Risk addressed: Country risk

Mozambique aimed to develop its first utility-scale renewables project in the mid-2010s but the country’s macroeconomic environment was perceived as too risky for most private international investors. This case study describes how blending finance from various stakeholders – a development finance institution, a foreign renewable power project developer and a state-owned utility company – helped reduce risk perceptions for investors and lower financing costs, enabling Mozambique’s first large-scale solar power project. 

Central Solar de Mocuba (CESOM), a 40 MW solar PV plant, is Mozambique’s first utility-scale renewable energy project (excluding hydro). CESOM – an independent power producer (IPP) – is held by Scatec Solar, a Norwegian renewable power project developer (52.5%), Electricidade de Moçambique (EDM), the state-owned utility company in Mozambique (25%) and Norfund, the Norwegian development bank, through KLP Norfund Investments AS (22.5%). The investment is also supported by a 25-year Purchasing Power Agreement with EDM. CESOM aims to provide clean energy to over 170 000 households in Mozambique’s northern electricity grid system.

The project started around 2014, when a pre-feasibility study was undertaken to estimate the solar potential near Mocuba, in the northeast of Mozambique. Norad, the Norwegian Agency for Development Cooperation, funded the feasibility study with a grant. Once the project viability was established, Scatec Solar and Norfund committed USD 2.5 million in 2015 and the project was approved by Norfund’s Board in 2016. Norfund’s funding during the development stage was through a loan that is converted into equity if the project develops (an instrument that DFIs can offer in countries where early-stage financing risk is high and commercial finance is not available or too expensive).

The project also secured a syndicated loan of USD 55 million in 2017, from the International Finance Corporation (the “private arm” of the World Bank Group), the Climate Investment Funds and other debt financiers. Mozambique’s debt crisis created delays, but the financing for the project finally closed in 2018.

Norfund and other DFIs enhanced the bankability of the project by providing guarantees to cover excess construction costs and potential payment defaults by the off-taker (EDM). The project also includes a performance guarantee on behalf of CESOM that the project would produce a certain amount and quality of power.

The project created over 1 000 jobs during construction and will avoid approximately 79 000 tonnes of CO2 emissions a year once operating.