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    Zimbabwe Power Market Overview


    May 9, 2022 - Fitch Solutions Sector Intelligence

     

      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Zimbabwe Power Market Overview

      • 09 May 2022
      • Zimbabwe
      • Power
      Regulation And Competition

      The Zimbabwean power sector was monopolised by the state until 2002, at which time the Electricity Act was enacted, which would have unbundled and restructured the state-owned Zimbabwe Electricity Supply Authority Holdings (ZESA Holdings). Overall control of the power sector still remains with ZESA Holdings through the state, as the government thwarted the unbundling of the utility in 2013.

      ZESA Holdings still operates generation, transmission and distribution through its two subsidiaries Zimbabwe Electricity Transmission and Distribution Company (ZETDC) and Zimbabwe Power Company.

      Independent power production is permissible in Zimbabwe, and small private generators do operate in certain regions, supplying standalone off-grid and mini-grid systems for remote communities. However, private sector participation remains limited due to government intervention, a weak regulatory environment and low rewards offered compared with the overall risk. Added to that, the Indigenisation and Economic Empowerment Act, which requires private corporations to cede 51% ownership to indigenous Zimbabweans or government bodies, has been a limiting factor in private sector investment over the past decade. However, towards the end of 2017, President Emmerson Mnangagwa stated that the government intended to amend the indigenisation law to allow 100% foreign ownership in all sectors except for diamond and platinum mining. In early 2018, the indigenisation law was scrapped for nearly all sectors, including the power sector, eliminating one of the country's most significant non-tariff barriers and opening the market up for new foreign direct investment.

      The Zimbabwe Electricity Regulatory Authority (ZERA), which has been operational since 2003, is responsible for the regulation of the power sector. ZERA was established with the mandate to independently oversee and regulate the power sector, with responsibilities including the approval of tariff increases as well as granting permission for electricity imports, exports, generation, transmission and distribution. While ZERA is meant to be an independent regulator, it is allegedly not fully independent from state control, with the government reportedly having interfered with the setting of tariffs.

      Sustainable Energy Policies

      Zimbabwe has an underdeveloped renewable energy sector and has lacked a conducive regulatory framework to encourage investment in its domestic renewable energy sector. In fact, the government has previously shown more support for expanding domestic coal-fired power capacity as opposed to renewable energy sources.

      That said, notable changes in Zimbabwe's non-hydropower renewables regulations came about in early 2020. In March 2020, the government launched the National Renewable Energy Policy, which aims to reduce red tape and streamline the licensing and approvals processes required of renewables investors in the market. While there are few quantifiable targets currently published at the time of writing, we note that the creation of a specific policy agenda aimed at increasing the ease and reducing the cost of renewables investment in the country bodes well for renewables growth in the years to come.

      In addition, Zimbabwe's government announced in early 2020 that the country had reached an agreement to participate in the International Finance Corporation's Scaling Solar programme, which has proved highly successful in attracting private solar power investment in Zambia in the recent past. Furthermore, in another positive development for the sector, it was announced in December 2020 that ZETDC launched its net metering programme, which should pave the way for investment into rooftop solar installations.

      We expect that the combined effects of these changes will increase private renewables investment and increase overall competitiveness in Zimbabwe's power sector over the coming years.

      Pricing

      Electricity tariffs remain a contentious issue in Zimbabwe and they continue to rise, in part due to persistently high rates of inflation in the country. Zimbabwe's energy regulator allowed the state power company to increase tariffs by 50% in October 2020. The ZETDC already raised tariffs by 50% on September 23 2020 to bring its rates in line with inflation running above 700%. Previously in October 2019, the power company hiked the average electricity tariff by 320% in a bid to ramp up production and improve supplies. Electricity tariffs were increased again in January 2022, when the regulatory authority approved a 12.3% price increase.

      In December 2020, ZESA announced that electricity bills could be paid for in US dollars. Previously, only miners and exporters were allowed to pay for power supplies in US dollars and other foreign currencies.

      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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