Focus: Private-sector involvement in green energy

Green Space

Jan. 29, 2021

The private sector is playing a key role in the development of green energy.

Since the launch of ProEnergia in 2018 by the government, Mozambique's electricity public utility Electricidade de Moçambique (EDM) has taken the lead in the green energy space, preparing the field for foreign investors to enter the market and partner up. Mocuba and Metoro, both 40-MW solar power plants, have been the first successful examples of PPPs in this area, paving the road for the future of on-grid projects. EDM created a new unit for renewable energy and energy efficiency, primarily concerned with on-grid renewable projects, and implemented a new strategy for operational strength, transitioning from a direct negotiation model to a tendering process, which ensures higher transparency and efficiency. EDM has also been sponsoring programs such as Proler (renewable energy auction mechanism) and GET FiT (tariff viability gap funding) to support private players in the field and is now looking to commercial opportunities in off-grid projects above 1MW in agriculture or fisheries.

During a roundtable organized by TBY, EDM committed to a higher degree of coordination with FUNAE (the energy fund responsible for the off-grid space) to ensure the achievement of the common goal. The off-grid sector will be key in reaching ProEnergia's goals: Mozambique is a vast country and extending the grid will take time. Solar home systems, powered through the pay-as-you-go model, represent an immediate stand-alone solution to reach the off-grid population in the most rapid and efficient manner; if properly managed, 500,000 households could be reached in the next five years. The sector is now full-fledged, but there is definitely space for more players to enter the market. The green energy sector has seen widespread enthusiasm among donors as well, which have channeled an unprecedented amount of financing in the market (more than USD100 million), through programs such as BRILHO, EnDev, African Enterprise Challenge Fund, and Beyond the Grid Fund for Africa. Through such incentives, the international community has recognized the private sector as the main actor in the space. What the private sector now needs to secure investors' confidence is regulation. The starting point will be the revision on the Electricity Law, which will establish key aspects in the involvement of the private sector; the government is expected to bring this to Parliament later in the year. The government should also look at updating the grid code to integrate renewables into the mix. The regulatory agency ARENE has been recently created to oversee all regulatory issues. A key aspect for the involvement of private companies will be fiscal incentives, through duty and VAT exemptions for off-grid solutions such as solar home systems and through cost-recovery tariffs for on-grid or mini-grid projects, to ensure the viability of the investment.

There is good to reason to believe 2021 will be the year of regulation. It appears evident that the successful involvement of the private sector will ultimately rest on a delicate balance between incentives and competitiveness, to push the goal of energy inclusion while ensuring a return on investment for companies. While the private sector is expected to play the largest role in the coming future, subsidies are needed to make the sector bankable, and ultimate success will entail a productive dialogue with EDM, FUNAE, and the public sector. The main piece of advice for companies interested to invest in green energy in Mozambique is to enter the market through existing programs (such as Proler, GET FiT, GET.invest, BRILHO, or Beyond the Grid Fund for Africa), which will help companies access funding and navigate governmental channels. Partnerships and networking with local entities are essential, and in this regard, we recommend getting in touch with Mozambique's Renewable Energy Association (AMER), expressively created in 2020 to bring the private sector together and negotiate with the government.