large-scale solar and renewable energy projects was extremely limited hitherto.

Approach

Starting in 2018, the French Development Agency (Agence Française de Développement; AFD), using financing from the European Union (EU), offered its support for the GoM’s Promotion of Renewable Energy Auction (Promoção de Leilões de Energias Renováveis; PROLER) programme to develop renewable energy power generation. PROLER was instrumental in helping the GoM launch public tenders for renewable energy projects with a transparent and competitive process. Under PROLER, the renewable energy power generation projects aimed for a total installed capacity of 160 MW, to be connected to the national power grid. Three solar projects were planned for the cities of Dondo, Lichinga, and Manje, and a fourth wind power project was scheduled for Inhambane, with an estimated total cost of around €200 million. Of the €200 million, €37 million was co-financed by the EU, with the remainder provided by selected private investors. AFD provided technical assistance to prepare for and launch the calls for tender, including all feasibility studies, environmental and social impact assessments, and mitigation measures, as well as funding interconnection costs. For private power-producing companies responding to the calls for tender, AFD offered a guarantee mechanism to limit the risk of non-payment by the buyer, Electricidade de Moçambique (EDM), the national utility.

Key Enabling Conditions

By leveraging the AFD guarantee mechanism and expertise, a competitive and transparent tender process bolstered investors’ confidence. In addition, the World Bank approved a $150 million loan for EDM. These funds were intended to strengthen the national grid infrastructure and improve the capabilities of the transmission and distribution network. The grid improvements are expected to increase the reliability of the power supply and enable greater integration of solar and renewable energy power plants.

Impact / Outcomes

In 2021, the first of the four PROLER renewable energy projects - the Dondo solar project - launched its tender, with a planned capacity of 40 MW and expected commissioning in 2024. The tender for the Lichinga solar project with 40 MW was launched in 2022, with construction starting in 2024 and commercial operation in 2025. Similarly, the solar project in Manje with 40 MW planned to start construction in 2024 and begin operation by 2026. Together, these three solar power plants were expected to supply enough electricity for 300,000 households and avoid the country’s CO2 emissions by 25,000 tons annually. Additionally, the Inhambane Wind Power Plant, with a capacity of 40 MW, was scheduled to start operations in 2025.

Additional Sources