ON October 26 2023, the Zimbabwe Power Company (ZPC) reported that electricity supply as at that day had reduced to only 892 megawatts (MW).
This level of supply translates to a dreary 41% demand satisfaction rate when compared to the peak demand of 2 200MW. There are a number of issues that have spawned this power crisis. In a recent power supply update, the Zimbabwe Electricity Power Authority (Zesa) Holdings acknowledged the depressed power generation and cited technical faults at the Hwange Power Station as a main contributor to the recent increases in load shedding.
This should come as no surprise. Design and construction of the power station commenced in 1973 and Units 1 to 6 were commissioned between 1983 and 1987 with a maximum design life of 30 years.
The continued stretching of these units beyond their useful life consequently causes a high plant breakdown profile, which increases operating costs to onerous levels.
The recently commissioned Unit 7 has also been taken offline to undergo a statutory maintenance procedure for a period that could stretch for 30 days.
With these challenges plaguing Hwange, the hope then quickly migrates to the Kariba South Power Station. Another blow then hits - low water levels in the lake caused by poor rainfall in the Zambezi River basin have resulted in a decrease in actual power generated by the hydroelectric station.
The low water level reached a crisis point late last year on November 28 2022 when the Zambezi River Authority ordered ZPC to shut down its Kariba South Power Station after exceeding its water allocation.
So, what can we expect in the future? The Famine Early Warning System Network (FewsNet) has forecasted elevated air temperatures, drier and hotter than normal conditions for Southern Africa as a direct consequence of the El-Nino weather phenomenon expected to last throughout the November 2023-April 2024 agricultural season. Consequently, Kariba water levels are likely to be grossly diminished again, adversely affecting power generation for some months to come.
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The ongoing global warming phenomenon potentially spells doom for hydro-electric power generation.
High cost of power cuts on industries
The modernisation of business operations across all industries has resulted in a growing reliance on electrical power for almost all processes within an enterprise.
As a result, power cuts pose an existential threat to the going-concern stature of several businesses, particularly those in manufacturing.
These power cuts trigger a weighty increase in the operating costs of Zimbabwean businesses – the same businesses, which are already grappling from high production and overhead costs and exposure to threats of cheaper imports flooding the market.
The use of back-up diesel generators has been growing in recent times but is only economical in instances where a power cut does not occur over a prolonged period.
To aggravate the situation, a 6% upward review in diesel prices became effective on September 7 2023, which escalated the costs of running a back-up generator in the event of a power cut.
The loss of production and revenue for a business due to power cuts can be materially crippling. When power cuts occur, some delicate plant and machinery in factories suffer irreparable technical faults, significant reputational damage occurs to players in the hospitality industry and farm fresh produce requiring cold chain facilities is lost to waste.
Loss of power at a single manufacturer or mining entity does not just affect that business but causes supply chain disruptions to all downstream value chain players, who depend on the products of that affected entity.
With the myriad of challenges facing Zimbabwe’s power generation as explained in preceding paragraphs and their likelihood to persist into the foreseeable future, it has become cast-in-stone that an organisation’s failure to pro-actively strategise around this energy crisis may, inadvertently, lead to its corporate failure.
Zimbabwe receives more than 3 000 hours of high radiation sunshine per annum – fertile grounds for any industry player to tap into solar technology.
Solar energy is greener and, consequently, reduces the carbon footprint of an organisation’s operations - an urgent ‘must-do’ for every industry in this age of rapid global warming and climate change.
Following the recent 19% increase in electricity tariffs by ZETDC in October 2023, the increase in diesel costs alluded to earlier and the prospects of future energy cost escalations, Zimbabwean businesses need to re-think the cost-benefit analysis of investments in solar infrastructure, particularly the benefits accruing in the medium to long-term.
Financing of solar infrastructure
The greatest impediment to active uptake of solar technology, despite rising incidences of power cuts, is the high initial capital injection required to set-up.
However, multiple other financing options exist, which can alleviate any business from the high initial capital outlay associated with solar.
For large companies with well-resourced shareholders, financing of solar projects can be made through equity injections.
A case in point is that of Caledonia Mining Corporation, which reportedly raised US$13 million via the sale and issue of its shares and used the proceeds to construct a 12MW solar power plant to supply electricity to its Blanket Mine in south-west Zimbabwe.
Another option would be to enter into a Power Purchase Agreement (PPA) with solar energy companies such as Distributed Power Africa (DPA), SunExchange and Sustainable Energy Africa.
Under a PPA, the solar installation and maintenance costs at an organisation’s premises are borne by the solar energy company and the business only pays the per kWh cost of electricity that is consumed.
Consequently, the business does not incur any heavy capital outlay costs and does not also labour itself with solar maintenance costs and procedures that require expert knowledge.
However, the solar energy companies normally require the PPA to be binding over a period of 10-20 years, a period long enough to usher in new technologies or changes in the economy that could result in consequential shifts to the current energy industry dynamics.
A Power Lease Agreement (PLA) is also another option usually offered by the same energy companies, which offer PPA. The business conditions of a PLA are similar to those of a PPA save for the fact that under a PLA, a business has to pay a fixed monthly lease charge to the solar energy company regardless of the quantity of units of electricity it utilises.
This arrangement works best for a business operation that will heavily depend on such solar energy supply as its main source of energy in its operations, such that the resultant cost of lease charges per kWh of solar energy used in a month will be relatively lower than current electricity tariffs.
Again, the caveat of a 10 – 20 year binding period exists for a PLA which must be considered thoroughly before settling for this solar financing option.
DPA has successfully rolled out PPA and PLA projects for various businesses across Zimbabwe such as Schweppes which set up a 1MW rooftop solar plant in 2019.
A business can also approach its bankers for a facility which can be extended to fund solar plant set-ups. Notably, NBS has a Solar Energy Loan Fund while Nedbank and CBZ also have green loan facilities to cater for business.
The government needs to intensify its efforts to promote renewable energy use and to provide incentives to businesses going green.
Government support of the private sector is pivotal in achieving the target of 1 100MW of renewable energy generated by 2025 as per the National Renewable Energy Policy.
The International Energy Agency’s (IEA) World Energy Outlook 2020 report states that due to supportive government policies and maturing solar technologies, solar is now consistently cheaper than coal or gas-powered energy to the extent that solar projects are now offering some of the lowest cost electricity ever seen.
Industry leaders need to be agile in crafting strategies to deal with the gaps in their energy needs now rather than later by making the transition to solar in whole or part depending on the nature of their business.
The time is now!
- Mukosi is a chartered accountant and a member of the Institute of Chartered Accountants of Zimbabwe. He did his articles with one of the "Big Four" audit and accounting firms and is a finance and corporate strategy professional with considerable experience in the FMCG sector. He writes in his personal capacity.
