Energy sources gathers momentum
a framework, which is currently being developed by the government.
“We just wait for it to be finalised then we will be ready to run with it.”
Experts and international financiers were brought in to make presentations at the conference and they revealed from a financier’s point of view, why IPPs applications for funding get rejected or delayed in being accepted.
African Development Bank (AfDB) senior power engineer based in Johannesburg, South Africa, Seaga Molepo said non-cost reflective tariffs, lack of competitive IPP framework, aging infrastructure, lack of government guarantees, and lack of financial mobilisation were some of the hindrances to approving renewable energy financing applications.
“Usually, most of the delays we find are in environmental and social safeguards because that is where I think the bank doesn’t (compromise) there is no cutting of corners, especially with the disclosure requirements,” Molepo said.
“If we have a category one project, I think you are required to disclose EIAs (environmental impact assessment).
“Once the EIAs are done, that one you do it as part of project preparation,” he said.
“We assume when you come to the bank you are done with the project preparation, but if we see some holes like maybe the EIA doesn’t satisfy all the bank requirements, then we will have to revisit those particular areas.”
He said that if all the requirements were provided by the one applying for funding, it would take up to six months from application to board approval.
Molepo said Zimbabwe had power rehabilitation needs of US$1,14 billion for the next 10 years with no significant strides having been made to date.
If the government invested in raising that amount of money, Molepo said it would be easier to incorporate renewable energy projects into existing infrastructure, thus making a project further bankable.
The Zimbabwe Independent Power Producers Association (Zippa) said international financiers had two key risks, namely, sovereign / political and offtaker credit risk.
“Political risk in most countries is almost always insurable via bilateral treaties and export credit guarantees.
“This is difficult in Zimbabwe and without that it leads to premiums on rates for investment and borrowings.
“Sovereign risk due to the offtaker being a state-owned entity and the risk of the shareholder declaring sovereign immunity to avoid the liabilities of its company is mitigated by a relevant clause in the PPA,” Zippa said in a statement.
“If there is the perceived risk of the shareholder not supporting its company any shareholder guarantee or protection in the PPA is redundant.
“Political risk may be viewed as the same thing — the lack of political will to support and protect the developments enabled by the policies put in place to encourage the IPP sector.”
Zippa added: “All perceived uncertainty surrounding the investment by investors comes back in the form of higher risk premiums on equity and debt”.
Regarding offtaker credit risk, Zippa said some countries backed all their renewable energy feedin tariffs IPPs with a sovereign guarantee.
“For Zimbabwe, a solution to this issue is the restoration of the credit quality of our utility, to a point where they are good for their debts and can make their payments on time,” Zippa said.
Zippa stressed that the government needed to take their recommendations seriously as the magnitude of the development in renewable energy projects required exceeded the internal funding capacity of Zimbabwe.
Zippa said renewable energy projects were dependent on offshore financing, which required external investors having confidence in Zimbabwe.
“The lender’s / investor’s only security is the long-term power purchase agreement — it is imperative that it is internationally bankable in order to raise offshore loans,” Zippa said.
“If the lender / investor does not see a clear and unobstructed path between the returns they have been promised by the regulator and themselves, they will not invest.
“This means tariff payments of real value with full convertibility and remitability guarantees underwritten by reputable institutions.”
The need to address some of these challenges remains urgent as the NREP aims to make clean energy sources generate energy of around 2 400 GigaWatt hours (GWh) by the year 2025 and 4 600 GWh by the year 2030.
But, until the concerns raised by international financiers are addressed and supported fully by government targets within the NREP may be missed.
“The policy aims to achieve an installed renewable energy capacity of 1,100 MW (excluding large hydro) or 16,5% of total electricity supply, whichever is higher, by year 2025 and 2 100 MW or 26,5% of total electricity supply, whichever is higher by 2030,” reads part of the policy document.