Sector Reform and Utility Commercialization (SRUC) Project: Background Report on Mozambique’s Power Sector: IPP Programs

The country's GDP has maintained strong growth over the last decade, driven by foreign direct investment in the mining, electricity, tourism, construction, and telecommunication sectors. Energy-intensive industries such as the Mozal aluminum smelter and related activities in mining, manufacturing, and construction have seen significant growth due to the inexpensive power provided from the 2,075 MW Cahora Bassa hydropower station. Mozambique's economic growth is projected to continue as coal and gas reserves are developed, with proven natural gas reserves estimated to be approximately 100 trillion cubic feet. The country's Tete Province is projected to hold significant unexploited coal reserves in the order of 25 billion short tons, which could lift Mozambique's economic growth rate by two percent annually from 2015-2023. Despite these growth prospects, the country faces significant challenges in providing electricity access, with only 15% of the population having access to electricity, and 5% in rural areas. The majority of the electricity sector in Mozambique is run by government-owned entities, but there has been some introduction of private sector participation. The country's electricity infrastructure is underdeveloped, with a significant portion of the population living in rural areas with limited access to electricity. The demand for electricity is expected to continue to grow at 8.2% annually for the next 15 years, requiring Mozambique to address its electricity infrastructure challenges to meet this demand and continue to increase access. The government has introduced policies and laws to support private sector involvement in the energy sector, including the Electricity Law of 2004, which allows for private sector participation in the generation, transmission, and distribution of electricity. The government has also established the National Electricity Regulatory Authority (ARENE) to regulate the electricity sector and ensure the implementation of the Electricity Law. The government has also introduced a feed-in tariff policy to encourage private sector investment in renewable energy projects. Mozambique has a number of international donors providing support to the power sector, including the United States Agency for International Development (USAID), the World Bank, and the Economic Development Cooperation Fund. These donors are providing technical assistance and financing to support the development of the power sector, including the implementation of independent power producer (IPP) programs. The IPP programs aim to attract private sector investment in the power sector, particularly in the generation of electricity from renewable energy sources.