Independent Power Producers (IPPs) fail to impress

08 Mar, 2015 - 00:03 0 Views

The Sunday Mail

Licensed Independent Power Producers (IPPs) are failing to make an impact in the energy sector due to lack of funding as a lot of investors remain skeptical about the sector, energy experts and IPPs have said.

Reports are that only four out of the 19 IPPs are feeding electricity into the national grid, with the remaining 15 struggling to raise capital at reasonable interest rates on the international market and observers say this is a result of existing market structure which favours Zesa.

The four which are Duru (2,2MW), Nyamupinga (1,1 MW), Pungwe (2,75 MW) and Chisumbanje Power Plant (8MW) are privileged by law to sell their electricity to Zesa.

Zesa, whose subsidiary, Zimbabwe Electricity Transmission and Distribution (ZETDC), which is the only company licensed to transmit and distribute electricity in the country, is obliged by law to buy electricity from IPPs or transmit their electricity to customers at a price.

However, the price at which Zesa is buying electricity from IPPs has been found to be unsustainable while its charges for transmitting power are so high such that no IPPs are currently transmitting directly to the customer.

“The Electricity Act forces Zesa Holdings as the Primary license holder for generation, transmission and retail distribution to sign a primary off-take agreement with any licensed IPPs which is reviewed and approved by Zera for fairness and anti-competition clauses,” said energy expert Mr Kotsai Makamure.

“This means that Zesa is forced by law to work closely with any licensed IPPs to give them fair access to the existing customer base which they are licensed to service.

“However, the real reason why IPPs have not taken off is that their potential financiers are not willing to finance their capital purchases as they are not sure of how the IPPs will collect their revenues to repay the loans invested equity.”

Research shows that IPPs lack the capacity to collect revenue because they are normally licensed to generate only so they are forced by the Electricity Act to outsource to Zesa Holdings (primary license holder), for transmission and retail distribution functions.

With Zesa having a weak revenue collection model that is reportedly leaking about US$10 million dollars monthly, potential IPP investors have backed off.

“Zesa is stifling the growth of IPPs by maintaining this weak revenue collection model,” said a University of Zimbabwe engineering expert who preferred anonymity.

“No single person would invest their hard earned money into a bread baking (generation), bread delivery (transmission) or bread selling (retail distribution) business when the packing plastics are full of holes and the bread slices fall out continuously. There will not be hope to gain back invested capital and make a profit.

“It’s just going to leak till they go broke,” he said.

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