Mthuli offers state guarantees to clear the clouds over 1,000MW of delayed solar projects

Solgas' solar farm at Dete: Zim wants more solar projects, but currency worry clouds the investment

The government is giving guarantees to 27 independent power producers, with projects of a combined 1000MW, hoping to clear a key hurdle that has kept energy investors away and left Zimbabwe facing power shortages.

Finance Minister Mthuli Ncube announced Monday that the government had agreed to a Government Implementation Agreement (GIA) for all solar IPPs projects. Under a GIA, IPPs will be guaranteed an economic tariff, while the Reserve Bank of Zimbabwe will ensure that they can convert their earnings to foreign currency and be able to transfer it. The GIA also carries a power purchase agreement with ZESA.

This is meant to address one of IPPs’ biggest concerns in Zimbabwe; they hesitate to invest in a market where they would have to sell power at a loss, earning Zimbabwe dollars, and not being able to take their profits out.

“A key ingredient to the successful implementation of the solar IPPs projects is a bankable GIA with an economic tariff,” said Ncube, adding the agreement includes a Project Development Support Agreement, Power Purchase Agreement, and RBZ’s undertaking for foreign currency convertibility and transfer.

“I am delighted to announce the finalisation of the GIA with these 3 components through the work of the Ministry of Energy and Power Development, Attorney General, Reserve Bank of Zimbabwe and the Ministry of Finance and Economic Development.”

Government would guarantee an economic tariff to qualifying IPPs solar projects. To qualify, they have to apply for a licence at ZERA, negotiate for a power purchase agreement, show proof of funding, and then sign the GIA.

Among the solar projects recommended for government guarantees is the 100MW Matshela Energy project in Gwanda, promoted by former Eskom CEO Koko Matshela, and a 75MW Mat South project by Sinogy, a solar company that has installed a 1.9MW plant for fruit exporter Nhimbe Fresh.  

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Government has ambitions of installing 2,100MW of renewable energy by 2030. But a combination of Zimbabwe’s currency uncertainty and low tariffs have discouraged private energy investment.

ZESA executive chairman Sydney Gata has said currency risk in the country was one of the major factors hurting investment.

“Banks will not come to the table. How can I lend in US dollars to buy equipment that is sold in US dollars to produce electricity that will be sold in local currency?” Gata said. He criticised Treasury’s refusal to issue the government guarantees that would help producers secure offshore funding.

The case of Nyangani Renewable Energy showed why many energy investors have stayed away from Zimbabwe. Nyangani’s 10MW Riverside Solar power station was the first independent producer to feed into ZESA when the first 2.5MW came on stream in 2018. The company took Zimbabwe Electricity Transmission and Distribution Company (ZETDC) to the International Chamber of Commerce in Johannesburg, South Africa, over US$8.6 million for power delivered from its 15MW Pungwe B hydropower plant in Manicaland.

The arbiter ruled that Zimbabwean law allows ZESA to pay Nyangani’s USD-denominated power purchasing agreement in Zimbabwe dollars, a decision that Managing Director Ian McKersie said “does not encourage further investment in the sector”.

Last year, Zimbabwe had 104 licenced IPPs, but only a few are generating power, contributing just 1.87% to the national grid, according to data from the Zimbabwe Energy Regulatory Authority (ZERA). This was “due to a variety of reasons, chief of which was lack of financial closure”, ZERA’s 2021 annual report says.

Only seven IPPs were licensed in 2021. Of the newly licensed IPPs, only one solar operator, Solgas, is supplying power to ZESA. The rest, such as Zimplats’ 185MW and ZFC’s 5MW power plants, are being installed by companies to generate power for their own operations.

Government in 2019 removed duty on solar products, such as panels and inverters, to ease the import of renewable energy components. But duty applies only when these are brought in as complete kits, which means importers can still be charged duty for bringing in a battery alone.

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