This article is the last of a series of four, launched throughout the year, in a partnership between JLA Advogados and Abreu Advogados especially dedicated to energy matters in Mozambique.
Throughout this year we explored Mozambique's current market, opportunities in the energy sector to Mozambique, the effect of increased activity in the energy sector on economic growth, policy answers to the needs of Mozambique's peoples and businesses, and pathways for Mozambique to assume a leadership position in the energy sector in Africa, fulfilling its potential.
In the aftermath of the Conference of the Parties 28 ("COP 28"), which closed on 13 December 2023 and was shrouded in various controversies, it is important to start by making a few comments about it.
Among the agreements reached, it is worth highlighting the commitment made by 130 countries to triple the world's renewable energy capacity and double the global average annual rate of energy efficiency improvements by 2030.
However, the different contributions of each country were not quantified, nor were concrete means outlined for implementing the expected increase, which led to criticism from various stakeholders.
For its part, the need to increase funding for mitigating the causes of climate change and adapting to its effects, especially in developing countries, was expressly recognized.
The next opportunity will come at COP29, which will be hosted by Azerbaijan, also a major oil producer.
It was on this occasion that Mozambique's Ministry of Mineral Resources and Energy announced investments of 80 billion dollars as part of the Energy Transition Strategy to be implemented by 2050, approved at a meeting of the Council of Ministers on November 21 and which defines Mozambique's priorities.
The main four strategic pillars are the significant expansion of renewable energy capacity, the promotion of green industrialization, fostering universal access to energy and decarbonizing transport through biofuels, electric vehicles, and rail transport.
Between 2024 and 2030, the Mozambican government plans to add 3.5 GW of new hydroelectric capacity by modernizing existing plants and completing the Mphanda Nkuwa hydroelectric project. Its electricity grid will also have to be expanded and modernized to absorb the increase in electricity generation from renewable sources.
Solar and wind energy projects will continue to be boosted through a program of renewable energy auctions, reinforced by existing power transmission lines and those under construction to South Africa and Zimbabwe, as well as a link between Mozambique-Zambia and Mozambique-Tanzania.
This document represents an important strategic milestone, to be complemented and articulated with the different strategies in force, revisions, and new legislation in the energy sector.
It should be articulated with the Integrated Master Plan for Electricity Infrastructures 2018-2043 (PDIIE), the National Electrification Strategy (ENE), the National Energy for All Program (PNET) and the Mozambique Electricity Strategy, E.P. 2018-2028 (EEDM).
The PDIIE's comprehensive 25-year plan for the development of the national energy system for the period between 2018 and 2043 predicts exponential growth in electricity demand and maximum installed capacity, as well as an increase in the number of electrified homes from 1.3 million in 2017 to 4.6 million by 2043.
It is in the EEDM strategy that EDM's energy policy priorities are defined, to boost Mozambique's growth and positioning in the energy market of the Southern African region, while ENE and PNET foresee measures to provide access to electricity to more than 10 million Mozambicans by 2024.
One of the initiatives resulting from ENE is the renewable energy auction mechanism called Promotion of Renewable Energy Auctions (PROLER), which has been successfully developed. PROLER is a public tender model launched in 2018, which promotes private investment in the development of solar and wind projects to be connected to the National Energy Grid.
The transformation program is underpinned by detailed action and management plans, and it is expected that over the next ten years Mozambique will have increased generation and transmission capacity and energy exports. It is also hoped that more than 80 percent of Mozambicans will have access to energy.
The reform introduced by the New Electricity Law (Law no. 12/2022, of July 11) has furthered this strategic goal and deepened the conditions for opening the market to the private sector, including the tenders launched for the installation and operation of hydroelectric and solar photovoltaic plants.
Private access to electricity generation and supply activities is now guaranteed to a greater extent and, although it depends on state concessions (including in the form of public-private partnerships), it is no longer subordinate to the state's overriding interests, without prejudice to the necessary safeguarding of national interests.
The new model for the general organization of the electricity sector and the legal regime for electricity supply activities resulting from this reform of the electricity sector set out to adapt the legal framework to the current social, technical and financial context and to the objectives of sustainable development, energy transition and universal access to quality energy.
It is through these political and legislative initiatives that the necessary steps have been taken to guarantee increasing and universal access for all users to quality and reliable electricity, especially from renewable energies, and to the continued electrification of the country, with a focus on self-consumption, storage, hybridization and mini-grids.
The simplified procedure for setting up electricity-producing centers using non-hydro renewable sources, since the activities of production, storage, transport, distribution and/or marketing, as well as the construction, operation and/or management of electricity installations, require a concession.
The new law reiterates the commitment to mini-grids as the fastest and most effective way of electrifying the largest possible area of Mozambique, especially in remote communities and rural areas not supplied by the national electricity grid. Mini-grids are integrated systems for the production, distribution and sale of energy, which may include storage, that use mainly renewable energy, have an installed capacity of no more than 10 MW and are not connected to the national electricity grid.
The national electricity grid can expand to the site in question and integrate mini-grids, but with the right to compensation from the mini-grid concessionaire.
Mini-grids are subject to a concession, but some flexibility is allowed in terms of the content of the contract, and there is also an exemption from concession fees. The manager of the National Electricity System is responsible for ensuring and keeping up-to-date a map of the areas where mini-grids can be developed.
Although they have been provided for in planning instruments since at least 2018, it was only with the recent Regulation on Access to Energy in Off-Grid Areas (Decree no. 93/2021, of December 10) that their regime became concrete, reiterating the commitment to mini-grids as a fast and effective way of electrifying remote areas.
This legal regime has benefited from a recent development, with the approval of the Plan for the Electrification of Off-Grid Areas (Resolution 52/2023, of December 14) and the definition of the areas subject to mini-grid concessions.
As a rule, concessions will be awarded for a single area. A performance guarantee of up to 5% of the value of the investment is established, considering the category, size and complexity of the project.
On the other hand, the categorization of Mini-grids means that the smaller the installed capacity, the simpler the procedures for granting the concession and for processing and instruction - including simplified contracts, exemption from establishment and operating licenses for certain categories.
Considering the high level of interest initially expressed both by the private companies currently operating in the Off-Grid Zones where they provide energy services, and by the various Development Programmes supporting the financing of mini-grid project development initiatives, the government has determined that the award of mini-grid concessions will be made through a competitive process.
This process will allow for the selection of experienced and qualified investors/developers to develop and operate mini-grid projects in the three provinces previously mentioned. The tender will be structured in two stages (pre-qualification and full proposal stage) and mini-grids will be grouped into lots.
The Mozambican government, through the 2020-2024 Five-Year Programme, has chosen as its priorities, among others, (i) increasing the availability of energy, through public and private investment in new generation infrastructure, with an increasing contribution from renewable energies and (ii) continuing to expand access to electricity with a particular focus on rural and peri-urban areas, promoting productive use and contributing to raising the level of access to 64%.
As mentioned on our previous articles, Mozambique double its generation capacity by 2030 and overcome energy poverty by renewable energy generation, linked to a broad portfolio of investments across different energy sources.
The plans to leverage Mozambique’s hydropower potential of more than 12GW, with neighboring South Africa as a key target market and increase the untapped solar potential, do not hinder extraordinary potential of national natural gas reserves.
Indeed, the most substantial expansion in the country’s energy mix is predicted to stem from natural gas and Mozambique is expected to become a gas powerhouse over the next decade, reducing the country’s reliance on imported oil and petroleum, drive economic growth, and boost its energy export capacity.
By 2030, Mozambique envisages about 44% of total electricity coming from natural gas-fired plants, according to Mozambique’s Energy for All Programme and National Electrification Strategy.
There is still room for improvement in the legal framework applicable to the energy sector and the prospect of carbon neutrality, particularly with regard to creating and boosting the carbon credit market in view of the necessary compensation for unavoidable greenhouse gas emissions.
As with the solutions provided for in the New Electricity Law, it will still be necessary to wait for the regulations to be densified and effectively implemented.
The regulation of storage and the sale of surplus electricity produced and not consumed are some examples. In any event, the foundations are already there.
With the planned energy infrastructure development, alongside the law enforcement and improvement, the right institutional capabilities, and a careful allocation of resources driven by a wise political policy, Mozambique is now in the right track to strengthen its privileged position as an energetic reference in Africa and towards the carbon neutrality.
João Lupi, senior associate at Abreu Advogados