This article is the first of a series of four, to be launched throughout the year, in a partnership between JLA Advogados and Abreu Advogados especially dedicated to energy matters in Mozambique.

 

Throughout this year we will explore 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.

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Mozambique is a country of extensive natural riches, with abundant rivers, minerals, oil and natural gas, which provide it with unique endogenous conditions for its development. However, regional and global macroeconomic and political conditions have not offered the nation with the same favor with which nature has graced this territory and its people.

 

The decade from 2020 to 2030 is a fundamental decade worldwide, and for Mozambique in particular. The global community is racing to meet the Paris Agreement targets and goals, seeking to contain global warming to about 1.5 ºC, when compared to pre-industrial levels, allowing the continuity of human life on the planet Earth. All in all, this shall require reducing global emissions by about 50% by 2030. At the same time, Mozambique needs to achieve its potential as a great African nation, ensuring the conditions for social, demographic, and environmentally sustainable economic development.

 

The progressive global abandonment of oil and natural gas as a sources of energy, for benefiting global environment and in line with the global decarbonisation objectives, makes for a new challenge for Mozambique - a country where 43.1% of exports correspond to oil products. Mozambique will thus need in the coming decades to transform itself into an exporting state of other value-added products, namely those of interest to a decarbonized global economy.

 

The characteristics of the Mozambican energy system have intense peculiarities, which should be noted. The Mozambican national power system, with a low penetration rate among its population of around 31% in 2020 (IRENA, 2022) has a low carbon intensity, with a penetration of renewable energy sources for electricity production of 79% in 2021 (IRENA, 2022). The power mix is strongly hydroelectric, with a small component of biomass and no significant presence of any other energy source in power generation.

 

Total energy consumption, on the other hand, shows a very different behavior, with oil and natural gas, especially for use in the transport and industrial sectors, assuming a more relevant presence of 24% of total energy consumption. More relevantly, in the renewable component the trends are reversed, with an almost absolute dominance (96%) of biomass over all other renewable energy sources. This behavior is explained by the low electrification, with the population - the main energy consumer category - depending on biomass for most of their energy needs, such as food, heating and lighting (IRENA, 2022).

 

The Mozambican national potential is very considerable. The nation, moreover, recognizes it: with 187% self-sufficiency in energy and a strongly exporting energy balance, not only in the oil and natural gas sector, but also in the electricity sector, these sectors have largely supported Mozambique's economic and social development, and are of national strategic importance.

 

The photovoltaic potential of the territory is very relevant, with conditions in most of the territory having higher than the global median photovoltaic power production potential (IRENA, 2022), even when considering the limitations arising either from the orography of the territory or from pre-existing environmental and agricultural restrictions (World Bank Group, 2023). Other renewable energy sources are abundant; large-scale wind power projects are unfortunately not among them, given the scarcity of wind resource at relevant altitudes, which does not ensure the economic and financial viability of this sector.

 

The potential gains from policy focus on photovoltaic production are recognized by the Government of Mozambique, with a modern and complete Strategy for Development of New and Renewable Energy for the Period 2011 - 2025 (the ENEDR) in force. The resilience of the Strategy to the passage of time is testimony to its quality and the vision of the Government of Mozambique regarding the future prospects of the energy market. Focused on a holistic and intersectional vision, the ENEDR set the tone for ambitious but coherent and achievable goals and objectives launched for the strategic period, targeting logical and necessary vectors for human and economic development in Mozambique: increased access to electricity by the population, the production of renewable and future-proofed electricity, and an ever-present concern regarding energy efficiency as a tool for the suppression of unnecessary costs.

 

As for the first of those vectors, the strategy observes intense principles of economic rationality, understanding that the vast territory of Mozambique, with its particular characteristics of demographic distribution, would require an economically irrational effort to launch and expand the National Power Grid to levels of quasi-absolute coverage of the population. Today's technological alternatives allow us to tackle the challenges in a different way, using micro-grids, vertically integrated from generation to distribution to the end customer, representing greater proximity and energy efficiency at lower costs. Furthermore, whilst the construction and operation of micro-grids is a legal and economic monopoly with logical characteristics for the territory in which it is located - it is uncommon and undesirable to allow for two operators to compete in the same place simultaneously, increasing costs and lowering potential profits for all involved -, the setup of adequately sized concessions so that competition effectively takes place, improving the quality of service and the final price to be paid by the consumer, is a perfectly attainable goal. All with the added benefit of not burdening the public budget with the development of public infrastructure, whilst also benefiting the territory and the environment by reducing the environmental and land use intensity of the infrastructure.

 

It is important to note that the State has already given legislative body to this need of the territory and the populations, by approving Decree No. 93/2021, of December 10. The Decree, modern and focused on the right issues on the development and operation of mini-grids, focuses largely on the need to ensure stability and fair return to the investor, an essential element to attract capital, alongside the need for the delivery of a quality product to the end customer. This sector now requires public tenders to be enacted: international best practices have shown maximum success with the prior scheduling of tenders, ensuring predictability to the efforts and investments of interested promoters.

 

The benefits for local populations are evident, increasing access to information, to basic services such as water and sanitation, and allowing the dissemination of low cost and low consumption technological solutions that allow health gains and food safety. The electricity supply services can be implemented with other ancillary services, in particular with the supplies of the consuming equipment itself, ensuring in an economically efficient and cost-capable way the adherence of final consumers to energy services and systems.

 

The transformative social impact of the electrification of communities cannot be overlooked. The ENEDR establishes as a priority, in addition to ensuring the environmental and economic sustainability of Mozambican society, the need to address cross-cutting issues - gender, HIV/AIDS, the environment, energy efficiency and food security - all of which should be part of both the decision to award the concession and the investor's business plan.

 

The transformative economic potential of these services and mini-grids is very significant. By enabling the electrification of small industries, they empower entrepreneurs and their communities to increase their industrial productivity, at levels that allow for accelerated global investment payback schemes - often on an order of magnitude of months (Booth, 2018). The ultimate, albeit simple, example of the transformative potential of these communities is found in poultry farming: the presence of an egg hatchery allows an increase in poultry production (per breeding bird) from 20 to 300 units, ensuring greater sustainable abundance for the surrounding communities, and securing fair and equitable financial returns for the entrepreneur which can support their investment.

 

On the other hand, scientific studies have indicated the transformative potential of community electrification in integrating women into the formal economic fabric (Chalk and EUEI-PDF, 2013) and, consequently, the number of productive hours of all citizens, increasing the likelihood of paid employment in ordinary working hours for women by between 9% and 23%. Women's participation in the economic and productive fabric of Mozambican society is critical to accelerating economic development, as recognized by all national development strategies - and electrification is an important tool to achieve it.

 

The investments of the future cannot, however, be wholly dependent on the access of local populations to electricity: the inexorable path towards global decarbonization, with the substitution of energy sources, will introduce other complex challenges to the economy of Mozambique, which, as we have seen, is heavily dependent on its oil and gas exports.

 

The abundance of port infrastructure, adequately prepared for the bunkering of petroleum products, is an important asset for the future - and its geostrategic position puts Mozambique in an ideal position for a relevant, high value-added contribution to the new green fuels value chain.

 

Although all over the world electrification, accompanied by the decarbonization of power generation, is seen as the main tool of the 2030 decade for reaching the global climate targets, there are many energy-intensive sectors whose consumption and needs are not easily electrifiable. Some of these sectors are cement, glass and ceramics, essential components of modern life that, in order for the global community to achieve its goal of decarbonization, shall require additional technical and technological solutions.

 

Green, renewable hydrogen, generated through the electrolysis of water using renewable power, has been tauted as the key to unlock decarbonization in these sectors. Being stabilized and well known technologies, still with potential for evolution leading to efficiency and productivity gains, the production of green hydrogen is in an ideal point for the first approach towards its adoption in the Mozambican economy.

 

The hydrogen market is already highly relevant worldwide, as a reagent and component in many industrial production processes, trending positively: the International Energy Agency (International Energy Agency, 2022) predicts a growth of over 26% in global demand for this element by the end of the decade. At the same time the global need to ensure means of decarbonizing processes and products implies the need to abandon the widespread forms of hydrogen production currently in use, highly dependent on natural gas themselves, and replace them with more sustainable means of production.

 

Given the relevance of the cost of electricity production in the cost-effective production of green hydrogen, Mozambique gains a new potential prominence in this market. With a very low average levelized cost of electricity for solar PV production of around 10 USD/MWh (World Bank Group, 2023), and port activity experience and installed infrastructure capacity to stimulate hydrogen and hydrogen-derived product exports, Mozambique has a golden opportunity to increase its resilience to the energy transition by establishing itself as a regional and global powerhouse for the exporting of green hydrogen, green ammonia and hydrogen-derived synthetic fuels.

 

Mozambican law will naturally need extensive adaptations to prepare for these industries. We are at a time when the international legal and financial community is still debating how these products and their additional added value, given their particular sustainability characteristics, can be traded on a global market, through avoiding fraud and fostering traceability, as a way to ensure the definitive contribution of these measures to the objectives of the Paris Agreement; but this does not prevent Mozambique from positioning itself as a key player in the industry and in global investment intentions for this sector.

 

The green hydrogen and derivatives sector are still at a young stage, in rapid development. That is why hydrogen is not mentioned or developed as a future bet in the ENEDR - but the Mozambican government should see this sector as a possibility to take advantage of the abundant sustainable endogenous resources that the territory has to sustain the impacts that the energy transition may cause in the Mozambican economic balance.

 

A review of the ENEDR - the sectoral vision for 2026 onwards - should consider all these impulses that the world market has signaled, ensuring a more prosperous future for Mozambique. Mozambique's usual partners, with Portugal, extensively experienced in renewable energies in particular, in a leading position, will be here to support the Nation and its people on a path to a more sustainable economy, with better quality of life, and inserted in the global marketplace of the future.

 

Rui Ferreira de Almeida, Senior Associate at Abreu Advogados

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References

• Booth, S. e. (2018). Productive use of energy in African micro-grids: Technical and business considerations. National Renewable Energy Laboratory.

• Chalk and EUEI-PDF. (2013). Productive Use of Energy - PRODUSE. Measuring Impacts of Electrification on Small and Micro-Enterprises in Sub-Saharan Africa. Eschborn, Germany: EUEI PDF.

• International Energy Agency (2022). Global Hydrogen Review.

• IRENA (2022). Energy Profile, Mozazmbique. IRENA.

• World Bank Group (2023). Global Photovoltaic Power Potential, Country Factsheet, Mozambique. World Bank Group.

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