A Norwegian solar plant developer will soon start building Mozambique’s first large scale solar power plant. The US$80mn project is backed by the World Bank and aimed at bolstering growth and attracting investment back into the country in the midst of a deepening economic crisis. But, experts say, investors will continue to be loath to finance new projects.

Scatec Solar and investment fund Norfund announced the signing of a power purchase agreement with Electricidade de Moçambique (EDM), the country’s state-owned energy company, over a period of 25 years.

The 40MW plant, which will be built close to Mocuba in the Zambezia province, will deliver 77,000 MWh per year, enough energy to serve some 175,000 households in the northern regions of Mozambique, the producer says in a statement.

The solar project is backed by the International Finance Corporation (IFC), a member of the World Bank, and the Emerging Africa Infrastructure Fund.

Speaking to GTR, Scatec Solar’s CFO Mikkel Tørud says the two institutions will debt finance about 75% of the required US$80mn investment. Scatec Solar, Norfund and EDM will provide equity to cover the remaining 25%. The parties are targeting financial close and the start of construction in first quarter 2017. Construction is expected to take about 12 months.

Scatic Solar specialises in the development of solar plants in emerging markets. The Norwegian company already operates 200MW solar plants in South Africa and Rwanda, and has new projects under development in Mali, Nigeria and Kenya.

It is hoped that the new solar plant project in Mozambique could pave the way for further investment in the country’s energy sector.

“Like in many of the markets that we are involved in, it’s important for governments to demonstrate that they’re able to execute projects like this, and through that attract investments,” Tørud says. “That should be a good basis for doing more. Solar is now really becoming a competitive source of energy.”


Continued hesitance to invest

The solar plant agreement comes as Mozambique is struggling with critical power shortage after a severe drought reduced water levels in the Cahora Bassa hydroelectric dam, where most of the country’s power comes from.

“There are huge power requirements in Mozambique at the moment,” Robert Besseling, executive director of specialist intelligence company Exx Africa, tells GTR. “So there is a real opportunity for investment in the sector, particularly the renewable projects. We will probably see more of these deals coming through over the next few months to a year or so.”

But, Besseling points out, the agreement is “not an indicator that foreign investors are again flocking back to Mozambique”.

“Most foreign investors will be loath to invest in Mozambique at the moment,” he says. “The risk is still very high. There’s just too much going on in the country: it is facing an economic crisis, a financial crisis, a sovereign debt crisis, a banking sector crisis, a security crisis and a political crisis.”

Problems in Mozambique started to accelerate in April following revelations that it had over US$1bn in undisclosed debt, prompting the IMF and Western governments to suspend aid to the country.

The debt scandal and suspension of aid has left Mozambique on the verge of a financial disaster. Last month, its government told international creditors that the country was in “debt distress”, hoping to reach a deal to restructure its debts by the end of the year.

“The real risk is non-payment once the plant is operational and payments are due, simply because of the state power utility’s exposure to the sovereign,” Besseling says.

“We’ve already seen non-payment risk increasing significantly over the past two months in Mozambique, which is also affecting foreign investments. As long as Mozambique faces an unsustainable debt situation, in which investors are unwilling to have their debt restructured, and as long as the IMF and other multinational lenders don’t get involved again in Mozambique, non-payment risks are severe.”