‘Sub-economic tariffs wobbled Zesa for 10yrs’

State power utility, Zesa Holdings, wobbled for 10 years under the weight of sub-economic tariffs that made it difficult for the company to maintain key infrastructure for reliable supply or import power from the region to bridge a crippling deficit from local production.

This explains the crippling power deficit faced by Zimbabwe today, which manages the shortage through load shedding, which disrupts industrial, commercial and household activities while driving costs through expensive alternative sources of energy.

Until the completion of Kariba South and Hwange Power Stations units 7 and 8, Zimbabwe had not invested in the construction of new power plants since Hwange Power Station was finished in the mid-1980s.

As power demand has grown substantially, output has not kept pace while being weighed down by aging equipment, especially at Hwange, and low water levels at the country’s other major energy facility, the hydropower plant at Kariba South.

Zesa, though, expects a marked improvement in the viability of the power utility as well as its ability to improve the reliability of power supply after the Zimbabwe Energy Regulatory Authority (ZERA) granted a tariff increase.

Group executive chairman, Dr Sydney Gata confirmed in an interview the anticipated positive impact of the new tariff on the State power utility saying it will make Zesa more attractive to financiers whenever the company needs to borrow to fund operations.

Word is that the power utility was already struggling to service the loan it secured from China for the Hwange Power Station expansion programme to add two units with the capacity to generate 600 megawatts.

However, the Government reportedly hastily intervened and arranged a fresh loan, a bridging facility, which will allow Zesa to sort out its messy financial situation and be in a position to mobilise resources internally to service the debt.

“Cost reflective tariff will make it an easy task to get funding,” Gata said, adding even investors into the sector will now find it easier to “go to lenders and say the buyer (Zesa) is going to sell at above cost”.

“The tariff was a poison for Zesas for 10 years. What happens is, with a viable tariff you can make provisions for maintenance and new connections. Zesa has not had a viable tariff for a decade. There is a lot of equipment backlog, which affects transmission and distribution,” he said.

A total of 350 000 new houses that require electricity, Gata said, could not be connected because of financial resource limitations emanating from a sub-economic tariff. “You cannot go and borrow if you are going to sell below cost,” he said.

The Zimbabwe Electricity Transmission and Distribution Company (ZETDC), a subsidiary of ZESA Holdings, recently received regulatory approval for a new tariff adjustment of US$0,02/kWh in October of this year, making the new tariff US$0,12/kWh.

ZETDC had applied for approval for an adjustment of US$0,02/kWh and to stagger the tariff to a level of cost reflectivity.

Prior to the application, ZETDC had been charging an average tariff of US$0,10/kWh approved in October 2019 and maintained the value of that tariff through indexation.

Apart from enhancing mobilisation of resources for maintenance and new connections, the first areas that get affected by lack of funding, the new tariff levels will also enhance Zesa credit status for bridging imports from Mozambique and Zambia, Gata said.

Even new power stations by private players are now possible, Gata said, with four thermal projects set to be implemented while 28 solar plant initiatives, the most promising, have been selected to come on board soon, out of the more than 100 that have independent power producer (IPP) licences.

IPPs are currently contributing more than 90 MW of the power which is being fed into the grid. This capacity is expected to exceed 130 MW by the end of the year through various projects that are currently under development.

A staggering 800MW are expected from the solar plants alone, which Gata said have the quickest turnaround times. The initiatives require a partnership with Zesa, which must first enter offtake agreements with the developers.

Zimbabwe’s sub-economic power tariff had for more than 10 years negatively impacted the operations of the power utility and scared away potential investments in new generation facilities required to end perennial deficits, amid the growing demand.

Nearly 800MW of solar projects, initiated over 10 years ago, were put on ice due to the sub-economic tariffs.

Zesa said it expected four new thermal power and 28 solar projects to get underway after a viable tariff was recently put in place, but the lag time between implementation of the initiatives and the start of production may leave Zimbabweans in the dark for some time.

Following the completion of the US$1,4 billion Hwange Power Station (HPS) 7 and 8 expansion programme, which added 600MW, the power plant’s unit number 8 will similarly undergo mandatory Class C maintenance, as did unit 7, which returned to the grid yesterday.

Class C maintenance is a statutory procedure that requires the Unit to be taken off the grid after running for a defined period.

The power supply situation will thus largely remain under pressure given that only 7 and 8 new generators can give dependable output while units 1-6, with a rated capacity of 920MW, have become erratic due to antiquated equipment and technology.

The generators now produce a fraction of their installed capacity, which averages 350MW.

This leaves Zimbabwe, whose peak demand can rise to 2 200MW especially in winter, with a gross power supply deficit that manifests in rolling power cuts, disrupting industrial, commercial and domestic activities across the country.

Zimbabwe’s situation has been made worse by the fact that its other dependable source of energy, the 1050MW Kariba Power Station, is only producing a fraction (300MW) of its rated capacity due to water shortage.

The use of water in the Zambezi River, on which Kariba Dam is situated, is regulated by the Zambezi River Authority, which regulates the affairs of the riparian river that demarcates the borders of Zimbabwe and Zambia.

The world’s largest man-made dam has had limited inflows over the past few years due to recurrent droughts and low rainfall, making it difficult for the lake, shared between Zimbabwe and Zambia, to build up storage.

Gata acknowledged the country will continue to face limited power supply, but expressed hope the closure of some industrial operations during the festive season would reduce the severity of the power crisis.

Gata also conceded the effect of the El Nino weather phenomenon will weigh heavily on prospects for improved generation at Kariba, as it will reduce the amount of rain the Zambezi will receive from its major catchment, especially the Barotse plains, in northwestern Zambia.

While Kariba South has an installed capacity of 1050MW, Zesa is presently allowed to generate a maximum of 300MW due to water rationing by the Zambezi River Authority, which administers the affairs of the Zambezi River.

The power supply situation, Gata said, is expected to improve output from HPS’ units 7 and 8, which are expected to start feeding the grid concurrently after undergoing routine maintenance programmes following their installation this year.

However, the same cannot be said about units 1-6, the old generators whose first stage entailed construction undertaken in the 1960’s. Gata said the oldest plant, comprising units 1 and 2, will require complete replacement.

The State power utility will get part of the funding, about US$410 million, from India, but this is not adequate as it will only cover part of refurbishments while the entire renewal programme would need US$2,8 billion.-ebusinessweekly