BERF Mozambique Renewable Energy Diagnostic December 2016

Business Environment for Renewable Energy in Mozambique responds to a DFID request for BERF to analyse business environment constraints faced by private sector firms entering the off-grid renewable energy market, specifically for Improved Cook Stoves, Pico Solar Systems, Solar Home Systems and Green Mini-Grids.

The review addresses

i) the policies/strategies, laws and regulations that govern investments in Mozambique’s Photo Voltaic and Improved Cook Stove industries;

ii) the organisations and institutions that operate and shape the market and

iii) specific business environment issues that affect the performance of businesses in the market.

Stakeholders were consulted, including representatives from government ministries, intergovernmental organisations, academic researchers and private sector companies in the renewable energy sector to identify the binding constraints for market growth.  Recommendations aim to to mitigate the constraints.

Key Business Environment Constraints in the Improved Cook Stoves and Photo Voltaic Markets

  • Demand is weak, as most rural consumers lack information and knowledge about Improved Cook Stoves and Photo Voltaic products, as well as the money to buy them.
  • Expectations for subsidies, have been raised crowding out private investments.
  • Maintenance and support is lacking which reduces confidence in the quality and value of Improved Cook Stoves and Photo Voltaic systems.
  • Consumer financing is almost non-existent.
  • Reaching rural consumers is costly due to poor infrastructure.
  • Macroeconomic environment conditions are worsening with rising inflation, a falling exchange rate and shortage of foreign exchange which makes it difficult for PV companies to secure foreign investments into start-ups, and to deliver value-chain and consumer financing.
  • Technical and managerial skills are scarce.  Temporary work permits to bring in foreign expertise are difficult to obtain, making it hard to set up efficient distribution networks and customer support services to raise the value of the products to the consumer.
  • Government of Mozambique’s interventionist actions in the market and inconsistencies in measures to catalyse private involvement in the industry also create uncertainty and increase risks of investing.
  • Legislation to provide investment incentives exist, but laws are not consistently applied. Interventions to sustain the market sometimes create perverse incentives and crowd-out private investors.

Prioritising Reforms

The development of the Improved Cook Stoves and Photo Voltaic sectors should be driven by different policy objectives.

The primary objective of developing the off-grid PV sector is to deliver connections to as many people as possible, by using the most efficient and cheapest technology available on the international market. In order to achieve this, reforms should:

  • Catalyse international investments;
  • Eliminate barriers and reduce the cost of importing Photo Voltaic equipment and accessories;
  • Facilitate access to international expertise.

The primary objective of the Improved Cook Stove market is to deliver the largest adoption through the distribution of products that respond as closely as possible to the local needs and tastes of users. In order to achieve this, reforms need to:

  • Support a national/regional system for Research and Development based on testing and recognised industry standards;
  • Establish economies of scale in production so as to lower prices;
  • Eliminate barriers and costs of importing components for locally produced Improved Cook Stoves.

A list of feasible policy actions to improve the business environment in the sectors is provided in the full report.