OPINION | Caleb Dengu: Coal power is a waste of money and gas is costly. A better plan is green energy and reforming ZESA

Workers walk beneath cooling towers at Hwange Power Stations Unit 8 (REUTERS/Philimon Bulawayo)
Workers walk beneath cooling towers at Hwange Power Station Unit 8 (REUTERS/Philimon Bulawayo)

We are wasting money investing in coal-fired power plants. Instead, Zimbabwe should focus on renewable energy and get rid of the vested interests standing in the way of a free energy market and a reformed ZESA. In this article, energy investor Caleb Dengu sets out his proposal for an energy transition plan.

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  • Investment in energy generation capacity depends on the government’s willingness and commitment to liberalise the energy sector.
  • Investment in renewable energy could be the solution to ZESA’s inability to build generation capacity.
  • Our mineral exports will be subject to Carbon Border Adjustment Mechanism levies which are equivalent to Carbon Tax due to stricter environmental regulations in the global markets.
  • All our export sectors are at risk – industrial, mining and agriculture because we rely on coal. It is therefore imperative that we decarbonise our electricity supply.
  • Green energy removes the opportunities for corruption, theft and fraud associated with the players in the coal-fired power stations.
  • We are not fighting coal, we are building bridges to transition to cheaper clean energy.

Zimbabwe’s carbon emissions are increasing with the coming onstream of an additional 600MW from Hwange 7 & 8. The world has committed to combating climate change so intransigence on our part will lead to isolation and little sympathy from global markets. There is a serious threat to our competitiveness as a country.

While we are entitled to burn our coal and enjoy lower tariffs from using dirty coal as a sovereign country, we depend on global markets for our exports. If we do not take the first step to decarbonise, our exports will collapse sooner rather than later. We need to expand our generation capacity as a country, but the government has limited capital resources to finance new coal-fired power plants. To try and upgrade Harare, Bulawayo, Munyati and Hwange 1-6 would be a waste of money and a missed opportunity to invest in renewable energy. Besides the cost and long lead time to retrofit the plants before the power is fed into the grid, most funders and suppliers of equipment are no longer willing to support coal-fired power stations.

Even if we discount the effects of inflation, the cost of green power has plummeted to a twentieth of its cost ten years ago while the cost of coal-fired power stations has increased the cost of production and has also increased country risk by reducing the competitiveness of our exports. For old power stations to comply with minimum emission standards, we need to invest a significant amount of capital which we do not have. The investment includes retrofitting of the desulphurisation units which may greatly increase water consumption and production of a huge amount of gypsum.

Flue gas desulphurisation entails a series of processes through which Sulphur dioxide is removed from the emissions of the coal-fired plant. The process is costly compared with just focusing on cheaper greener alternatives that will create more jobs and attract domestic and foreign investment. It has been confirmed that the price we pay currently for generating power with dirty coal is higher than the cost of renewable energy.

Gas ambitions: Not so eay?
Zimbabwe’s gas ambitions: not so easy?

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There are suggestions to replace coal with Gas Power Plants at 1,500 meters above sea level. While the idea is feasible, it is costly because you lose about 20% of the plant’s potential efficiency due to the lower air pressure and oxygen levels. We must also pay for the transmission cost required to build gas pipelines.

There is now a strong business case for green energy. Green energy is the only answer that makes sense from a financial and operational perspective. If we effectively plan our Energy Transition, we can access concessional financing for our renewable energy.

Zimbabwe’s Energy Transitional Plan should have the following objectives.

  • Reducing our carbon footprint by increasing our national capacity for renewable energy including solar, hydro, wind and hydrogen.
  • Addressing energy production by increasing the energy availability factor.
  • Safeguarding our exports into the global markets by ensuring that our companies are using green energy in their production.
  • Enabling the economy to grow by making power available to the industry.
  • Creating employment via industrial processing and provision of power.
  • Cleaning the environment by reducing carbon emissions.
  • Saving water used in the boilers and the cooling system by transitioning to renewable energy and solar.
  • Attracting domestic and international finance to build renewable energy infrastructure

The liberalisation of the electricity sector has been hard to sell because of vested interests within ZESA and the economy. There were uncompleted efforts to unbundle ZESA into three separate units; a Generation Unit, a Transmission Unit and a Distribution Unit and now there are efforts to bring the units back together for unknown reasons and no consultation with the industry which consumes the power. The whole ecosystem is opaque from generation to transmission and distribution. It is therefore necessary to completely separate generation from transmission and to separate distribution from transmission. The following structure is suggested for consideration by the authorities in consultation with industry players.

Power generation

1. ZPC can continue to operate the existing power stations (Kariba and Hwange) until the end of their productive life.

2. IPPs could then be incentivized to invest in hydro, solar, wind and hydrogen to supply industrial and mining clients.

3. Households can be facilitated to finance and fit rooftop solar systems which allow net metering so that the grid can buy power from house owners.

4. The private sector can fully finance all new power requirements if government guarantees foreign currency payments for power supplied. If government can guarantee hard currency availability for fuel, why can’t government guarantee hard currency for power supplies?

Transmission

1. The government should establish a separate National Grid Company which is owned by the State but listed on the Victoria Falls Stock Exchange to allow the company to borrow using debt instruments.

2. The National Grid Company can raise debt for capitalization and manage the transmission infrastructure from generation point to sub-station and transformers.

3. The National Grid company will appoint a professional management team that will manage power superhighways and highways for a toll fee payable by anyone who uses the superhighway. No exemptions for using transmission lines and all payments in hard currency.

4. The National Grid Company could also negotiate a Management Concession with a Technical Partner to manage the Grid for a set number of years to be able to pay international salaries to retain professional staff.

Distribution

1. The distribution market should be liberalised. One could enlist different distributors for different areas in a city to manage the last mile. They just need to fit their prepaid meters and ensure uninterruptable power supplies.

2. ZESA or ZETDC could ensure that all safety standards and load levels are within the set levels and limits.

Green energy is not part of a Western Conspiracy to prevent developing countries from exploiting their natural resources like coal. As the theory goes, their (Western) economies are prosperous and have been growing while using fossil fuel energy but they do not want Third World countries to enjoy the same privileges. Zimbabwe should be smart and not waste time on these conspiracy theories because we are not fighting coal, we are building a bridge to future cheaper and clean energy. Zimbabwe has an opportunity to be self-sufficient in energy generation and to attract the required investment in renewable energy while managing the environment toward net-zero emission.

It used to be the case that you use coal reserves to generate a competitive advantage for the mining and manufacturing sector by providing cheap low-cost electricity from coal but now we are at the stage where coal-fired electricity is no longer competitive. The environmental costs are huge because one needs to install expensive emission control equipment that manages pollution.

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The Intensive Energy User Group (IEUG)

The IEUG is a Private Voluntary Organization (PVO) for Zimbabwean companies consuming a baseload requirement of at least one megawatt of power during daily activities. The objective is to solve the looming crisis in electrical energy supplies that is threatening the growth prospects of the whole region as we advance. To this end, the IEUG has negotiated with the Zimbabwean authorities to conduct independent negotiations with regional and domestic power producers and to import power via the regional system through ZESA Holdings infrastructure.

The establishment of the IEUG in Zimbabwe is seen as a real game changer, it allows the private sector to procure reliable, secure, predictable, and uninterruptable power at competitive prices. It also brings the financial capacity of the private sector in support of energy investment to meet the need to fund the many billions of dollars that have to be invested in the energy sector to meet current and future demand. This in no way diminishes the role of the public utilities in the region, it rather strengthens the system and enables the utilities to optimise their own operations. The IEUG represents the transformation of the electricity supply industry by the participation of the private sector. IEUG has established a private limited company IEUS Private Limited to handle all commercial and trading transactions.

Green Hybrid Power Private Limited

IEUG has also established a development company to implement the Kariba Floating Solar Project. The project is aiming to build 1000 MW of solar in four phases of 250 MW for evacuation through the south bank power station of Kariba dam which has an evacuation infrastructure capacity of 1,050 MW. It allows the optimum utilisation of the grid infrastructure which is currently underutilized because of low water levels. Lake Kariba has approximately 630,000 hectares of water surface of which this project is seeking to rent a maximum of 250 hectares of water surface for each of the four phases.

The project is consumer-driven because the power will be consumed by IEUG Members who can pay their power bills in hard currency. The project will produce green energy therefore reducing the carbon footprint for the country. This project will be implemented by the private sector and guaranteed by the private sector therefore saving government from committing public debt to support the project. It is now recognised that such projects can use water as a battery and in so doing extend hydroelectrical energy production by up to 30%. This kind of project could be deployed on all major dams in the region.

Recommendations for private sector participation in energy

1. The government should reduce the regulatory procedures for licensing Independent Power Producers by giving conditional generation licenses with specific and measurable conditions to operationalize the license. Why would an investor pay for an environmental impact assessment when he is not sure a license will be issued. An investor will be happy to carry out an EIA as a condition president to operationalize a license.

2. IEUG members should be allowed to pay their energy bills in hard currency before the application of exchange control regulations. The Minister of Finance has already approved this proposal in February 2022, but the Reserve Bank of Zimbabwe has been resisting the implementation of this policy proposal (policy inconsistency).

3. Government should provide incentives to households and businesses to invest in rooftop solar systems by allowing net metering and helping with securing credit facilities at reasonable interest rates.

4. ZESA and RBZ should allow IEUG to buy all the power produced by IPPs in hard currency so that the promoters can service their hard currency loans.

5. The government should consider taking over some of the ZESA debt so that ZETDC can release commercial customers and exporters to IEUS so that they are supplied power at commercial terms.

6. ZESA should allow IEUS to import additional power from Zambia, Mozambique or any other country with excess power.

7. The Government should consider mobilising cheaper climate finance for green energy transition projects through the facilities established at COP28.

8. The Government should establish a National Energy Committee which comprises both the Government and the Private Sector that will co-ordinate government response to the energy crisis.

9. The Government should complete the restructuring of ZESA to establish a Victoria Falls-listed National Grid Company and liberalisation of the energy generation and distribution sectors.

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Caleb Dengu is an investment banker and founder of advisory firm CDF Trust and Consulting BV. He is also Chairman of RioZim Energy and board member in the Intensive Energy User Group, a coalition of the country’s largest electricity consumers