Malawi secures $519m EU energy funding

From the newsletter

The Malawian government has received $519 million in funding from the European Union (EU) to finance the 361 MW Mpatamanga hydropower plant and the Malawi-Mozambique Interconnector electricity projects. Once completed, the project will account for more than half of the country’s current installed capacity.

• The announcement of this funding comes months after the EU and the Malawian government held discussions on potential investments in the sector during the Malawi–EU First Investment Forum in November 2024.

• Malawi is among the 12 countries selected by the World Bank under Mission 300, which targets connecting 300 million people by 2030. The country aims to connect 2.7 million people to increase its electrification rate to 70% by 2030.

More details

• Malawi has an installed generation capacity of 550 MW, with hydro accounting for 398 MW (73%), solar for 101 MW (18%), and thermal diesel for 52 MW (9%). Out of the 550 MW, the Electricity Generation Company (Malawi) Ltd (EGENCO) generates 444 MW, representing 81% of the market share, while Independent Power Producers (IPPs) generate 112 MW.

• According to its 2022 Integrated Resource Plan (IRP), to achieve 30% grid access and uninterrupted supply to industrial and large customers by 2030, Malawi requires a firm capacity of 774 MW to meet peak demand.

• Hydropower generation and import of firm power from neighbouring countries will help in meeting the baseload demand. Construction of the 400 kV Mozambique-Malawi Interconnector is already underway and is expected to be completed by Q2 2025. The bilateral agreement will allow the transfer of 50 MW of firm power from Mozambique, and Malawi will also have the ability to export excess power.

• It also has supply agreements with the Zambia Electricity Supply Corporation (ZESCO). However, considering the current electricity crisis in Zambia and the excess off-peak capacity in Malawi, there is an opportunity for Malawi to ramp up its energy exports to Zambia on the distribution network.

• Malawi’s Minister of Energy Ibrahim Matola (pictured with the EU ambassador) described the EU funding as a milestone that will enable the country to attain its electricity access aspirations while enabling its exportation to regional markets through the Southern Africa Power Pool (SAPP).

• Hydropower generation is much more reliable for baseload electricity. This plant will allow Malawi to export to the SAPP, which has a high demand for firm power.

• The demand for firm power is increasing across African countries, especially given the high adoption of intermittent solar energy. With battery storage technology still not cost-competitive with hydropower, countries with hydro potential are focusing on hydropower generation. This includes small hydropower projects in Uganda (6.7 MW), Burundi (11.65 MW) and Eswatini (13.5 MW) to mega hydro projects in Cameroon (500 MW) receiving funding. However, some mega projects like the 40 GW Grand Inga dam in the DRC have failed to attract funding.

Our take

• There are more developments in the hydropower sector in Africa than one would expect. This is largely driven by the increasing demand for firm power, which can provide a reliable baseload to complement the intermittent nature of renewable energy sources like solar and wind. As the adoption of solar power continues to grow across the continent, the importance of hydropower in ensuring grid stability and meeting peak demand will become even more crucial.

• Hydropower projects usually take longer to complete, with licensing and land permitting issues being the main challenges. The Malawian government is currently updating the national energy policy and independent power producer (IPP) procurement framework to streamline the permitting process, making it easier for IPPs to participate in the energy sector. The updated framework also seeks to protect IPPs from the risk of currency devaluation by clarifying invoice payment conversion dates.

• The market opportunity within the East Africa Power Pool and the Southern Africa Power Pool presents a significant opportunity for Malawi to exploit, given its relatively low domestic consumption. Energy challenges in South Africa and Zambia create export potential for Malawi. In particular, South Africa's more liberalised electricity market offers easier access and greater potential for  Malawian power exports.