Public-Private Partnership Stories Scaling Solar Zambia 1 The Republic of Zambia has experienced strong economic growth of an average of 6.5% over the last decade, along with a population increase of 30% to 17 million. This has significantly increased demand for power, but only about a fifth of the population has access to electricity. With over 90% of Zambia’s energy coming from hydro power, the energy shortage has been worsened in recent years by drought. To increase its energy generation capacity and diversify its energy mix, the Zambian government signed a Scaling Solar mandate in 2015 to bring affordable, clean energy to the country. The competitive tender process for two solar projects carried out under the program resulted in a record-low solar tariff of 6.015 cent/kWh fixed over 25 years – the lowest solar tariff in Sub- Saharan Africa at the time. The two projects will bring a total of 76MW to the country’s grid and This series provides an overview of public-private partnership stories are the first renewable IPPs in Zambia – and the fastest IPPs to reach commercial close in sub- in various infrastructure sectors, Saharan Africa outside South Africa. where IFC was the lead advisor. IFC IFC’s advisory work on Scaling Solar was undertaken financing support of USAID’s Power Public-Private Partnerships Africa, the Private Infrastructure Development Group company, DevCo, the Ministry of 2121 Pennsylvania Ave. NW Foreign Affairs of the Netherlands, the Ministry of Foreign Affairs of Denmark, and the UK Washington D.C. 20433 ifc.org/ppp Department for International Development. BACKGROUND IDC that, to promote competition in the sector and to diversify the risk to the sector of non-performance by a single developer, In Zambia, electricity demand had been growing at an average of the proposed projects be situated on separate sites and developed about 3% per annum, mainly due to the increased economic by different private sector sponsors. The tender was for an 80% growth - GDP growth averaged 6.5% over the past 10 years. By stake in the projects, while IDC would partner with the private 2015, Zambia was struggling with an electricity supply deficit of sector and retain the remaining 20%. 560 MW (approximately ¼ of Zambia’s installed capacity), which, without substantial investment in generating capacity, BIDDING would only increase as electricity demand grew. The tender was launched in October 2015, and the qualification The insufficient supply of reliable power was severely affecting criteria included a legal component, a technical component the country’s ability to maintain its economic growth, and the (based on past project experience) and a financial component. electricity supply deficit was resulting in 12 hour/day load The project received 48 applications with 11 bidders being pre- shedding across the nation and power cuts of 30% to the mining qualified, and in May 2016 seven bids were received for each industry – a key driver of Zambia’s growth. project. Neoen / First Solar bid the lowest non-indexed tariff in sub-Saharan Africa of just USc 6.015 per kWh for the 25-year To add the urgently needed power to its grid and help diversify operation of a 47.5MW plant. Enel Green Power offered USc its energy mix, Zambia became the first country to sign up to the 7.84 kWh – the second lowest bid – for the development and World Bank Group Scaling Solar program in August 2015. operation of a 28.2MW power plant. Scaling Solar represents a standardized approach to IPP procurement, including standardized project documents and bidding processes. It provides governments with a complete set EXPECTED POST-TENDER RESULTS of templated, bankable, tender documents. Scaling Solar also • Improved power access for over 130,000 provides governments with advisory services for project and country specific due diligence and project structuring, along with • Renewable capacity to be built: 75.7MW offers of IFC financing, World Bank guarantees and MIGA • $82 million in private investment in Zambia’s energy insurance to any winning bidders if requested. sector IFC’S ROLE • GHG emissions reduced by 1.868 metric tons/year IFC was the lead transaction advisor for the Industrial • Scalable design: Based on the success of the project, Development Corporation of Zambia ("IDC") for the Zambia has already signed a second mandate for a development and tendering of two utility-scale projects. The total of 500MW under Scaling Solar. Senegal, Ethiopia mandate included assisting IDC with all the upfront development and Madagascar have also signed up for the program. work, running a two-stage tender to select two winning developers, and all steps required to financial close. Upfront In addition, Scaling Solar is expanding to new regions development activities, conducted by IDC with assistance from with countries in Asia, Latin America, and the Middle IFC’s PPP and Energy & Water teams, included: East in discussions to join the program. 1. Site selection, including all necessary studies to establish how much capacity can be accommodated on the Zambian grid 2. Full due diligence on all legal and regulatory, environmental and social, tax and accounting and insurance matters relating to the projects 3. ‘Localization’ (country-based adaption) of the key Scaling Solar template documents and drafting of a Shareholder's Agreement for IDC minority stake investment in the projects. TRANSACTION STRUCTURE This was the first in a series of projects to be tendered in Zambia using the Scaling Solar approach, with a total target capacity of 600 MW. The initial projects consisted of designing and tendering two solar PV plants of up to 50 MW each located at the Lusaka South Multi Facility Economic Zone 1. It was decided by 1 http://www.lsmfez.co.zm/