1.

Hydropower in Malawi Malawi is generally considered as being relatively rich in water resources; these are stored in the forms of lakes, rivers and aquifers. The government has divided Malawi into 17 different water resource areas (as can be seen in Figure 1.1), with the main drainage systems being Lake Malawi that runs along the entire eastern edge of north and central Malawi and Lake Chilwa which is shared with neighbouring Mozambique and can be seen in area 2 in Figure 1.1. It should also be noted that the water resource distribution is highly variable both geographically and seasonally, with close to 90% of surface runoff in major rivers occurring between the months of December and June.

Figure 1.1 Water Resource areas in Malawi

Currently Malawi has 9 major hydropower stations that are generating around 280 MW, which accounts for 90% of its electricity generation, these stations can be seen in Table 1.1. These main dams have cumulative water storage of slightly over 43 million m3. Similarly, it has been estimated that there are between 700 and 750 small dams with a combined storage capacity of approximately 64 million m3, however, these dams are for irrigation and water supply purposes only and are in various states of disrepair. Therefore, the government has embarked upon the rehabilitation of some of these dams through various programmes as part of the Nation Water Conservation strategy. Also, the low power generation capacity currently makes Malawi an unattractive investment or business/industry destination due to the increased costs associated with having to use expensive alternative power sources.

The locations of these hydropower stations are concentrated along the Shire River, 98% of existing hydro in Malawi is located on this river. This means that the Malawis power generation is very susceptible and vulnerable to variations of water levels in Lake Malawi (which feeds into the River Shire). Droughts and sedimentation resulting from erosion and environmental degradation in catchment areas have resulted in lower water levels in Lake Malawi and hence reduced flow of the Shire River to well below the required 170m3 per second for generation. Similarly, the reliability of power production from the Shire River is affected by the action of siltation in the plants/generators. Siltation results in rapid wear and tear of generation equipment and service providers incur considerable costs for the silt-removal and machinery maintenance/repair.
Table 1.1 Hydropower stations in Malawi including power output and date of construction

Plant Nkula A Tedzani I Tedzani II Nkula B Phase I Nkula B Phase II Nkula B Phase III Wovwe Tedzani III Kapichira

River Shire Shire Shire Shire Shire Shire Wovwe Shire Shire

MW 24 20 20 60 20 20 4.5 50 64.8

Cumulative MW 24 44 64 124 144 164 168.5 218.5 283.3

Year 1966 1973 1977 1980 1982 1986 1995 1996 2000

It is estimated that this cumulative power output and the extent of the current transmission system gives about 8% of Malawis total population access to electricity, 27.5% of urban and only 1.1% of rural population. Furthermore, it was calculated that the current total power output only accounts for 2.6% of Malawis electricity requirements. It can also be seen that some of these plants are reaching the end of their 50 year design life, the aging machinery and generation equipment results in frequent breakdowns and therefore blackouts. Again, this hinders any potential investment from companies or industry as they will lose productivity as a result of power outages. Recently plans have been put into place to increase domestic power generation by extending the Kapichira station by adding an additional 64 MW generator. Similarly, the development of a 31 mile transmission line connecting Malawi and Mozambique has begun as it was seen as a priority to initiate the linking and connection of countries in southern Africa this particular linkage was noted as being a priority of the Southern African Power Pool1. Furthermore, it has been found that there is a large investment potential for the development of hydropower generation from a number of perennial rivers in the country. It should also be mentioned that the hydropower resources of Malawi have not been precisely evaluated, however, the potential of a number of major rivers and sites have been identified and feasibility studies are on-going.
1

The Southern African Power Pool (SAPP) was created with the primary aim to provide reliable and economical electricity supply to the consumers of each of the SAPP members, consistent with the reasonable utilisation of natural resources and the effect on the environment.

1.1 Energy and Hydropower Policy in Malawi Malawis main policies with regards to hydropower are derived from the Millennium Development Goals and the Malawi Growth and Development Strategy, the main goals of which are to: a) b) c) d) e) f) Maximise contribution to economic growth through sources of growth Create an enabling environment for private sector led growth Attain food security Boost exports so that they can lead to growth Ensure economic empowerment of the Malawi people Ensure access to land and housing

Likewise, the government has prioritised energy generation and electricity supply as one of the priority areas for improvement to help stimulate economic growth as well as having a positive influence on the other main goals. The energy specific goals are to: Make the energy sector sufficiently robust and efficient to support the Government of Malawis socio-economic agenda of poverty reduction, sustainable economic development and enhanced labour productivity Catalyse the establishment of a more liberalised, private sector driven energy supply industry in which pricing will reflect the competition and efficiency that will develop in the reform process Transform the countrys energy economy from one that is overly dependent on biomass to one with a high modern energy component in the energy mix

In order to meet these goals the government has set out a relatively extensive list of objectives that it feels will efficiently and effectively provide solutions to a variety of Malawis major development problems. 1) Improve the security and reliability of energy supply systems this can be achieved through expanding Malawis energy portfolio through diversification of generation sources. With regards to hydropower, this can be achieved by developing schemes throughout the country and that do not depend upon the flow of the Shire River. 2) Increase access to affordable and modern energy service. Malawi has recently embarked on a rural electrification programme as a means of improving the quality of life of the majority of the population and also to promote socio-economic development. 3) Stimulate economic development and rural transformation for poverty reduction this can be achieved by providing a reliable energy source to rural communities either through extension of the national grid or developing power stations in the areas of demand. 4) Improve energy sector governance this could be completed through providing training to those responsible or hiring/enlisting the help of professionals who have a greater understanding of the advantages and disadvantages and associated risks of various projects to provide advice to the people in charge.

5) Mitigate environmental, safety and health impacts of energy production and utilisation. The need for renewable, alternative and non-polluting sources of energy assumes top priority for self-reliance in Malawi, as stated by the government of Malawi. Because of this, the government is actively looking for areas in which Hydropower can be harnessed safely and efficiently. 6) Increase number of households with electricity 30% by 2020 and 40% by 2050 this cannot be achieved through extension of the national grid alone. It is therefore important to develop power stations that utilise Malawis natural resources effectively closer to the remote areas; there is plenty of opportunity to develop hydropower stations in the underdeveloped north 7) Attract private capital and participation the government must actively try and create interest and opportunities for which companies can invest and help boost the economy of Malawi. 8) Construction of new 220-230 kV transmission lines extending from North-South. In order to provide suitable access to electricity for the population of Malawi the transmission system must be developed so that electricity can effectively and efficiently reach the rural areas that require it. This will help with objective (4) as can be seen previously. 9) Rehabilitation and expansion of the existing transmission and distribution system as previous (objective (9)). 10) Demand-side management activities to reduce peak demand growth. It is possible that without suitable care or appropriate management that the demand for electricity supply could overweigh the supply, this will result in an intermittent supply with frequent blackouts, a situation which must be avoided 11) Weed and siltation management this relates to the environmental degradation that is affecting hydropower generation, if this issue is ignored then electricity access becomes intermittent and (as stated previously) large costs are incurred in fixing this. The Government of Malawi has redirected a portion of its resources to prevent environmental degradation occurring in the first place, this will create more reliable access to electricity for the population. 12) Policy and regulatory review to encourage private sector generation and adoption of vandal free technologies the government has taken steps to make it easier for private sector generation, this shall be briefly discussed further on in the report. 13) Capacity building quite simply, in order to meet electricity requirements and economic goals etc. without having to depend upon imports from neighbouring countries Malawi must increase its capacity by developing its own power plants that harness the natural resources available. 14) Connecting to the SAPP interconnection with the Southern African Power Pool network was determined as being the least cost option for mitigating the risk of a drought related power shortage by allowing the option to easily import power when needed. Another benefit of this is that it creates the opportunity to export power when it is available.

With regards to objective (12), currently in Malawi all of the major hydropower plants are owned by the Electricity Supply Commission of Malawi (ESCOM). ESCOM is a publicly owned utility that was established by an Act of parliament in 1957; it controls nearly the entire power sector in Malawi and as a result has become a monopoly. An electricity act has been introduced in order to remove ESCOMs monopoly and to regulate the power sector, the main feature of this act was the liberalisation of the electricity supply industry by introducing separate licensing for generation, transmission and distribution; thus allowing private sector participation in all areas of the industry. There are multiple linkages associated with a hydropower project and Malawis key development strategies and objectives. By looking at some quotes and excerpts from various governmental documents related to Malawis development strategies etc. a connection between hydropower and policy can be clearly seen.
The Government of Malawis Growth and Development Strategy (MGDS II, 2011 -2016), which aims to create wealth and reduce poverty through sustainable economic development and infrastructure development, was approved in April 2012. The MGDS II identifies six broad thematic areas including infrastructure development. There are five sub themes under infrastructure development, namely: energy; transport; water development; information and communication; and housing and urban development. The Government notes that infrastructure is a key component for creating an enabling environment for private sector driven growth and provision of timely and quality social services. However, the country faces a number of challenges such as inadequate energy generation and supply. From the infrastructure thematic area, energy, together with transport and water development, has been identified as key priority area. The Government will thus focus on increasing the generation, transmission and distribution of electricity with the aim of improving service delivery and increasing output in the economy.

With the development of new hydropower schemes or projects a variety of the MGDS key development goals can be met, e.g. energy, water development and transport (in new roads made that are required for the construction and maintenance of a particular project). Additionally, in order to generate socio-economic growth it was noted that the government must focus on increasing generation and supply in terms of both capacity and transmission/distribution. The addition of new hydropower plants that make effective use of Malawis large natural water resource at various geographical locations will clearly help this reduce this problem.
The Bank Group considers the support of infrastructure development in Malawi, especially in the power sector, as a critical lynchpin for economic development. The Bank Groups Interim Country Strategy Paper (2011-2012) focuses on: (a) improving infrastructure (Pillar I); and (b) accelerating private sector development (Pillar II) as key priorities, both of which are addressed by the study. The proposed study is therefore in conformity with the Interim Country Strategy Paper (ICSP) and with the MGDS. The study is also aligned with the proposed two pillars of the new Country Strategy Paper covering 2013-2017 whose preparation is currently underway. The study will result in a feasibility report for the development of a clean energy project which will contribute to security of supply and increased access to energy for the general population which is pivotal to economic growth. It is thus consistent with the twin objectives of the Bank Groups Long Term Strategy of inclusive and green growth.

In many cases, securing initial funds or investment to develop a hydropower scheme can often be an issue due to the large upfront capital expenditure required. However, with the backing of The Bank Group (aka The World Bank) the process for gaining funds and investment for a suitable hydropower project is made easier. Likewise, with the World Banks preference for clean energy supply, hydropower is again a clearly advantageous choice for electricity production.
Current demand is estimated at 350MW while available capacity is about 280 MW. It is projected that demand will be 598MW in 2015, 874MW in 2020, 1,193MW in 2025 and 1,597MW in 2030. The power sector in Malawi is characterised by capacity deficit, poor quality and unreliability of power supply, low access (6-8%), a financially constrained utility, and a weak enabling environment to attract private investment.

This final quote highlights the existing and potential future shortfall in energy supply. Again it can be seen that the development of new projects is a must in order to help Malawi develop and also to prevent any degradation in its current economy or quality of life. Again, developing new hydropower projects is an effective way to utilise Malawis available natural water resource and thus help encourage and attract private investment in a variety of sectors.

1.2 Development/Investment Plans and Strategies

Malawi continues to face a number of challenges in the energy sector including inadequate capacity to generate electricity which results in frequent blackouts and brownouts. This lack of reliable power is a key constraint to development in Malawi. The current installed capacity of 283 Megawatts is far less than the estimated demand of 334 Megawatts. Unavailability of access to modern energy services contributes to low economic activity and productivity, lower quality of life and deters new investments across the country, in particular affecting key sectors of mining and manufacturing. The country is currently experiencing shortages of liquid and gas fuels due to logistical problems. Government will, therefore, continue to emphasize on improving and expanding electricity generation, supply and distribution systems.

The Government of Malawi has recognised the necessity for increased power generation/capacity to help boost the economy by creating more opportunity for investment e.g. in mining or manufacturing which both require a secure power source and to improve productivity and quality of life in rural areas and urban areas that experience intermittent electricity supply. As a result, the government has started acting on its goal to generate and distribute sufficient amount of energy to meet national socio-economic demands. Also, in 2013, an estimation process was carried out to determine the required energy demands of various different sectors of industry: Mining Sector = 800 MW Green Belt Irrigation Initiative = 130 MW Service; ICT, Tourism, Banks, Hospitals, Offices, Education etc. = 500 MW Manufacturing and Processing = 700 MW Domestic Demand = 700 MW

These values were found assuming near full accessibility to electricity and with industries utilising almost all of Malawis resources (e.g. mining and manufacturing etc.). As a result, in an attempt to meet these large demands and to close the current shortfall that is constraining development in Malawi the government has put various short, medium and long-term investment plans that relate to the development of multiple hydropower sites around the country. A total of around US $1360 million is incorporated into these investment plans, a breakdown of which can be seen in Table 1.2. The main objectives of the short-term investment plans are to commence construction of the Kapichira Phase II hydropower plants, rehabilitation of Tedzani I & II, connect to SAPP and to undertake more detailed and comprehensive feasibility studies of potential hydropower sites around the country. The Kapichira Phase II hydropower plant involves the addition of a new 64 MW generator with a transmission line that connects to the existing substation. This project is expected to cost US $50

million and is being implemented to address the current load shedding in Malawi and to offset the existing power imports. The dated generation equipment at Tedzani I & II are running inefficiently and shedding load, as a result a US $17 million rehabilitation project has been planned to help improve the efficiency and effectiveness of these hydropower schemes. Connecting to the SAPP is estimated to cost just shy of US $60 million. The project will have three main components: constructing an interconnection between Malawi and Mozambique; build capacity and improve technical support for upgrades and expansions in order to support the trading of power and finally to improve infrastructure in order to allow and support power trading. From initial feasibility studies it was found that there is in excess of 2000 MW of untapped hydropower potential in Malawi. The government has embarked upon feasibility studies for hydropower development at the various locations listed in Table 1.3, the locations of these potential sites can be seen in Figure 1.2.
Table 1.2 Spread of Investment in Hydropower Projects

Time Scale

Short-term Medium-term Long-term Total

Type of Investment (million US $) Construction of dams (water Power generation resource and transmission development) 4.5 76.9 2.2 50 300 929 306.7 1055.9

Table 1.3 Details of major Hydropower schemes that have been identified

Some of the feasibility studies for these projects are nearing completion and are expected to be technically and economically feasible; namely the Lower Fufu, the Kholombizo and the Mpatamanga

projects. As a result these projects have been included in the medium and long-term investment plans. The expected costs for these projects are: Low Fufu, located in North Malawi = US $141 million Kholombizo, South Malawi, near Blantyre = US $391 million Mpatamanga, South Malawi, near Blantyre = US $397 million

Figure 1.2 Map of Malawi showing some potential hydropower sites

The Government of Malawi is very keen to utilise its great natural water resource to generate energy as it has established the lack of energy as a constraint to its socio-economic development. As a result several plans and strategies have been investigated and put into place to develop hydropower plants around the country to help attract private investment and to increase productivity and quality of life for its citizens.