Electricity Act 1997
In 1997, Mozambique reformed the electricity market by adopting the Electricity Act, which was introduced with the aim of regulating electricity production, transmission, distribution and commercialization. The act established the principle that all activities should be carried out under concessions and created the advisory body CNELEC as well as FUNAE.
In theory, the Electricity Act opened up all areas of electricity production, distribution and sales to private operators through concession contracts, issued by the Ministry of Mineral Resources and Energy, and PPAs set with EdM. However, the involvement of private sector operators has been limited so far, apart from two recently commissioned gas power IPPs and one utility scale solar PV project.
As mentioned earlier, IPPs that intend to generate power require a concession granted by the Ministry. Being granted such a concession is subject to public procurement procedures. Concessions are limited to 50 years for hydropower projects and 25 years for all other technologies. The concessionaire is required to pay annual concession fees based on its gross revenues. In addition to entering into a concession contract, the project company will need to enter into a power purchase agreement (PPA) for the sale of its capacity and energy with EdM. No standardized PPA exists.
Currently concerns of conflicting clauses of the Electricity Act and the PPP law raises the question whether generation projects must be selected via a competitive tender process or if direct PPA negotiation is allowed.
Energy Policy 1998
The Energy Policy is one of the major initiatives governing the sector today. It presents a clear statement on the importance of providing energy to households and productive sectors. The aims of the policy include building capacity and improving management in the electricity sector, thereby increasing exports and efficiency. It outlines the following vision for the sector:
- Guarantee a reliable supply of energy, at the lowest possible cost, in order to meet present demand and future levels based on economic development trajectories
- Increase the energy options available for household consumption
- Secure better efficiency in energy utilisation
- Promote the development of environmentally friendly conversion technologies, namely hydro, solar, wind and biomass
- Promote competitive, dynamic and more efficient entrepreneurs
Energy Sector Strategy, revised 2000
The Energy Sector Strategy focuses specifically on the means for implementing the Energy Policy, concentrating on increasing the role of the private sector, developing more competitive markets, and the need for regulation. The strategy paves the way for the development of plans, programmes, projects, investments and other steps for the different energy sub-sectors. It provides essential guidance for operators in the sector, and for financial institutions and investors.
The strategy takes into account the acceleration of the electrification drive, giving priority to rural areas by expanding and enhancing the coverage of the national grid, and to the use of renewables, the optimisation of low-cost solutions, and the introduction of measures to ensure a productive and efficient use of electricity.
The National Energy Strategy (2014 – 2023)
Mozambique’s Energy Strategy was designed for a ten-year period (2014 – 2023) and it provides a vision and path to respond to the challenges and opportunities in the power sector. The main goals are to reinforce Mozambique’s position as an important regional energy producer, to support social development and poverty alleviation, and to promote general economic growth. The strategy for instance compromises the following:
(i) Regulation – Establishment of an energy authority as the regulator for the entire energy sector, which will include liquid fuel, natural gas (downstream) and renewable energy.
(ii) Energy efficiency – To promote habits of reasonable and responsible consumption of energy and to create a legal framework that guarantees these behaviors both in the efficient production and consumption of energy.
(iii) Feed-in Tariff – To be approved by the government, the tariff for renewable energy is for projects in which the generation cost is equivalent to the contract cost of natural gas power stations, with an extra incentive on the bidding process and an environmental tax. Special attention will be made so that there are no increases to the EdM operational and maintenance costs, which need to be retained.
(iv) The new tariff methodology settlement – Due to the large-scale energy projects in Mozambique, the investments made are significant. Therefore, tariff methodology settlement is an important tool used to help ‘bail out’ the investor in this sector, especially in operations on the local market. The new tariff needs to take the operation and maintenance cost into account.
(v) Rural and Peri-Urban Electrification – The main challenges are extending grid access, improving the quality of the energy, and improving the capacity of the administrative posts to promote the productive use of energy and to generate more income. The goal is to mobilize USD 200 million every year over the next seven years to expand and improve energy access in the rural and peri-urban areas, achieving 44% universal access by 2021 and 50% grid based access by 2023.
The Government of Mozambique also plans to launch a transmission and distribution grid rehabilitation program for the entire national territory to increase energy quality and efficiency in urban areas. There are also plans to further strengthen the institutional capacity of FUNAE to increase its role in the process of rural electrification.
2009 Policy and 2011 Strategy for New and Renewable Energy
In 2009, the Policy on the Development of New and Renewable Energy was launched to promote greater access to clean energy services through the use of equitable, efficient, sustainable and culturally sensitive energy sources.
In 2011, the Strategy for New and Renewable Energy Development was adopted with the aim of developing national renewable resources for generating electricity, ensuring that demand can be met, diversifying the energy mix, and preserving the environment. This is to be accomplished by using both off-grid and on-grid applications. The off-grid component is linked to the Action Plan for the Reduction of Absolute Poverty II/III, which considers access to electricity as a catalyst for poverty alleviation and economic development in rural Mozambique.
Proposed feed-in tariff (FIT)
On 17 October 2014, Decree 58/2014 was approved creating Mozambique’s feed-in tariff for renewable energy. Further regulation is still pending to implement the price premium. Decree 58/2014 creates Mozambique’s feed-in tariff, which applies to biomass, wind, small hydro and solar projects from 10 kW to 10 MW. Prices vary according to technology and capacity.
According to this Decree, all projects must sell electricity to the state-owned utility Electricidade de Moçambique. Tariffs proposed can be found at: http://global-climatescope.org/en/policies/#/policy/4631 however are already outdated as they are in MT and in the meantime a devaluation of 50% has taken place versus major currencies. It is therefore expected that anyone developing an on-grid system will have to negotiate on a bilateral basis with EdM.
Additional laws and regulations of relevance to the sector include the Regulations to License Electric Installations (2007), and the Concession Decree (2000).
In 2015 Mozambique received a USD 0.74m grant from the African Development Bank’s Sustainable Energy Fund for Africa (SEFA) to enhance the enabling environment for private investments in renewable energy. The assignment is currently underway, with the objectives of supporting the implementation of the country’s feed-in tariff regime for small/medium renewable energy projects through the provision of standardized power purchase agreements, guidelines for grid connectivity and investor guidelines for prospective developers. The grant will additionally lay the foundations for a mini-grid regulatory framework, with special focus on designing a tariff structure and corresponding technical and environmental regulations, as well as providing capacity-building and awareness-raising activities for national and local representatives.
Currently, RECP is supporting MIREME in dealing with minigrid concessions through legal technical assistance, which will feed into a reform study planned to be undertaken by the African Development Bank in the course of 2017.