Harare - Zimbabwe finds itself mired in an ongoing electricity crisis that shows no signs of abating, now expected to persist throughout the festive period. The situation is compounded by multiple factors, including plans for mandatory Class C Maintenance on Hwange Unit 8 following the completion of Unit 7 maintenance, which serves as the primary reason for the prolonged power shortage during the holiday season. The aging infrastructure of the country's power stations and a lack of investment in the energy sector further exacerbate the current predicament. Urgent rehabilitation work on Hwange units 1 and 6 requires a substantial investment of $2.8 billion. Consequently, the persisting electricity supply issues are anticipated to have a significant impact on the economy in the 4th quarter of 2023 and beyond.
Amidst a widening electricity crisis, Zimbabwe currently generates an average of 1200Mw per day, which falls significantly short of the peak demand of 2400Mw. Even with the expected restoration of 600Mw from Hwange in January next year, the nation will still face an energy deficit. Compounding the issue, power-intensive companies like Dinson and Iron are set to join the national grid by the end of December, further straining the already burdened electricity supply. Looking ahead, ZESA plans to add approximately 2300Mw of new connections by 2025, more than doubling the peak demand. This indicates that the electricity crisis shows no signs of abating. The consequences are far-reaching, with anticipated disruptions in production for businesses operating in the fourth quarter due to increased operational costs and reduced output levels.
As energy costs soar, mining companies will bear the brunt of the impact, but even businesses with lower electricity requirements, like Delta, will still opt for ZESA (Zimbabwe Electricity Supply Authority) over alternative options. This choice is driven by the fact that a Genset typically costs USc22/Kwh, significantly higher than the recently hiked ZESA tariff of 14.21/Kwh. However, the tariff hike is poised to dent companies' profitability. National Foods, for instance, consumed 713,000 liters of fuel in 2023, amounting to nearly US$1.3 million at current market prices and over a third of the company's operating expenses of US$3.6 million. These figures indicate the imminent struggle that companies will face. In response, ZESA has already raised tariffs to US$14.21/KWh. They claim a staggering loss of potential revenue amounting to US$3.6 billion due to low tariffs, with an additional requirement of US$2.8 billion for the maintenance and rehabilitation of Hwange Units 1 to 6.
On the other hand, Kefalos has emerged as a trailblazer in the dairy industry with the successful implementation of its DPA solar plant. This innovative solar plant now supplies up to 50 percent of Kefalos' energy requirements, a significant achievement when the factory operates at full capacity. Notably, this shift to solar power has resulted in a substantial reduction in their carbon footprint. The solar plant's annual energy production stands at an impressive 999.6 megawatt hours (MWh), resulting in savings of 599,000 kilograms (kg) of carbon emissions and over 6,200 tonnes on an annual basis. By harnessing solar energy, Kefalos has not only made strides in reducing manufacturing costs but has also managed to curtail its energy bill by up to 30 percent. This transition to solar energy signifies a remarkable step forward for Kefalos, as it ensures the uninterrupted operation of their essential operations at the Bhara Bhara Factory, located along Mubaira Road.
In the past, the occurrences of drastic energy cuts have resulted in low production and low reported capacity utilization by industry players. We are of the view that the rolling power cuts will eat into GDP growth prospects despite the reduced longitude of the occurrence. If the power cuts are to run into year end as envisaged at least 10% of the projected growth will be shelved. The impact could have been more severe if companies were not seeking alternatives to circumvent the challenge. As highlighted We are seeing companies creatively finding ways to avert the crisis through alternative energy sources. However, given the rising prices of fossil fuels, this alternative is coming at a huge cost thus impacting negatively on operating costs and net margins. To address this pressing issue, a range of rescue plans is necessary to support the backbone of the economy—the energy sector.
One solution involves creating an asset class known as "renewable energy-backed" bonds (RE Bonds) that can be sold to pension funds, raising essential capital. These bonds would resemble pension funds' existing investments in other fixed-income assets. Collaboration with asset managers and financial institutions, such as banks with a higher risk tolerance, would be crucial in funding these projects. Additionally, the establishment of energy investment vehicles and a robust regulatory framework would provide the necessary support for investment in renewable energy. The government's redirection of subsidies and incentives toward these projects is also vital.
By offering a renewable energy-backed bond or security, the credit rating from rating agencies is likely to be higher, considering the current state of the country's energy supply about demand. Through these strategic measures, Zimbabwe can navigate the challenges posed by rising energy costs and ensure a sustainable energy future.
While grappling with its electricity crisis, ZESA also actively participates in the Southern African Power Pool, sourcing approximately 200-500 Mw of power from Electricidade de Mocambique (EDM), Hidroelctricia de Cahora Bassa (HCB), Zambia Electricity Supply Corporation, and Eskom in South Africa. Zimbabwe imports electricity at an average cost of 10.9 cents/kWh, which has prompted ZETDC (Zimbabwe Electricity Transmission and Distribution Company) to advocate for a cost-reflective tariff ranging between USc12.3 and USc15/Kwh. This tariff adjustment is necessary for ZETDC to operate optimally, service its debt, and overcome other operational challenges.
The issue of servicing the country's debt poses a significant problem. When countries like Mozambique have surplus electricity available for exports, the reluctance to allocate additional power to Zimbabwe grows. The lack of debt servicing undermines the willingness of exporting countries to supply Zimbabwe with more electricity. It is noteworthy that South Africa aims to capitalize on Mozambique's booming electricity production. However, it is intriguing that a substantial portion of the electricity generated in Mozambique is exported to neighboring countries, while a significant number of residents lack access to electricity. Two-thirds of Mozambique's population, totaling 32.8 million people, live without electricity.
Mozambique's largest power plant, Hidroelectrica de Cahora Bassa, has suffered from neglect and insufficient investments over the years. Despite its potential, it exports most of the electricity it produces. Currently, HCB supplies 60% of its power to South Africa's Eskom and 35% to the Zimbabwe Electricity Supply Authority (ZESA). Mozambique consumes only the remaining 5%, leaving a mere 34% of the population with access to electricity.
In the realm of electricity distribution, the Kariba North power station illuminates Zambia, while the Kariba South Power station electrifies Zimbabwe. Yet, neighboring countries seem to have evaded similar challenges. Zambia, in particular, eagerly awaits a staggering $1.7 billion influx of investments into its energy sector, heralding a power transformation with the mighty 750MW Kafue Gorge Lower (KGL) plant. Meanwhile, South Africa, like Zimbabwe, grapples with its electrifying woes.
With a colossal installed capacity of 37,698MW across 13 coal-fired power stations, Eskom, South Africa's power utility, holds immense potential. However, this potential remains untapped, as market-rated tariffs, efficient privatization, and meticulous revenue accountability systems remain elusive dreams. In the African context, electricity tariffs tend to lean towards affordability, ensuring access for the majority of disadvantaged citizens. Despite relentless efforts to adjust tariffs, revitalize the sector, and boost profitability, Eskom continues to face an uphill battle. So, what lies on the horizon to illuminate Southern Africa's energy poverty?
Southern African countries find themselves at a crossroads, grappling with energy crises that demand swift resolutions. Fortunately, a beacon of opportunity shines bright in Mozambique—a nation boasting a comparative advantage in the energy realm. The World Economic Forum has shed light on the lackluster energy access and supply ratings of the Southern African Development Community (SADC) countries. Hence, it becomes not only logical but imperative for the Southern Africa Power Pool to redirect its resources towards Mozambique. Second, Southern African countries possess abundant resources that can fuel a transformative shift away from hydroelectric power. The sun graces these nations with consistent sunlight, while organic materials abound, offering a golden opportunity to diversify their energy mix. Moreover, Zimbabwe's remarkable 500 million tonnes of coal reserves present an untapped source that can effortlessly satisfy the region's insatiable energy appetite through coal-powered thermal power stations
Governments across Africa must recognize the urgency of promoting sustainable energy practices, such as solar power adaptation, biogas utilization, and demand-side management. However, these crucial solutions often remain neglected. Additionally, addressing the issue of illegal connections and implementing stringent revenue collection systems are vital yet overlooked remedies. It is essential to acknowledge that maintaining utilities like Eskom, ZESA, and ZESCOM (Zambia) under state control hampers efficiency. Exploring alternatives like private-public partnerships or outright privatization presents a medium-to-long-term option. Considering the dismal track record of corporate governance, it is unlikely that state-owned enterprises can secure sufficient financing for the much-needed revitalization of generation equipment and transmission infrastructure. Even in functional democracies like South Africa, corruption remains a significant obstacle, hindering progress despite the existence of well-intentioned constitutional frameworks.
As the world races towards the 2030 SDG targets, achieving SDG7's vision of "affordable, reliable, sustainable, and modern energy for all" in Southern Africa remains a daunting challenge. Without a radical shift, particularly in corporate governance paradigms, it becomes increasingly difficult to envision the region's path toward this crucial goal. The persistent presence of energy poverty in Southern Africa not only hampers progress but also slows down the momentum towards industrialization. In this context, the specter of poverty and darkness looms, urging us to take decisive action.
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