Which Laws and Policies Have an Impact on the Development of

In the absence of a dedicated renewable energy policy or act, M9 highlighted that the Energy Regulatory Act (2004) and Rural Electrification Act (2004) were being utilised to regulate renewable energy installations. For example, section 24 of the Rural Electrification Act (2004) stipulated the conditions for which rural electrification activities were to be licensed and section 26 of the Rural Electrification Act (2004) stipulated the provisions for creating various Safety By-laws.⁴⁶

M1 and M2 highlighted that Malawi did not have sufficient incentives to attract renewable energy developers as they considered the renewable energy technologies themselves to be expensive and not cost effective for wide-scale deployment in the Malawi context. As shown in Appendix 5 (Investors’ Tax Incentives), some energy sector incentives provided in Malawi included import duty free status for goods such as energy saver bulbs, solar batteries, solar battery chargers, generators and invertors. However, the

46According to section 26 of the Rural Electrification Act (2004), (1) The supply, wiring, design and safety by-laws under the Electricity Act shall apply to the grid and off-grid extension rural electrification system provided that in-order to ensure that rural electrification schemes are appropriately engineered and costs are minimised, the Authority, on the recommendation of the Committee, may develop and publish in the Gazette by-laws regulating the supply, wiring, design and safety standards for rural electrification grid extension or off-grid schemes; and (2) The Authority may, on the recommendation of the Committee, by notice published in the Gazette prescribe minimum codes of practice and design specification standards for solar home system equipment for rural electrification (GoM, 2004c: pp. 17).

117

goods were subject to a Value Added Tax (VAT) of 16.5% and the incentives had a limited breadth when consideration was made to technical issues related to various kinds of RETs such as wind power, solar thermal technologies, solar PV systems, and bio-energy. M5 was however more optimistic by stating that the Ministry of Energy was receiving many inquiries and proposal from potential IPPs due to the reforms that were happening not only in the energy sector but the general investment climate for the country.

The Rural Electrification Act (i.e. the introduction of a Rural Electrification Levy on petroleum products) had assisted in providing a framework to finance the 64MW Kapichira II Hydropower Project (2011-2013) for ESCOM and the Government at a cost of US$55,000,000 (€40,315,275). The Government of Malawi also secured a US$3,040,000 (€2,228,335) grant from the African Development Bank (AfDB) to finance the cost of conducting a feasibility study for Kholombidzo Hydro Electric Power Plant.

The Government had therefore instituted some positive renewable energy developments based on socio-political considerations. During the study, there were no private renewable energy projects of over 1MW identified as being at an advanced stage or nearing completion. A renewable energy project of over 1MW would have signalled that the energy regulatory framework was giving confidence to private sector stakeholders to implement renewable energy projects.

Despite the presence of a good market for biofuels, the biofuels project (M10) had significant challenges in raising the US$15 million for the investment from both local and international sources. Some of the issues cited as hurdles for a venture of this nature (and similar renewable energy ventures) included convincing investors of the profitability and attractiveness of the investment because of the prevailing complexities of doing business in a SSA LDC like Malawi and the risks associated with the bioenergy business. To add to this, accessing capital from international capital markets⁴⁷ was also constrained due to Malawi’s general unattractiveness to private sector investors since

47 The Lake Turkana Wind Project in Kenya also had similar problems in accessing funds from international capital markets due to Kenya’s high investment risk perception and a lack of similar wind projects in the country to demonstrate the viability of the technology (LTWPL, 2011). A further analysis of this project is provided in Chapter 8.3.2.

118

the country ranked 134 in the World Bank’s Easiness of Doing Business ranking, which was in the lower 25% of the list and the rating of the Malawi Government by Fitch was B-/Stable, six grades below investment grade (the country is not rated by Standard &

Poor's Ratings Services, which also showed that the country was not on the radar for private sector investors) (BERL, 2012). The project managed to secure its funding through a partnership with TNT Express⁴⁸ as the project’s socio-economic and environmental benefits were in keeping with TNT’s corporate social responsibility agenda. This therefore highlighted funding and financing challenges that were being faced by renewable energy project developers as well as the need for renewable energy policies to have sufficient incentives and financing mechanisms that were suitable for the needs of renewable energy developers and also that can address the concerns of financial institutions to make them less apprehensive towards funding renewable energy projects.

The renewable energy sector in Malawi could be said to have benefited from the growth in trade between Malawi and China, and also from the technological developments that were decreasing the costs of renewable energy technologies. In Chirambo (2014) it was argued that greater cooperation and trade between Malawi and China could be beneficial to the renewable energy sector in Malawi as it would enable cheaper RETs to be available locally. As seen in figure 7.3 and figure 7.4, solar technologies for various uses (e.g. cell phone charging) in addition to lighting were becoming more affordable and popular even with low income earners. M14 considered that that interest and sales for solar powered home systems were boosted by the unreliability of power supply from the main grid (in urban areas), the affordability/decreasing costs of the systems, and the availability of different types of solar systems. Due to the growth in the use of cell

48 TNT Express is an international mail and express company that has its headquarters in the Netherlands. TNT Express is a socially responsible company as evidenced from its works with international organisations to make a difference in combating poverty and improving the environment through its Moving the World initiative and its ambition to become climate neutral. Since the BERL Jatropha Biofuel Project was registered on the Voluntary Carbon Market under the Verified Carbon Standard Scheme, TNT was able to make an equity investment in BERL hence providing the necessary funds for the development of the project so that the expected carbon credits from the project could provide an opportunity to offset its transport emissions within its own network since carbon dioxide emissions were TNT’s most significant environmental impact (BERL, 2012).

119

phones even in low income households, portable solar lighting systems and energy kiosks had become popular due to their capacity to charge cell phones. Taxation on RETs had been highlighted as a barrier and deterrent to the deployment of renewable energy systems⁴⁹ hence policy and regulatory reforms could significantly boost renewable energy deployment and change the energy use patterns of consumers by eliminating various taxes that are applied to RETs.

Figure 7.3 Renewable energy technologies for sale Source: Own collection

Figure 7.4 Rural uses for solar technologies Source: Own collection

49 Issues on the taxation of renewable energy appliances and technologies were also highlighted by respondents for the pre-tests. Taxation issues were brought up on questions relating to perceptions on the impact of non-energy sector policies on the development of the energy sector; perceptions on the support required for various renewable energy stakeholders; perceptions on how energy sector related policies and laws influence the energy sector; perceptions on how non-energy sector related policies and laws influence the energy sector; and perceptions on how renewable energy sector related policies and laws influence the renewable energy sector. Issues on the taxation of renewable energy appliances and technologies were highlighted by M10; M19; M21; and M25 during the interviews.

120

7.3.7 What are the Necessary Conditions that are Needed In Order to Make Laws