3 of November 2017

Time for a Rural Energy Agency for Mozambique: Faster Access with Cleaner and more Affordable Energy

Dear readers,


On the first day of the conference “Renewable Energy in the Electrification of Mozambique”, I had the pleasure of moderating a high-level debate between representatives from the Ministry of Mineral Resources and Energy (MIREME), Fundo de Energia (FUNAE), Ministry of Environment and Rural Development (MITADER), a senior expert of the World Bank and the newly established regulator (ARENE). The debate focused on the question how renewable energy can play a role in the electrification of Mozambique. As the Mozambique Government has set a target of universal access to electricity by 2030, it is worthwhile having a critical discussion about whether this target is achievable, and if so, how this can be done. During the debate, there was ample evidence that there is still a long way to go in terms of defining the exact role of the various partners and how it should be financed.


Even though the draft National Strategy for Electrification (ENE) has a lot of virtue from the perspective of on-grid solutions, still a lot of details are missing on how off-grid solutions based on renewable energy fit in the overall strategy. It is also unclear how these various solutions should be applied as part of a Master Plan that is currently being drafted. Apart from that, it was made clear that there are insufficient public funds available for the financing of the electrification strategy and that therefore part of the funds would have to come from private sources. For the private investors to become interested however, the Government of Mozambique would have to indicate a clear role for companies to invest and reduce risks associated, a thing that is currently not foreseen in the strategy. Finally, throughout the discussion, it became apparent that the mandates of the various parties in rural electrification of Mozambique are not clearly spelled out and that this may lead to inefficient allocations resources in the future.


With the mandate of Electricidade de Mocambique (EDM) to produce, transmit and distribute power, the power utility has a central role in the National Electrification Strategy. Currently, it uses funds from internal revenue and development partners for extension of the grid to all district capitals and works on grid densification to about an additional 100,000 connections per year. As part of the national energy strategy, this number would have to rise significantly for a period of 10 years, to catch up with the population growth and start making a difference the roughly three quarters of Mozambicans still without power. The investment required for this effort was estimated by the World Bank at $6 billion. In areas unlikely to be covered by the network, FUNAE provides various off-grid solutions to citizens using solar and hydro power in stand-alone systems and mini-grids. It has recently launched a Project Portfolio, which could be considered a long list of populated rural areas which FUNAE envisages to electrify at an estimated cost of $0.6bn. How will this $6.6bn be mobilised? Can this be provided through loans or grants to Government? Are there business models thinkable to finance local generation / distribution with private funds? How to avoid the discussed lack of coordination between actors? What can be the role of climate finance? How to actively involve the Ministry of Environment and Rural Development (MITADER?). How to ensure that a holistic approach is used, resulting in addressing not only electricity but also other rural energy challenges such as cooking?


According to the World Bank specialist present during the discussions, funds would come from abroad only if Government develops clear delivery mechanisms based on a robust national electrification plan. To enable this, there is room in the Mozambique regulatory sphere to introduce a Rural Energy Agency, in line with neighbouring Tanzania and also following of other countries in the SADC and East Africa Region. It is also the model that has been successfully applied in the Mozambican road sector. The newly to be created Rural Energy Agency would be a powerful institution reporting to MIREME and ARENE with the sole mission of providing access to modern and affordable energy services for all Mozambicans, whether by means of grid connections or using off-grid solutions.


What would the ideal Rural Energy Agency do in Mozambique? It would implement a Master Plan which is agreed by all parties and adopted by Government. The Master Plan would clearly spell out areas where grid extension will be realised and other areas where off-grid solutions would be applied. It would contract EDM and/or subcontractors for grid extension. It would have agile instruments to engage in public private partnerships for off-grid solutions through results-based financing (stand-alone) or reverse auctions (mini-grids). A well-functioning Rural Energy Agency would therefore perform parts of the functions that are currently in the domain of FUNAE, MIREME, MITADER and EDM. Bringing the core functions (Coordination, Contracting, Monitoring) together in a Rural Energy Agency would lead to inherent coordinated package of activities, provided the sector is regulated with a clear mandate under MIREME / ARENE. It would engage in a close dialogue with the private sector through the Mozambique Renewable Energy Association (AMER).


How would the envisaged Rural Energy Agency be funded? It could be financed through an “Energy Account” which is sourced with government investment funds, a levy on each sold kWh by EDM as well as loans and grants from development partners. Funds would also be sourced from the international climate investment funds, provided the expenditures will yield climate-relevant impacts. The financing function of REA should possibly be a small organisation, with an investment board consisting of all current players in the energy sector.


Concluding, I think it is worthwhile reconsidering the current mandates of organisations operating in the financing, planning and implementation in the challenge for universal access to clean and affordable energy services in Mozambique, and the conception of a Rural Energy Agency could be considered as part of this development.


During the closing session of our conference, the Vice-Minister of Mineral Resources and Energy Augusto de Sousa affirmed that it will be impossible to achieve the Mozambican target of universal access to energy by 2030 with conventional methods only (centralised generation, transmission and distribution) and that distributed renewable energy will have an important role, specifically in remote areas. Mr. de Sousa further confirmed that the Government of Mozambique will need private sector participation to achieve its targets and indicated interest in being open to contributions from within Mozambique and abroad as well as to include international experience in the future Mozambican approach.


Let us explore if an agile Mozambique Rural Energy Agency can be part of that solution.