Malawi Sustainable Energy Investment Study September 2019 DRAFT for VALIDATION WORKSHOP
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Malawi Sustainable Energy Investment Study September 2019 DRAFT FOR VALIDATION WORKSHOP GOVERNMENT OF MALAWI Ministry of Natural Resources, Energy and Mining 1 Foreword Malawi has committed to achieving “Sustainable Energy for All”, as enshrined in Sustainable Development Goal (SDG) number 7. Energy is a means to an end; it provides a platform for social and economic development, and a pathway for achieving many of the other SDGs. The third Malawian Growth and Development Strategy (MGDS III) recognises this central role of energy, citing it as “the lifeblood of the economy”, and laying out a goal to “provide sufficient sustainable energy for industrial and socio-economic development”. Improved access to reliable [Photo to be added, and sustainable energy supply is one of the core outcomes the MGDS III seeks to achieve. pending validation] In response to these commitments, the Ministry of Natural Resources, Energy and Mining (MoNREM), acting through the Department of Energy Affairs (DoEA) and Malawi Energy Regulatory Authority (MERA), has worked to put in place policies, regulations and a framework that will allow increased investment and rapid growth in the power sector. The National Energy Policy (2018) and the Malawi Renewable Energy Strategy (2017) build on the targets laid out in the Sustainable Energy for All Action Agenda (2017) and provide high-level policy direction, complemented by detailed technical analysis made available in the most recent Integrated Resource Plan (2017). To translate these goals into reality, the Ministry will rely on clear plans to move key investments forward, based on transparent funding arrangements that aim to provide reliable and sustainable energy for Malawians at the lowest possible cost. In this context, this Malawi Sustainable Energy Investment Study, a partnership between DoEA, the UN-OHRLLS and Rocky Mountain Institute, is timely and essential. This document outlines a clear vision of what is needed and how, together, we can make it happen. The way forward for Malawi represents a significant investment over the coming decades, of up to $3 billion, but this investment will create enormous benefits for the country. The study will help government, development partners, investors and the private sector converge on a shared agenda. Concentrating on a clear set of short-term actions, the study’s recommendations can unlock investment and help the sector grow rapidly, as proven in other countries across Africa. I call on all actors in the energy space to work alongside Government as we look to implement the recommendations of this study and accelerate progress towards sustainable energy for all Malawians. [To be signed, pending validation] Patrick Matanda Secretary for Natural Resources, Energy and Mining 2 Authors & acknowledgements 3 Contents 1. Background................................................5 2. Introduction…………………………………. 9 3. Project Prioritization……………………....26 4. Finance for Development………………...78 5. De-risking Projects………………………. .88 6. Recommended Actions………………….. 96 7. Appendices & Supporting Documents 106 4 BACKGROUND 1. Background 2. Introduction 3. Projects 4. Finance 5. De-risking 6. Recommendations 7. Appendices Introduction Rocky Mountain Institute and UN-OHRLLS are working with the government of Malawi to overcome barriers and meet targets for energy investment in the country Malawi Sustainable Energy Investment Study The Department of Energy Affairs (DoEA) is one of the aims to: constituent departments of Malawi’s Ministry of Natural Resources Energy and Mining. coordinates formulation of energy policies, planning, and ICT; the provision of rural • Provide a clear and specific investment electrification services; and the provision of alternative prospectus for meeting Sustainable Development energy and energy conservation services Goals (SDG), and improve power sector financial health and service United Nations Office of the High Representative for Least Developed Countries, Landlocked Developing • Identify immediate and near-term opportunities to Countries and Small Island Developing States (UN- make progress and unlock investment in Malawi OHRLLS) helps coordinate and implement programmes of action which assist vulnerable countries in areas including economic growth, poverty reduction and meeting targets laid • Support Malawi to secure the right finance at the out in the SDG. right time Rocky Mountain Institute (RMI)—an independent • Build on extensive work carried out by Malawi nonprofit founded in 1982—transforms global energy use to government and development partners over the create a clean, prosperous, and secure low-carbon future. It engages businesses, communities, institutions, and past years, to build a shared vision entrepreneurs to accelerate the adoption of market-based solutions that cost-effectively shift from fossil fuels to efficiency and renewables. 6 Introduction Through 2019, this study worked to gather information from a range of actors, to work towards an integrated approach for analyzing power sector investment needs Public sector entities Development partners Private sector Department of Technical Malawi Investment Energy Affairs ESCOM assistance (UNDP, Private developers & Trade Centre (lead) GIZ, USAID, DFID) Department for Department of DFIs (World Bank, Economic Planning EGENCO Commercial banks Forestry AfDB) & Development Department of Treasury Agricultural MERA NGOs and CSOs Investors Planning UN Least Developed Countries Stakeholder Convening Project launch (LDCs) conference* validation sessions Feb Mar Apr May Jun July Aug Sept 7 *http://unohrlls.org/scaling-energy-access-finance-least-developed-countries-30-31-may-2019-beijing-china/ Introduction Malawi's challenges are recognizable to many other LDCs, who can learn from this experience Unit Malawi Mali Sierra Leone Zambia Mozambique Madagascar Electrification (% of 11% 35% 20% 27% 24% 23% population) Other LDCs in sub-Saharan Rural (% of 4% 2% 3% 3% 5% 17% Electrification population) Africa face similar Electricity price (US 11.3* 16.2 16.9 8.1 8.8 19.5 challenges cent/kWh) and can apply similar Installed (On-grid 395 471 171 2,906 2,893 768 Capacity MW) approaches. Availability of Low: 0 0.25 1.75 0.25 1 0.75 0.25 Finance High: 2.5** *Electricity price from Malawi Energy Regulatory Authority (MERA) website as of May 2019; MK 88.02/kWh converted using 775 MK to USD. 8 **Availability of Finance score reflects whether or not existing projects have been able to secure concessional or commercial finance from domestic and international sources. Sources: Climatescope Bloomberg BNEF 2018, WB World Development Indicators INTRODUCTION 1. Background 2. Introduction 3. Projects 4. Finance 5. De-risking 6. Recommendations 7. Appendices Introduction Current conditions show significant potential and sustained demand for increased energy access in Malawi National electricity access: 12% • 3.9% in rural areas Population 18 million • 48.7% in urban areas • 16% in Urban Areas In 2017 system-wide load shedding occurred as low rainfall left the system unable to • 83% in Rural Areas meet demand. In 2019, the peak available capacity of 285MW (including 55MW of emergency diesel generation) is still well below the peak demand.* Total GDP (2016) at US$5.44 billion** Agriculture, Wholesale Finance & Other Manufacture Transport Construction Government Utilities Mining Forestry & & Retail Business Services and Services Fishing Services Services Communication 10 Source: Southern Africa Energy Program (SAEP) Market Entry Info Pack–Malawi *Electricity Supply Corporation of Malawi (ESCOM) Power Gen Info 2019 factsheet. **GDP was approximately $316 per capita in 2016. Introduction Increasing the supply of and access to reliable, affordable energy is therefore at the core of Malawi's development goals Malawi Growth and Development Strategy III (2017) Historic electrification rates and SEforAll targets* aims to: 100% “Provide sufficient sustainable energy for 90% Off-grid targets industrial and socio-economic 80% development.” 70% Historical Forecast Access Access Malawi’s Sustainable Energy for All (SEforAll) Action 60% Agenda (2017) intends to: 50% “Provide access to modern energy services 40% On-grid for all by 2030, through on- and off-grid Electrification Rate Electrification 30% electrification electrification and improved cookstoves.” rate 20% The goal of the Malawi Energy Policy (2018) is to: 10% “Increase access to affordable, reliable, 0% sustainable, efficient and modern energy for every person in the country.” Grid Minigrids + SHS Pico Solar 11 *Targets taken from the 2017 SEforAll Action Agenda Introduction Recognizing this, the government and its partners have set ambitious targets to unlock the generation potential, and undertaken numerous pieces of sector reform Numerous Reforms and Stakeholder commitments have been undertaken to help realize access targets* • 2003: Malawi approves Power Sector Reform Strategy to foster private sector involvement • 2013: Malawi enters US$350 million compact with Millennium Challenge Corporation to help fund infrastructure projects, especially to increase transmission and distribution capacity. • 2017: ESCOM unbundled to act solely as dispatcher (and in the interim as single buyer), and EGENCO formed to handle generation Generation Mix in 2018** Biomass Proposed Generation Mix in 1% 2030*** Malawi has rich renewable generation potential, including hydropower, solar, Wind wind and biomass. Diesel 10% 24% Interconnection Those resources have not been well 14% utilized