As South Africa grapples with the huge financial fall out from unreliable old coal plants as well as poorly constructed and massively over-budget new ones, neighbouring Mozambique is at risk of locking itself into expensive, inflexible and obsolete coal power.
An over-reliance on power imports from South Africa’s Eskom is also a risk
Ncondezi Energy, which is listed on the London Stock Exchange’s Alternative Investment Market, is planning a 300MW coal-fired power plant in the northern province of Tete, which could be scaled up to 1,800MW in the future. Coal would be supplied from an adjacent mine.
The company, whose registered office is in the British Virgin Islands tax haven, signed a Joint Development Agreement in July 2019 with coal power engineer China Machinery Engineering Corporation (CMEC) and struggling thermal power equipment supplier GE. Under the terms of the agreement, CMEC and GE will become joint 60% equity owners of the proposed plant.
IT IS CERTAINLY TRUE THAT MOZAMBIQUE WILL NEED MUCH MORE POWER as its economy develops and it seeks to significantly increase energy access.
In addition, an over-reliance on hydro is also a risk for Mozambique given the recent impact of drought on power availability in Southern African nations that are too dependent on hydro-power dams.
An over-reliance on power imports from South Africa’s Eskom is also a risk, given the utility’s perilous financial situation.
Although Mozambique exports hydro power to South Africa, it also imports power from Eskom. Mozambique is Eskom’s largest international customer by far, importing 8,300GWh in 2018/19.
Eskom’s plight has been caused, among other things, by the financially catastrophic building of two new coal-fired power stations. They have suffered major engineering problems and are way over budget, burdening Eskom with more debt than it can service, even after the huge inflation of South African electricity prices.
Coal power’s opportunity in Africa is largely over
While Mozambique needs to build more power capacity to increase energy access and diversify away from hydro and Eskom, doing so with coal-fired power will lock the nation into out-of-date and inflexible technology.
Furthermore, such a move will be increasingly out-of-step with the rest of Africa where the opportunity for a major coal power build-out has passed.
For us at the African Development Bank, we are getting out of coal.
In September 2019, African Development Bank (AfDB) president Akinwumi Adesina stated, “Coal is the past, renewable energy is the future. For us at the African Development Bank, we are getting out of coal.”
Among the coal power proposals the AfDB will now not fund is another African coal power project in which GE is involved – the controversial Lamu coal power proposal in Kenya that has now been halted by the Kenyan courts because the promoters failed to do an adequate environmental assessment.
A 2019 IEEFA report found that the Lamu proposal would lock Kenya into 25 years of expensive electricity, a move that makes even less sense given the nation is becoming an African renewable energy leader.
The month after the AfDB’s statement on its coal exit, Japan’s Marubeni Corporation revealed it was pulling out a coal-fired power proposal in Botswana. Marubeni was in a joint venture with South Korea’s POSCO on the project which now looks like it won’t go ahead as Botswana begins to pivot towards solar power.
China is pushing its out-of-date coal power technology on developing nations
Japan and South Korea have historically been major constructors and funders of coal-fired power in developing countries, but their pipeline of projects now appears to be drying up.
Another Marubeni coal power proposal in South Africa looks to be struggling to secure funding. The Thabametsi coal-fired power proposal, also backed by South Korea’s KEPCO, is yet to secure finance now that a number of major South African banks have said they won’t fund the project, and have distanced themselves from coal altogether.
WITH JAPANESE AND KOREAN ENGINEERING AND FINANCE NOW LESS AVAILABLE for coal-fired power plants, China is increasingly the last resort for coal power proponents. It is Chinese engineering (supported by GE equipment) that is proposed for Ncondezi’s Mozambique plant.
Ncondezi also has indicative debt terms from the Industrial and Commercial Bank of China (ICBC) and a letter of intent from Sinosure – the Chinese Export and Credit Insurance Corporation. It is telling that Chinese state-owned enterprises are now providing the subsidised financing that most private global financiers steer clear of.
China is pushing its out-of-date coal power technology on developing nations around the world both within and beyond its Belt and Road Initiative. There are concerns that this Chinese largesse risks catching African nations in a “debt trap”.
Domestically, China is very focused on positioning itself to dominate new energy technologies. Chinese companies already dominate solar module manufacturing globally, are building world-leading battery storage manufacturing capacity, and now control most of the world’s supply of the cobalt needed to make those batteries – most of it sourced from the Democratic Republic of Congo.
But despite its focus on future power technology, it seems China will continue to push old coal technology on developing nations to protect Chinese manufacturing jobs for as long as Beijing can get away with it.
Southern African nations turning towards solar
Botswana’s pivot away from coal-fired power and towards solar is part of a trend in which Southern African nations are turning to renewable energy to escape over-reliance on hydro and Eskom.
The rise of ever-cheaper renewable energy technology has not gone unnoticed
Mozambique itself has been a part of this trend. The nation’s first 40MW utility-scale solar project went on line in August 2019 and the International Finance Corporation (IFC), which helped fund that project, is now developing 60MW of additional solar installations. And the French Development Agency is planning another 80MW in Niassa and Nampula provinces.
The rise of ever-cheaper renewable energy technology has not gone unnoticed by Ncondezi. In 2019 the company announced a proposed joint venture to invest in commercial and industrial solar and battery storage, making its first investment in October that year.
Ncondezi’s company update issued in October 2019 highlights just why the future of power globally will be dominated by renewables and storage, not coal. Ncondezi quotes Bloomberg New Energy Finance figures forecasting that the cost of solar modules will decline 37% by 2025, and the cost of battery storage will decline 67% by 2030.
BREAKTHROUGH LOW-COST SOLAR AND STORAGE PROJECTS ARE NOW A REGULAR OCCURRENCE, including in developing countries. India recently sourced a record low large-scale solar and power storage tariff on 1.2GW of new investment.
Ncondezi has stated that the proposed coal plant will balance the intermittency of renewable energy in Mozambique. However, the inflexible nature of 24/7 “baseload” coal power technology means it is ill-equipped to deliver on that claim.
African countries tend to have such low power capacity that a few new wind and solar installations can make them highly reliant on renewable energy very quickly. This, in turn, creates an immediate need to balance the intermittency of renewables. But the inflexibility of coal-fired power means it is not able to provide this balance – coal does not readily complement the inevitably renewables-dependent power systems of the near future.
Mozambique needs to invest in technologies of the future, not those of the last century.
Author: Simon Nicholas
Simon Nicholas is an Energy Finance Analyst with IEEFA
This article was originally published by IEEFA and is republished with permission with minor editorial changes.
