Zimbabwe's New Power Station-Much Needed Power for Southern Africa

Zimbabwe needs $2,1 billion to build a 1,400MW thermal power station and coal mine at Sengwa in the northwest.
Published: Tue 12 May 2015

Zimbabwe is struggling with a major energy deficit due to limited investment in the capital intensive energy sector. Because it is only generating 940MW against a peak demand of about 2,000MW, the country experiences regular power cuts which affect everyone from the mining industry to regular households.

In response to the unreliable power supply, resources group RioZim, which mines gold, diamonds and coal in Zimbabwe, is seeking $2.1 billion to build a 1,400MW thermal power station and coal mine at Sengwa in the northwest of Zimbabwe. Fuel for the facility will come from the company’s coalfields in Sengwa in northern Zimbabwe, while it will draw water from Lake Kariba, 85km to the north.

Electricity exports-more opportunities

The power station would improve the country’s energy exports and value add low grade coal deposits in Sengwa. Chief executive officer Noah Matimba at RioZim says that the Sengwa project is an opportunity to add value to the mineral as opposed to simply exporting it. He explains that more opportunities will be created from exporting the electricity.

But, the plant needs funding. Capital expenditure to establish such a plant will require $1.5 million per megawatt. In other words, 1,400MW means $2.1 billion is required to establish the power plant. This can be done through equity or a debt and equity mixture and these are the avenues that RioZim are exploring.

The project, which has capacity to generate electricity currently being produced by the country’s existing five power stations was initially set to take off in 2004, but it was shelved due to funding constraints and concerns over the country risk.

Power purchase agreement needed

The key to obtaining this kind of investment is putting into place a power purchase agreement with a purchaser whose balance sheet is acceptable to anyone who decides to lend money or to an investor, says Matimba.

He explains, “We need a power purchase agreement in order to attract investors or attract those lenders that can give us debt. The off-takers can be in the region or can be together with ZETDC but we still need to create a bankable portfolio of off-takers of that kind of power generated. A project of 1,400MW is difficult to find a bankable off take for the $2,1 billion. It’s a very large sum for the Zimbabwean market.”

Matemba recognises state-owned power utilities in South Africa and Namibia as excellent candidates for power exports. The thermal power plant would produce electricity for RioZim’s mines and then the excess would be sold to Eskom and NamPower. The chances are that this project will be bankable with partnerships with these utilities, whose risk is acceptable to lenders. Botswana, South Africa, Namibia and Zimbabwe all import electricity because they can’t meet domestic demand consistently. With Mozambique, they are all interconnected through the regional Southern African Power Pool.

RioZim has signed an MOU with the Southern African Power Pool in the hope that they can start discussions on a power purchase agreement create the necessary demand to attract investors.

According to Matimba, the coal resources can support multiple independent power producers with up to 4,000MW in total.