Foreign investors are queuing up to enter Namibia’s energy market following the government’s decision to allow independent power producers (IPPs) to supply electricity to mines and towns directly.
Currently, under a ‘single buyer model’, IPPs can only sign power purchase agreements (PPAs) with NamPower, the country’s state-owned power utility. However, in September 2019, a ‘modified single buyer model’ will come in to force and the IPPs will be allowed to sell electricity directly to large customers, including regional electricity distributors, large industrial and mining companies, municipalities and local authorities.
The move could help to transform Namibia’s drought-hit economy, as the country’s recent impetus towards a heavier industrial base has been hamstrung by an insufficient power supply. Of the 4285 gigawatt hours the country consumed in 2018, 1425 gigawatt hours were consumed by the mining sector.
In 2018, Namibia imported a record 73% of its electricity supply from South Africa, Zimbabwe and other African countries, according to the country’s Ministry of Mines and Energy. Its installed generating capacity is about 514 megawatts, though peak demand can exceed 660 megawatts. It is estimated that the power deficit will exceed 300 megawatts in the next few years.
“Our concern is that we are still importing a too-significant amount of electricity and we are working hard to reverse this situation,” says Tom Alweendo, Namibia’s minister of mines and energy, at the national Mining Expo in May 2019. “Our current generation plan will ensure that by 2022 at least 80% of our electricity consumption must be generated locally. Over the years we were able to attract IPPs to invest in electricity generation and we will continue to do so.”
To end overdependence on energy imports, the government has drawn up the National Integrated Resource plan for the period 2016 to 2035. Since 2015, it has also implemented a renewable energy feed-in tariff (Refit) programme, designed to promote small and medium-sized renewable energy projects, including solar-, wind- and gas-powered energy. It is developing local capacity through a mandatory 30% local ownership of the IPPs.
By February 2019, the renewable energy plants were contributing 155 megawatts into the grid. Under the Refit programme, NamPower has also recently concluded PPAs with 14 local renewable energy IPPs, which should add 70 megawatts to the national grid.
These producers are expected to inject N$1.6bn ($110m) in local investment and FDI into the electricity sector but this sum could jump significantly once IPPs are able to supply mines and towns directly.
“I have been meeting with British companies and they are very interested in investing in our energy sector,” says Uparura Kuvare, executive director at the Namibia Industrial Development Agency (Nida). “We are opening up this industry and I think we will see a lot more FDI coming into it.”
Other renewable projects already in operation include a 4.5-megawatt solar power plant run by Innosun close to the town of Omburu and 20-megawatt solar plants managed by Greenam Energy located at Keetmanshoop and Mariental. In December 2017, NamPower also signed a PPA – with a 44-megawatt offtake – with Diaz Wind Power, which operates a wind generation plant close to Lüderitz.
“We are optimistic that the Namibian economy will recover in 2020,” says Baronice Hans, managing director at Bank Windhoek. “Renewable energy projects are one of the bright spots on the horizon. We were the first bank in the country to issue a ‘green bond’, which acts as a funding vehicle for environmentally friendly projects.”
Big multinational companies are also registering growing interest in Namibia's emerging offshore oil and gas industry, although limited volumes of hydrocarbons have been produced until now.
The key initiative is the Kudu gas-to-power project, a joint venture between the country’s National Petroleum Corporation, better known as Namcor, which holds 44% of the equity, and BW Kudu, a subsidiary of BW Offshore, a global provider of floating production services to the oil and gas industry that is listed on the Oslo Stock Exchange, which holds the other 56%.
The Kudu gas field – which has a certified resource base of 420 million barrels of oil equivalent – was discovered 170 kilometres off the Namibian coast in 1974. Gas is already being produced in a limited way from a floating production unit in the fields, before being piped to a gas-to-power plant onshore.
BW Kudu is confident that it can mobilise local and international investors to the tune of $2bn so that the 475-megawatt project can come to fruition. The initiative has become more attractive for institutional investors as the upstream capital expenditure estimate has been reduced by 40% to below $1bn. BW Kudu plans to supply electricity directly to private buyers as well as NamPower. It is estimated that the plant would add 2% to Namibia’s GDP.
Cash to explore
“Namibia does have great oil and gas potential but a lot of money must be invested in exploration,” says Gloria Simubali, deputy executive director at Geological Survey of Namibia. “Until now, drilling for oil has only led to dry wells but there are indications that oil does exist. There have not been any commercial discoveries yet. However, if four or five further wells can be drilled, there is a strong chance that oil will be discovered.”
In 2018, the Namibian government set up Nida to replace the Namibia Development Corporation and Offshore Development Corporation. Its key function is to drive the country’s industrial development strategy – a ‘growth at home industrial policy’ – towards the achievement of the country’s Vision 2030 goals, which aim to bring Namibians’ quality of life up to a developed world standard.
Nida owns a total of N$3bn in assets, including land and buildings. It is the owner of business parks and warehouses in Katima Mulilo, Katwitwi and Oshikango, and is also constructing the Omahenene Business Park in north-western Namibia.
“These assets can be offered to foreign investors,” says Mr Kuvare. “There are great opportunities in the country for foreign investment in agriculture, natural resources, fisheries, cold storage, the water sector, garment manufacturing, chemical processing and many other industries. Our agency can provide a lot of assistance to investors interested in these sectors.”