Malawi gets $350m for its largest hydro project

From the newsletter

The World Bank has approved a $350 million grant to support Malawi's Mpatamanga Hydropower Storage Project (MHSP). The project is estimated to cost $1.5 billion and will be built through a public-private partnership, representing the largest foreign direct investment in the country's history. Once completed, it will connect over a million households.

• The project has attracted other funders, including the European Union, which committed in February to providing $519 million for the hydropower plant and the Malawi-Mozambique Interconnector electricity projects. 

• The country aims to connect 2.7 million people to increase its electrification rate from the current 12.5% to 70% by 2030. It is banking on hydropower generation, which is much more reliable for baseload electricity.

More details

• The project's funding will involve a mix of grants, equity contributions, loans, and guarantees from a range of development partners and private sector entities. The Malawian Government has chosen a consortium of Electricité de France (EDF) and SN Malawi BV (whose owners include British International Investment, Norfund, and TotalEnergies) as the strategic sponsors for MHSP.

• This project includes two power plants: a 309 MW peaking plant and a 41 MW downstream plant. Its goal is to alleviate energy shortages and improve energy security. The 309 MW peaking plant, with its reservoir storage, is designed to provide essential power during peak demand periods and stabilise the electricity grid by adjusting its generation to match real-time energy needs.

• The growing adoption of intermittent solar energy across Africa is driving demand for firm power. With battery storage currently less cost-effective than hydropower, countries with suitable resources are investing in hydropower generation. Funded projects include small-scale developments in Uganda (6.7 MW), Burundi (11.65 MW), and Eswatini (13.5 MW), as well as the larger 500 MW project in Cameroon. However, some mega-projects, such as the 40 GW Grand Inga dam in the DRC, have so far failed to secure funding.

• Once operational, the new project will allow Malawi to meet its electricity access goals and export power to the Southern Africa Power Pool (SAPP) regional market. “MHSP is a top priority for our government as the least-cost option in meeting our growing energy demand and achieving our access targets,” said Ibrahim Matola, Malawi’s Minister of Energy.

• The country's Integrated Resource Plan (IRP) identifies a need for 774 MW of firm capacity to cover peak demand. This is expected to be met through hydropower generation and firm power imports from neighbouring countries.

• Progress is being made with the construction of the 400 kV Mozambique-Malawi Interconnector, which is slated for completion by Q2 2025. This will allow Malawi to import 50 MW of firm power from Mozambique and will also provide Malawi with export capabilities. Additionally, Malawi has supply agreements with Zambia. This could benefit Malawi by allowing it to export its excess electricity to Zambia, which currently faces some power challenges, once the project is complete.

Our take

• As this funding is a grant, it offers Malawi the opportunity to price its electricity affordably. Commercial and industrial customers can leverage this advantage to expand their production and pursue export opportunities.

• Malawi is positioned to export competitively priced surplus electricity to both the Southern and Eastern African Power Pools. The revenue generated from these exports can be reinvested in developing additional generation plants and expanding access to electricity for more people. This marks a big step forward for the country's ambitious energy goals.

• Public-private partnership agreements of this scale demonstrate strong confidence in Malawi's economy. The mining sector, in particular, is expected to benefit considerably from access to affordable and clean power.