DRIVING DEALS: Boosting Renewable Energy in Malawi

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The switchyard at Nkula A plant, a hydroelectric plant originally commissioned in 1965, will be renovated under the MCC Malawi C
The switchyard at Nkula A plant, a hydroelectric plant originally commissioned in 1965, will be renovated under the MCC Malawi Compact.
Jake Lyell for MCC

In Malawi, only nine percent of the population has access to electricity. Boosting the power supply and increasing access can be achieved most quickly through renewable sources and deals with independent producers. With support from the Millennium Challenge Corporation (MCC), Power Africa is on a mission to make this happen.

Malawi’s installed electricity capacity is a mere 351 megawatts (MW), not nearly enough to meet current demand, let alone to plan for the future. As in many countries across sub-Saharan Africa, Malawi’s abundant renewable energy resources—such as solar, wind, and hydropower—are the most likely source of rapid new generation capacity. Turning these resources into reliable, distributable electricity can be achieved most efficiently through investment in renewable energy power plants by independent power producers (IPPs).

To support and advance such transactions, Power Africa entered into a new agreement with the Government of Malawi through a Memorandum of Understanding (MOU), signed in February. The agreement guides the use of new Power Africa funds—$1.6 million in Fiscal Year 2016—that will support MCC’s $350 million Malawi Compact and broader U.S. Government electrification efforts in Malawi, as well as new and existing reform commitments made by the Government of Malawi.

A portion of the new Power Africa funding will be used to hire an embedded transaction advisor to support Malawi’s electricity utility (ESCOM) in power purchase agreement (PPA) negotiations with IPPs, and to build capacity within the utility for future transactions. The new advisor will ensure that any purchase agreements that ESCOM enters into contain fair tariffs and payment terms, and represent good value for the people of Malawi. ESCOM intends to ink its first deal this year. MCC, as the U.S. Government agency leading Power Africa’s efforts in Malawi, will be helping to make that happen.

The new Power Africa agreement also includes important sector reform commitments from the Government of Malawi, including a new agreement to eliminate any overlap in membership between the Governing Boards of ESCOM and MERA, Malawi’s energy regulator, avoiding a lingering conflict of interest. It also reinforces some of the key reform goals in MCC’s compact, such as implementing a cost-reflective electricity tariff by the end of the compact, and partially unbundling ESCOM into two separate companies. This would introduce a transparent framework for the procurement of new power generation, and improve revenue collection at ESCOM by converting all customers to prepaid meters.

This new MOU represents true interagency and intergovernmental coordination, the kind of work Power Africa is known for. More importantly, it solidifies the United States’ relationship with the Government of Malawi, and allows us to work together even more closely on our shared goals of increasing access to electricity across the country.

In the months ahead, the Power Africa team in Malawi plans to work on the expansion of off-grid access to electricity in highly populated rural areas, and other places where the national electricity grid may not soon reach.

Last updated: June 07, 2016

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