A new mega-hydropower plant on the Zambezi could transform electricity provision in Mozambique and beyond, but climate change may threaten its long-term viability

Eight international consortia are gathering in Maputo this week, vying to become Mozambique’s ‘strategic partner’ on the $5 billion Mphanda Nkuwa hydropower project that could transform electricity provision within Mozambique, and the country’s exports.

Carlos Yum, the executive at Mozambique’s electricity utility EDM who heads up the Mphanda Nkuwa Implementation Office (GMNK), told Zitamar News last week that the strategic partner selection process is running “on a good course,” but did not reveal the date for the announcement — expected to be by the end of this year. 

“It is important that we carry out these processes with integrity and transparency,” said Yum, “because GMNK hopes to attract an investor who can underwrite $15m at the time of signing of the implementation agreement, $25m for the development costs and at the end up to $700m of its own capital for subscription of its participation in the project”. 

Yum’s office is currently assessing the eight consortia bidding to become the project’s majority shareholder, expected to hold between 51% to 70% of the project. Mozambique’s energy utility EDM and the hydropower company HCB will hold the remaining shares. 

The eight contenders are a joint bid by French giants TotalEnergies and EDF; two Chinese bids, from Longyuan Power and PowerChina Resources; two from Japan, Sumitomo Corporation and Kansai Electric Power; Zambian electricity utility, Zesco, in partnership with ETC Holdings Mauritius; Zimbabwe’s electricity utility ZESA Holding, in partnership with WeBuild Group; and Norwegian renewable power company Scatec.

But questions remain over the viability of the project — both economic, and environmental.

The project can only move forward with a long-term power offtaker. The most obvious buyer for the majority of MNK’s power is neighbouring South Africa, which also takes more than half of the power produced by Mozambique’s existing mega hydropower plant, the Hidroelectrica Cahora Bassa (HCB), upstream from MNK. However, as well as being in dire need of power, Eskom is in grave financial difficulties and may not have the balance sheet to stand behind a long-term power offtake contract — especially as MNK will need to charge a higher tariff than HCB does, currently around $0.04 per kilowatt hour, in order to guarantee developers a return on their $5bn investment.

“If Mphanda Nkuwa secures the desired-for equity investment from private partners it is inevitable that those partners would seek to develop the project on the basis of a tariff that would generate revenues sufficient to provide a return on their investment,” said Marc Howard, a senior analyst at Africa Energy. Eskom’s ability to buy power from MNK, he added, will depend on the South African government’s willingness to further subsidise the company.

Eskom declined to comment on whether it was negotiating an offtake deal for MNK. 

The regional market

While Eskom is expected to be the anchor customer for MNK, offtake agreements are not restricted to South Africa, and Mozambique could be looking at the Southern Africa market to export energy. According to Yum, the GMNK team is working to “structure the project in a way that does not rely on a single country in the region” to be the offtaker. He added that “there has been interest from several countries in the region in the energy of Mphanda Nkuwa.”

Like Eskom, Energy utilities across the region are also struggling financially, however.

Up until last year, Zimbabwe’s ZESA, one of the shortlisted bidders to construct MNK, owed Mozambique’s EDM $45m for electricity it buys from Cahora Bassa. It paid off $35m in 2021 in a huge effort to clear the debt, but $10m is still outstanding. 

If Mozambique can secure the export contracts it needs, MNK “could secure a significant revenue flow” for Mozambique, Howard said. “If exports can be successfully agreed it is likely that EDM and HCB will generate healthy revenues from Mphanda Nkuwa, albeit as minority shareholders,” he added.

Yum said it is too early to provide exact figures on revenue projections, given that the project still needs to go through its legal and financial structuring, but it will be in “the hundreds of millions dollars per month”.

Threatened by climate change

Another uncertainty facing the project is whether, in the long run, the Zambezi river can sustain another dam in its basin. The Zambezi is already home to the enormous Kariba dam, between Zambia and Zimbabwe, which serves hydropower plants on both the north and south sides, as well as to the HCB plant in Mozambique’s Tete province. The three hydro plants have a combined capacity of 5GW.

The Zambezi river basin, the largest in Southern Africa, is considered one the most climate-vulnerable in the continent. A study by Richard Beilfuss, a hydrologist who is also a former director of conservation at Mozambique’s Gorongosa National Park, found that climate change will reduce water availability in the basin and consequently risk hydropower production. 

According to Beilfuss’ study, rainfall levels in the basin will decrease up to 15% over the next century due to climate change. In addition, evaporation caused by rising temperatures will further pressure the basin.

The whole Zambezi basin is expected to see an increase of 0.3ºC to 0.6ºC in temperature over the next century. This can reduce availability of water for energy generation in hydro plants and consequently worsen performance. Already around 6% of the water that flows into the Cahora Bassa reservoir evaporates before it flows through the dam, a figure that could grow as temperatures rise further. Given that MNK is planned to be built in the lower Zambezi, downstream of HCB, evaporation from HCB, and the consequent reduced water flow, has the potential to affect energy production at the proposed plant, as well as the ecosystem at the delta.

Nevertheless, energy production should still be viable, according to Mike Muller, a visiting professor at the University of Witwatersrand and a former water and sanitation programmes manager for Mozambique’s government. “While long periods of low rainfall will reduce the hydropower energy generated, these can be managed by operators in an organised and predictable manner,” he told Zitamar.

“If the dam operators know that seasonal river flows are going to be low, and this can be projected from weather records and observations, they will consider how much water they have in storage and plan how to use it taking into account the reduced inflows,” Muller added, “so they will schedule the amount of energy to generate in order to use the reserves optimally.” 

A concern is if — or how — future changes in weather patterns can be incorporated into MNK’s assessment. One of the most challenging aspects of planning dams in the age of climate change is that historical trends are not reliable since patterns may change swiftly. This makes the huge upfront investment in these projects risky.

“We can be sure that hydropower will be less reliable with climate change,” Justin Muhl, associate at TMP Systems, a consultancy developing systems to improve the efficiency and impact of aid and development projects, told Zitamar.

“Developers should be really careful about the climate component because it can have a great impact on the output and financial viability… given the pace and scale of climate change, this means that in 10 years’ time hydropower projects are likely to be operating in a very different context than they are today,” he said.

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