De-risking Energy Infrastructure Projects in Africa – The Special Case of Zimbabwe – Part 1

Developing large-scale energy infrastructure projects anywhere in the world, and whether they be Independent Power Producers (IPPs) or Public-Private Partnerships (PPPs), involves a complex, often long and uncertain journey. The standard project development lifecycle begins with identifying a viable energy source, whether renewable (solar, hydro, wind) or non-renewable (coal, gas); conducting feasibility studies; securing land rights; obtaining an IPP licence and other important permits, licences and approvals; extensive geo-technical environmental studies and approvals; negotiating and concluding Engineering, Procurement and Construction Contracts (EPCs), Operations & Maintenance Contracts (O&Ms) and Power Purchase Agreements (PPAs); and finally, reaching Financial Close. This process entails inevitably long development timelines and the very high project preparation costs typically must be spent upfront by the developer before investors and lenders come in, which is a steep barrier to entry for many developers. Investors and lenders considering these projects take a long time and spend a lot of resources to do their due diligence on the bankability of the project, because they are typically looking at investing easily in the region of  hundreds of millions, even billions of dollars (USD) to construct the power plant and/or transmission lines to get them to where they are operational and revenue-generating. For the large-scale utility and industrial scale projects, the funds required are so great that it is unusual for them to be supplied by one bank, but rather by a syndicate of commercial banks, or in emerging economies and developing countries, by very large multilateral organisations, DFIs or Export Credit Agencies. Although potential returns can be very high in Africa, the continent presents further layers of complexity and risk which have greatly limited the mobilisation of capital for infrastructure into the region, not just in its energy sector.

Looking at Africa

A 2024 report by the International Renewable Energy Agency (IRENA) titled “The Energy Transition in Africa: Opportunities for International Collaboration with a Focus on the G7,” states that “only 10% of infrastructure projects in Africa actually progress from the pipeline stage to Financial Closure”. Indeed the cost of capital spent on energy projects in Africa can be as high as 12% to 20%, compared to 3% to 7% in developed markets, and this funding comes mostly from development-oriented institutions like multilaterals (World Bank, ADB, ADfB IMF) and DFIs (IFC, CDC Group). A World Bank Group Position Paper prepared by Cornieti S.M.I. & Nicolas C.M. “How to Unlock Pipelines of Bankable Renewable Energy Projects in Emerging Markets and Developing Countries?” Washington D.C. (2023) attributes this bottle neck challenge to the risk perception of projects. The final stage of securing funding, is where many projects stall. While the Southern African Development Community (SADC) region is rich in natural energy resources, investor risk perception remains a formidable barrier. In particular, foreign investors are wary of risks like the creditworthiness of state-owned utilities as off-takers, enforceability of PPAs, legal and regulatory instability, currency risks, political interference with projects during or post-construction and limited legal protection. In the energy sector, where capital outlays are high and payback periods are long (it takes typically 3-4 years for construction before projects can begin to generate cashflows to cover its operations and debt servicing, and a return for its investors), any uncertainty around revenue flows and being able to get those funds out for the lenders and investors, can cause a project to become no longer viable and thereby derail investor funding efforts.

Zimbabwe: A Unique but Challenging Opportunity

Deficit, Potential and Promise

In this context, Zimbabwe represents a unique and instructive case. The country has enormous energy needs locally. An article published by NewsDay on 12 February 2025, quoting a report from the Zimbabwe Parliament's Portfolio Committee on Energy states that Zimbabwe's power deficit now sits at 1560MW, as the power utility’s foreign debt obligations continue to grow. According to the report, the Committee found that from an installed capacity of 2570MW, the country is only able to generate 1079MW, yet the country’s needs range from 1500MW to 2350MW, resulting in Zimbabwe having to import power from Namibia to reduce power cuts.

The Zimbabwe Investment Development Agency (ZIDA) puts the country’s energy needs at 4000MW, considering its strong mining and agricultural sectors which represent respectively 13% and 12% of GDP, the latter sector operating only at 50% of its capacity due to power shortages. This underperformance of the power stations is mainly due to the outdated technology, and infrastructure of the two largest power stations, Kariba South Hydro Power Station, and Hwange Thermal Power Plant (coal-fired) which were built over 30 and 60 years ago respectively. Thermal power stations in Harare, Bulawayo and Munyati have largely been, or will be, decommissioned because of their old age and the uneconomical cost of running them or rehabilitating them.  Furthermore, periodic droughts in the country severely curtail the capacity of Kariba Dam to generate hydro-electricity. Meanwhile the Permanent Secretary of the Ministry of Power and Energy Development indicated that 80% of Zimbabwe’s rural population is not electrified. Most rely on firewood for fuel which is causing the serious environmental problems such as deforestation and carbon emissions.

According to an article dated 2 December 2024 and published in Tech Zim by Stephen Zengere, Zimbabwe is losing US$1.6 billion in GDP per year because of constant power shortages. He based this on World Bank estimates that power shortages cost Zimbabwe 6.1% of GDP per year, its GDP of 2024 being reported to be US$35.22 billion.

Having said all of that, beyond its very high domestic demand for power, Zimbabwe actually has great potential indeed for generating significant fiscal revenues as a major regional power exporter of any excess energy generated, to markets within the SADC region, that is if it can successfully attract the foreign investment required to greatly expand its power generation capacity and improve its grid transmission infrastructure. Zambia, Mozambique South Africa and the DRC all face significant power shortages which Zimbabwe could meet and profit from.

Zimbabwe is endowed with significant untapped energy resources, particularly in coal reserves (estimated at over 25 billion tonnes) and vast and largely untapped renewable potential across solar, wind, hydro, and biomass which are all like a promise waiting to be harnessed.

Yet, despite this deficit, potential and promise, Zimbabwe struggles to close the financing gap for most energy projects which require external third party funding. The energy projects that have been successful have tended to be those IPPs which develop and construct small-scale power plants to meet the energy requirements of their own private operations, most notably the Dinson Iron and Steel Company, the largest steel-producing plant in the country and possibly in Africa, which successfully commissioned and built a 50MW independent power plant for its own smelting operations in Manhize.

Understanding the Challenges

One of the key challenges with attracting foreign capital investment into the sector is that the Government of Zimbabwe currently cannot issue sovereign guarantees to support project finance, given its high debt levels due to its unsustainable sovereign arrears to international creditors and its poor credit standing. Another reason is its limited fiscal capacity which is due to only having a small formal sector to tax, widespread tax evasion and inflation which reduces the value of its already limited ZWG tax revenue receipts. Those limited tax receipts are then swallowed up by debt servicing, wages for a relatively large civil servant base and the most basic public services like healthcare and education, leaving very little to support or de-risk energy projects.

In traditional project finance structures elsewhere in Africa, sovereign guarantees are very important to mitigate offtaker default risk, particularly when the offtaker is the state-owned utility, which in Zimbabwe is ZESA (the Zimbabwe Electricity Supply Authority). Without this crucial backstop, a project’s bankability becomes elusive because the cost of capital of the project becomes too high for investors/lenders due to the enormous risk it poses for them.

Also related to this problem, is that of currency conversion and repatriation risk which is another deal breaker, even for serious investors and lenders. The ZWG is not perceived as a stable currency which is freely convertible on international markets, and, as explained above,  there is often limited or no access to foreign exchange via formal channels like banks or the Reserve Bank of Zimbabwe, again because of Government’s high debt levels and limited fiscal capacity.

This is especially a problem for large-scale projects, such as where the power offtaker is the utility or a government entity, because they will normally pay in ZWG, the official currency, which opens up this challenge of conversion and repatriation, because project developers need USD or EUR to repay international debts and generate returns for equity investors. Furthermore, the Reserve Bank of Zimbabwe, which is the country’s central bank, historically has a reputation for delays in allowing repatriation of loan repayments and investor dividends. Even when foreign currency does come in, for example from exports of minerals and agricultural produce, quite a large portion of it is required to be surrendered to the Reserve Bank, and there are often delays in its approval processes for repatriated funds.

Furthermore, although the Zimbabwe Democracy and Economic Recovery Act (ZIDERA) sanctions were repealed in 2025, years of economic and political volatility have left a lingering credibility gap. Borrowing on international capital markets or even the most concessional lenders such as multilateral institutions, remains a challenge. Investors and lenders remain cautious, waiting for hard evidence of lasting reform, a stable and predictable legal and regulatory business environment, and improved governance before committing capital to long-horizon infrastructure projects, so it will take some time for capital to start flowing in.

Innovative De-risking Solutions

The above problems are well-known in the sector, but it is now very important for Zimbabweans to begin to move forward in the perennial conversation about the challenges of funding infrastructure projects. Zimbabweans  must begin to look very closely at possible viable solutions and how they might implement them. In my view, in order to overcome these obstacles, Zimbabwe must embrace alternative de-risking mechanisms which obviate the need for sovereign guarantees, since these require sovereign financial muscle and creditworthiness which the country simply does not have currently. Some innovative solutions might be:

1. Use of multilateral risk instruments which offer political risk insurance, partial risk guarantees and liquidity support.

2. Structure PPAs with hard currency payment mechanisms and ringfence that part of the developer’s revenues for lenders and investors, and even hold these funds in escrow or offshore accounts.

3. Zimbabwe's mining sector, which demands significant power and earns in foreign currency, presents an opportunity for long-term, private PPAs that reduce reliance on the state utility, ZESA.

4. Combining renewable generation (e.g. solar) with baseload capacity (e.g. coal or diesel) can ensure reliable delivery and justify higher tariffs that attract private investors.

5. Development Finance Institutions (DFIs) can offer concessional loans and catalyse co-investment from commercial financiers, while also instilling international governance standards and due diligence rigour.

Besides financial innovation, Zimbabwe must also modernise its legal and regulatory framework to instill confidence and transparency if it wants to unlock capital.

Conclusion

Zimbabwe stands at a critical juncture. Its abundant energy resources and its strategic place in the SADC region offer a pathway to energy security and economic revitalisation and prosperity, but only if the right structures are in place to attract investment. With the lifting of ZIDERA, saturation of Western markets, Africa’s potential to deliver much larger returns for investors and lenders, and growing interest in both renewable and coal-based generation, Zimbabwe must act swiftly to promote innovative financial structures, implement investor-friendly reforms and rebuild trust with capital providers. Energy development in Zimbabwe is not just about megawatts. Certainly, for the potential investor, it is about megawatts bankably delivered.