Exploring opportunities for public-private partnerships in small scale hydropower plants for rural electrification in Malawi: a case study of Bondo micro hydropower plant

Abstract

At 2% of the total population, the low rural electrification status for Malawi is a crucial topic. This is because electricity is directly linked to socioeconomic development. To increase the electrification status, knowing that the private sector has enormous resources, the Government of Malawi (GoM) has been calling for Public-Private Partnerships (PPPs) in power projects, including Small Scale Hydropower Plants (SSHPs). However, it is now over a decade since GoM started calling for the PPPs and there are no PPPs in the sector. Are there opportunities for PPPs in SSHPs for rural electrification in Malawi? This was the research question. A deductive approach was used to answer the research question, with Bondo Micro Hydropower Plant (MHP) being used as a case study. The legal and regulatory framework for PPPs and rural electrification was analysed and it has been found that the framework allows for all types of PPPs and Bondo MHP can be implemented as a PPP. The power consumption of Bondo community was analysed and it has been characterised as having a low load factor, low productive use and low ability to pay, which result in low revenue; willingness to pay is however high. Considering that Bondo is an agriculture community, revenue streams can be improved by investing in agriculture and food processing. Financial analysis was carried out on Bondo MHP under different technical and financial factors and assumptions using RETScreen. It has been established that the power plant has a financial return that is lower than 34%, the commercial base lending rate during the study; hence, it is unlikely to attract private investors. Modelled as a 40:60 public to private investment, the MHP is likely to be financially viable only when the capacity factor is increased from 47%, capacity factor during the study, to over 60%, and when the investment cost and the interest rate on private capital are lowered. Thus, a PPP can be a reality in Malawi where investors are able to develop a SSHP with a high capacity factor at a low cost and interest on loan. Improvement of revenue streams is also a key component for the PPPs to succeed.