Conclusions

The first objective of this study was to analyse major factors undermining the development of renewable energy sources in Malawi. This study reveals that the renewable energy framework in Malawi is incomplete as such there have been some implementation shortfalls. The Malawi National Energy Policy (2003) proposed the formulation of an Energy Regulatory Framework in the form of an Energy Regulation Act and related sub-sector legislation, including the Electricity Act, the Rural Electrification Act, the Liquid Fuels and Gas Act, the Coal Act, the Biomass Act, and the Other Renewable Energy Services Act, to provide a legal basis for improved energy sector governance. As it stands, the Energy Regulatory Framework comprises of The Energy Regulation Act 2004, The Electricity Act 2004, The Rural Electrification Act 2004, and The Liquid Fuels and Gas (Production and Supply) Act 2004 hence three sub-sector legislations including the Other Renewable Energy Services Act have not yet been developed. Some of the Acts that were implemented have arguably improved the various facets of the energy sector to which they were developed for (i.e. The Rural Electrification Act is successfully mobilising funds from various sources to promote rural electrification and has marginally increased the rural electrification rate; and The Energy Regulation Act (2004) provided the framework for the establishment and operation of the Malawi Energy Regulation Authority (MERA) to regulate the energy sector (e.g. provide oversight over the approval of tariffs and prices of energy sales and services, and receive and process licence applications for energy undertakings.)).

Funding and awareness are also seen to have a profound influence on the effectiveness and implementation of policies and laws. Funding is important as it not only helps in developing and realising renewable energy projects, but also helps with

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the human capacity building and technical capacity building of relevant stakeholders.

Knowledgeable stakeholder are in a better position to understand the technical aspects related to different types of RETs and the environmental and social-economic factors that determine how acceptable a community can be to the use of certain RETs. Awareness on the other hand is important to enable people to understand the value of renewable energy to the environment and also enable various stakeholders to understand the potential uses and limitations of various RETs.

Another objective of the study was to assess the challenges and opportunities of Malawi’s existing laws and policies as instruments for promoting renewable energy in Malawi more particularly using climate finance mechanisms such as the CDM. Here it was discovered that laws and policies can have an impact on increasing renewable energy deployment by providing the right incentives to attract IPPs and providing tax exemptions which could reduce the cost of RETs. However, the main challenge is to ensure that non-energy related policies do not undermine aspects that attract investment in the (renewable) energy sector. This follows that whilst the potential market and demand is there for energy services, Malawi as a LDC has structural challenges and infrastructural inadequacies (e.g. a poor road network and communication systems, lack of skilled personnel, etc.) which deter investments not only in the renewable energy field but also in other sectors such as mining and manufacturing. These issues therefore increase operational costs for businesses and also increase the risks for renewable energy projects hence deterring potential investments in the various sectors of Malawi. In addition to this, the energy sector is dominated by ESCOM. ESCOM is a 100% state owned company that generates, transmits, and distributes electricity. The company arguably has a monopoly in the electricity sector which the government utilises to influence electricity tariffs to make electricity affordable but this is counterproductive as low tariffs discourage the private sector from undertaking (renewable) energy sector investments.

The study also attempted to determine law and policy instruments that can promote the development and implementation CDM projects and access to climate finance in Malawi. Here it was discovered that the factors that have led to positive developments and more activity in the climate finance and CDM sector were

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international efforts and modification to the CDM framework to include PoAs and the prioritisation of CERs from LDCs for the EU-ETS. Malawi still has no regular CDM projects hence highlighting the problems to do with the investment climate in Malawi as it was discovered that CDM investments and renewable energy investments are usually influenced by similar issues (e.g. political and macroeconomic stability, sound regulatory frameworks, efficient supporting institutions enforcing the relevant laws and regulations, etc.) hence for Malawi to be attractive for CDM and other climate finance projects the DNA should lobby for more investment incentives (e.g. tax exemptions) to be provided to potential CDM investors since CDM investors are likely to invest in a country that they can generate the most commercial profits and benefits from.

The climate finance operation and implementation modalities in Malawi also seem to be out of sync with the existing realities of the socio-economic situation of the country. Knowledge and understanding on the aspects that can improve climate change mitigation and adaptation are not well understood by various stakeholders in Malawi and subsequently there is also limited awareness on the objectives of climate finance. The climate finance capacity building initiatives that have been undertaken in Malawi have arguably been inadequate to generate enough knowledge and awareness amongst stakeholders to enable them to have the expertise and confidence to develop climate finance projects. Climate finance modalities though beneficial are therefore still considered cumbersome and costly hence most stakeholder will continue their business as usual approach to development which could be environmentally harmful. During the research, whether by coincidence or by design, it was discovered that most stakeholders that were at an advanced stage in the development or implementation of their PoAs or other VCM projects were unavailable for interviews due to other commitments or because of their busy schedules hence they could not be part of the study. On the other hand, the stakeholders that were finding challenges in conceptualising climate finance opportunities, modalities and projects were more forthcoming in being part of the study possibly to be able to share their experiences and learn from other people’s experiences. This could signify that outside the framework of the workshops hosted by the DNA there is limited information and experience sharing amongst stakeholders

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as such they cannot support each other to promote the development of climate finance projects.

Lastly, it was important to identify approaches, mechanisms and innovations that can assist with the development of renewable energy in Malawi so that future policies in Malawi can be more effective at improving the deployment of RETs and attracting climate finance projects. Certain schools of thought consider the choice/type of policy instrument to use to promote the deployment of renewable energy (i.e. FITs, Renewable Portfolio Standards, tax exemptions, subsidies, etc.) not to be as significant as the actual design of the renewable energy support instrument because countries, regions and communities differ in economic structure, technological development, the cognitive environment, awareness levels and specific market characteristics (i.e. to promote renewable energy, emphasis should be placed on the design (incentives and operation) of the policy rather than in deciding which policy instrument to use). A better understanding of the livelihood strategies, energy use patterns and income levels of the different segments of society in Malawi are therefore imperative in understanding how the communities can embrace or reject new technologies that are introduced in the community.

Figure 8.1 is a representation of the issues that the study discovered as key factors that determine the rate of utilisation of renewable energy sources in Malawi.

Arguably, these are the issues that should always be incorporated in the design and implementation of the country’s renewable energy polices and strategies, and climate change polices and strategies.

Figure 8.2 is a representation of the issues that the study discovered as key factors that determine the accessibility of climate finance and implementation of climate finance projects in Malawi. Arguably, these are the issues that should always be considered in Malawi’s climate change policies, climate risk management strategies, and renewable energy policies. Some approaches, mechanisms and innovations that can assist with the development of renewable energy and attracting climate finance projects are provided in the next section.

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Figure 8.1 Factors influencing renewable energy deployment in Malawi

Community’s Income Level- This influences whether or not a community can adopt RETs as most communities in Malawi are poor and have biomass as a cheap and alternative energy source. Arguably, the lesser the cost of the RETs, the higher the probability that communities will be willing to buy and use the RETs.

Presence of NGOs- NGOs are a vital stakeholder in the renewable energy sector as they are responsible for undertaking renewable energy projects that are not economically viable but socially advantageous consequently promoting the diffusion of RETs. Moreover, NGOs fund other energy sector stakeholders and are also a source of information that raises awareness on various environmental and social issues to many rural communities.

ESCOM- The organisational and technical inefficiencies of ESCOM have led to capacity and infrastructural deficits in Malawi’s energy sector. ESCOM’s low tariff rates and the lack of a renewable energy development plan by the organisation arguably have deterred private sector led investments in the renewable energy sector and limited the diffusion of RETs.

Investability Perception- The Ease of Doing Business Index (2014) (World Bank, 2014b) ranked Malawi 171 out of 189 economies (or a rank of 34 out of 47 countries in SSA) in terms of how conducive the regulatory environment was to starting and

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operating a business locally. At rank 171, Malawi was near the bottom of the list hence investors could perceive the country as lacking consistency in the implementation of its policies thereby giving investors the perception that the country does not have a good business environment for energy and non-energy sector investments.

Investment Incentives- Attracting renewable energy sector investments is competitive. Energy deficits are not only characteristic of Malawi but the SSA region as a whole has low electrification rates as such international investors and IPPs have many options and countries to choose from for their investments and will likely choose to invest in the countries that have the best investment incentives (i.e.

countries that reduce their risks and increase their profits). (The new approach in Malawi where power producers and (major) power consumers will be able to negotiate and agree on tariffs independent of government prescribed prices can therefore be seen to be a commendable incentive that has potential to promote the use of RETs.)

Other Sectoral Policies- Renewable energy deployment can be hampered by constraints from and conflicts with other policies that have contradictory objectives.

This scenario can emanate from other policies within the energy sector (e.g.

government prioritising the development of conventional energy supply systems) hence making RETs comparatively more expensive. Other non-energy related policies such as the imposition of import duties on various RETs and government prioritising investments in other sectors can also influence RET deployment.

Donor Priorities- Donors play a significant part in the socio-economic development agenda of Malawi since over 40% of the national budget is financed by donors.

Donors therefore influence renewable energy deployment by determining the amount of funds to be provided to the country (at what time and under which circumstances), funding different renewable energy projects and also stipulating the types of projects that the government is allowed to undertake.

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Figure 8.2 Factors influencing climate finance projects in Malawi

DNA Activities- Malawi does not have dedicated CDM and climate finance promotion centres as it is the case in the countries that are regarded as being successful in hosting many CDM and climate finance projects. In the absence of the dedicated CDM and climate finance promotion centres, the DNA therefore has to come up with innovative approaches to attract climate finance investments, and create partnerships that can improve its capacity and resources.

Donor Programmes- Various NGOs and International Development Organisations have different projects that are directly or indirectly related to climate risk management (e.g. enhancing agricultural systems and increasing the resilience of people to disasters). Donors also provide funding and technical assistance to various stakeholders and this assists in promoting their understanding of climate change issues and how to utilise climate finance modalities.

Investability Perception- The Ease of Doing Business Index (2014) (World Bank, 2014b) ranked Malawi 171 out of 189 economies (or a rank of 34 out of 47 countries in SSA) in terms of how conducive the regulatory environment was to starting and operating a business locally. At rank 171, Malawi was near the bottom of the list hence investors could perceive the country as lacking consistency in the implementation of its policies thereby giving investors the perception that the country does not have a good business environment for energy and non-energy sector

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investments. These aspects could increase the perception amongst investors that climate finance projects will not be able to successfully go through all the stages in a climate finance cycle and achieve their projected project emission reductions.

Investment Incentives- Attracting climate finance projects is competitive. Different developing countries understand the value of climate finance projects in minimising environmental degradation and promoting renewable energy development. Climate finance investors have therefore got options to invest in different developing countries in different world regions hence are likely to choose host countries that provide the highest net profitability and implement their projects when it is advantageous for them to do so.

Other Sectoral Policies- Malawi has no climate change policy as such different sectors have various programmes and strategies that try to deal with climate change issues. In the absence of a climate change policy, the country’s climate change related programmes and strategies are consequently not well coordinated which in some circumstances also leads to the various programmes and strategies being in conflict. Synergies and other opportunities to utilise climate finance modalities to enhance climate change management are therefore not well developed.

CDM/Climate Finance Architecture- Prior to the introduction of CDM PoAs Malawi had no registered climate finance project under the compliance carbon market. Even up to now Malawi has no project under regular CDM projects. This therefore highlights that the climate finance landscape in the country is still not attractive for many climate finance projects. In its present status Malawi can probably only gain from climate finance modalities through interventions by global policy makers that give the country special dispensations due to its LDC status, introduction of new carbon crediting methodologies and through VCMs.