By Fitch Solutions

Key View

  • Tanzania will become a net exporter of electricity over the near-medium term as its power generation will grow rapidly following the completion of the 2.1GW JNHPP in 2023.
  • The JNHPP’s completion will hold significant upside potential for economic and industrial growth over the coming years, as it will strengthen power security and facilitate growth in energy-intensive sectors.
  • The completion of the Kafue Gorge Lower hydroelectric project will also make Zambia a net exporter of electricity through the medium term, boosting access to electricity and driving up overall consumption.
  • Increased dependence on hydroelectricity will weaken Zambia’s power sector diversification, posing a serious threat to long-term power stability.

We expect that Tanzania’s power generation will grow rapidly to make the country a net exporter of electricity over the near-medium term, driven almost entirely by the completion of the 2.1GW Julius Nyerere Hydroelectric Power Project (JNHPP). The project was one of the most high-profile infrastructure investments to be undertaken by the government of former president, the late John Magufuli, with an estimated USD3.6bn cost. Despite the country’s conservative tax base and the national utility Tanesco’s notable debt burden, the project has made steady progress which has informed our bullish outlook on its completion within the coming years.

In August 2021, installation of the plant’s first turbine began, marking a significant milestone in its construction phase. The 235MW unit 1 is scheduled to reach first power generation in June 2022, with the government maintaining its schedule for full project completion in 2022. However, considering possible delays in the installation and commissioning of the eight remaining turbines, we have factored its capacity into our forecasts between 2022 and 2023. With its completion, we expect Tanzania’s total balance of electricity will shift from a marginal net deficit in 2021 to a net excess averaging 3.2TWh between 2023 and 2025, as highlighted in the chart below. Added to that, we foresee the JNHPP alone making up more than 95% of the country’s total net growth in power generating capacity between 2021 and 2030, making it the single biggest contributor towards growth in its power sector throughout the decade. This will not only allow Tanzania to generate income from the exportation of its excess generation, but also facilitate the building-out of its power transmission and distribution network to boost electrification rates, which was reported to be only 37.7% in 2019. By increasing both power security and access to electricity, the country will become a more attractive destination for investment, particularly in energy-intensive heavy industrial and commercial development. As a result, we expect the completion of the JNHPP to hold significant upside potential for economic and industrial growth over the coming years.

Excess Generation To Boost Exports And Consumption In Tanzania

Much in the same way, we forecast the completion of the 750MW Kafue Gorge Lower project to eliminate Zambia’s reliance on electricity imports through the medium term. After severe drought drastically reduced power generation at the Kariba Hydroelectric Plant, Zambia’s state utility ZESCO was unable to supply sufficient electricity to avoid blackouts through 2020 and parts of 2021. With the completion of the plant before end-2021, we expect the combined effects of additional generation and steadily rising water levels in Lake Kariba to bring an end to load-shedding in Zambia and reduce the country’s dependence on electricity imports. We forecast total generation to outstrip overall demand to make Zambia a net exporter of electricity through the medium term. The benefit of this new power dynamic will likely be two-fold. Firstly, ZESCO will have the opportunity to capitalise on its excess generation through exports, likely into the Southern African Power Pool and once new transmission interconnection lines are completed, into the East African Power Pool too. However, more importantly to the market’s long-term prospects, it will also enable the state utility to focus additional investment into the construction of new power grid infrastructure to service areas not currently connected to the central grid, boosting access to electricity, which stood at 43% in 2019.

While the project’s completion will boost the country’s overall electricity supply, the increased dependence on hydroelectricity points to even weaker power sector diversification, posing a serious threat to its long-term power stability. This will leave it even more vulnerable to drought-induced deficits, particularly as overall electricity consumption rises through the medium-to-long term.

Greater Hydropower Dependence To Boost Risk Of Deficits During Drought

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