As of 2023, only 51.1% of Angolans had access to electricity despite the great potential, especially for renewable energy. In 2015, with the support of the Bank, the Angolan power sector underwent significant reforms through the unbundling of the electricity value chains, which resulted in three public utility companies, namely PRODEL, RNT and ENDE, responsible for generation, transmission and distribution respectively, as well as the introduction of an independent regulator, IRESA. As of 2023, the country's energy system comprises 66 power plants, one operating under a PPP arrangement, and two privately owned. The energy system has a combined capacity nearing 6,000 MW, producing about 15 TWh of electricity per year. Angola’s energy mix comprises 68% hydropower, 31.3% other fossil fuels, and 0.7% hydrogen (solar/fossil fuel). Between 2015 and 2020, 3,712 MW of generation capacity was commissioned, resulting in a surplus of about 2,000 MW clean energy, which is expected to increase to 4,000 MW by 2027 as a new and large hydropower project comes online. The country's biggest challenge is transmission (in and out of country) and distribution domains. The transmission network comprises just over 5,200 Km of transmission lines distributed across the country with four interconnected systems. The distribution network exhibits fragmentation, wherein certain regions are linked through transmission lines while others remain unconnected. As a Southern African Power Pool (SAPP) member, Angola has ambitions to play significant role in regional power trade. 

Source: Angola Country Strategy Paper 2024-2029, and AEP data

• Angola Ministry of Energy and Water (MINEA)
• Empresa Nacional de Electricidade  (ENE)
• Instituto Regulador de Sector Eléctrico (IRSE)
• Atomic Energy Regulatory Agency (AREA)

• National Energy Security Strategy and Policy of 2011 authenticated by Presidential Decree No. 256/11 of 29 September
• General Electricity Act No. 14-A/96 of May 1996. Decree 20/90 of 1990 that gives the Ministry of Finance the authority to set tariff s
• Decree 4/02 of 2002 establishing the sector regulator, the Instituto Regulador de Sector Eléctrico (IRSE)
• Decree 45/01 of 2001 on standardizing tariff s

Update Angola’s Integrated Energy Resource Planning and Strategy

Support for Angola’s power sector and tariff reforms

Regional/country context and sector issues

The long-term strategy Angola 2025 establishes strategic objectives for the country, which represent strategic challenges for the development of the energy sector, independent from the current situation of the oil markets. The growth of generation capacity and the expansion of the grid, as well as the mobilization of private capital, are strategic long-term axes established in the Policy and Strategy for National Energy Security, with impact on the long-term development of the country and on the diversification of the national economy. Given the long implementation timeframes for investments in the sector, it is critical that priorities and key projects be defined now, for a 2018-2025 timeframe, in line with the goals and aspirations of Angola Strategy 2025 and the Electric Sector Transformation Process (PTSE), currently underway. A strong growth of energy consumption is anticipated up until 2025, foreseeably reaching a load of 7.2 GW. This growth will primarily result from bringing power to 60% of the population, increased residential consumption, the growth of national wealth through the services sector, and the country’s industrialization. Angola has numerous options for generating power. The present document considers the key options - hydro, thermal and new renewable - individually and combined in scenarios that meet the required levels of safety and redundancy. The generation mix selected for the 2025 horizon results from a weighting of criteria: economic, regional development, environmental, and energy security. The government has recently approved the National Strategy for New Renewable Energies, with an overall objective of 800 MW and concrete targets for each of the main sources, which are considered under the vision.

To achieve a targeted 9.9 GW of installed generation capacity and a 60 percent electrification rate by 2025, the Government has instituted an ambitious infrastructure plan. Angola’s current installed capacity is estimated at 5.6 GW but only 4.5 GW is available.  The country’s current energy mix consists of 68 percent hydropower, 31.3 percent other fossil fuels, and 0.7 percent Hybrid (solar/fossil fuel).  However, the Ministry of Energy and Water (MINEA) expects to reach 6.3 GW of generation capacity once the Soyo combined cycle gas plant (750 MW), and the Laúca hydroelectric project (2.1 GW) come fully online. Several hydro and solar projects are also being developed and expected to come online over the next two to five years.  For these and future projects, external financing and private project development will continue to be key, especially given recent government budget restraints and Angola’s recent emergence from the economic downturn.   Especially, Angola holds great potential for renewable energy production. Mapping studies completed by MINEA identified potential for 16.3 GW solar power, 3.9 GW wind power, and 18 GW in hydropower throughout the country. To address rural demand, the government is pursuing the development of small-scale off-grid projects, using both fossil fuels and renewable technologies (small hydro, solar, wind, and biomass).

Though power infrastructure destroyed during the civil war is rapidly being restored, progress is impeded by the following problems: a low electricity rate versus a high supply cost; a vulnerable power system dependent on hydropower generation with seasonal fluctuation (caused by drought), accounting for more than half of total electricity generation; a low electrification rate of about 43% nationwide on average (less than 10% in rural areas); transmission and distribution loss of 55% or higher; and a low fee collection rate of 80% or lower due to a lack of electric meters installed. In rural areas, both businesses and residents rely heavily on diesel generators for power. The government’s announcement to reduce government subsidies and the resulting higher fuel and electricity prices over the coming years are expected to create demand for alternative energy solutions. Currently, the power utility companies in Angola are heavily dependent on government subsidies to sustain operations. This situation severely impacts the cost and availability of energy in the Southern region but also presents a risk for the region’s future economic growth. Regarding the distribution sub-sector, it is estimated that 860,000 out of 1.08 million residential customers (approximately 79%) are not metered, which significantly contributes to the financial losses affecting subsidy levels and utility performance. Angola needs to address structural bottlenecks in economic infrastructure. Investments towards the enhanced efficiency and sustainability of the energy sector are critical to reduce the current high production costs, reduce/eliminate government subsidies, and unlock the full economic potential of the country.

Angola’s transmission infrastructure comprises three major grid systems (northern, central, and southern), as well as isolated grids in the east. The northern grid runs 400kv and 220 kv lines, and covers Luanda, Uige, Bengo, Zaire, Malange, Kwanza Norte, and Kwanza Sul provinces. The central network includes 220kV lines from Benguela to Huambo and Bie. The southern grid serves Huila and Namibe and uses 220kv lines. Plans exist to link the grids through a north-central-south backbone and expand the grid from 3,354 km to 16,350 km by 2025.  Currently, the northern and central backbone are interconnected, and 10 of the 18 provinces of Angola are part of it, namely: Luanda, Bengo, Uíge, Cuanza Norte, Cuanza Sul, Benguela, Huambo, Bié, Malanje and Zaire. Furthermore, Angola is currently a non-operating member of the Southern African Power Pool, but plans exist to connect to the pool through Namibia (Baynes Dam).  An MOU was signed between Namibia and Angola for the joint construction of the Baynes Dam hydroelectric plant with an installed capacity of 600 MW. The power production would be shared, 300 MW for each country. An additional connection in the north of Angola with the Democratic Republic of Congo is also being considered.  The grids of the two countries would connect via the Inga Dam.

A November 2014 Presidential Decree established the unbundling of the power sector, creating three public utilities that operate under MINEA. These public utilities include: PRODEL (Empresa Pública de Produção de Electricidade), the national production company; RNT (Empresa Rede Nacional de Transporte de Electricidade), the national transmission company; and ENDE (Empresa Nacional de Distribuição de Electricidade), the national distribution company. In addition, the purview of GAMEK (Gabinete de Aproveitamento do Médio Kwanza), the utility company responsible for implementing and managing the hydro projects in the Kwanza River, was expanded to include oversight of the development and construction of most major power projects in the country. The electric sector restructuring also aimed to establish greater autonomy and strengthen the role of the regulator, IRSEA (Instituto Regulador dos Serviços de Electricidade e Águas), in overseeing sector activities. IRSEA continues to build technical and financial capacity. In June 2019, electricity subsidies were cut by 85 percent, leading to retail rate hikes of 77 percent. These rate increases should enhance the government's utility financial viability and create a more sustainable business model for the electricity sector, which will also make the sector more attractive to potential independent power producers.  By 2025, the government is expected to make progress toward achieving cost-reflective tariffs, thereby reducing the sector’s reliance on subsidies, improving the financial position of utilities, and encouraging outside investment in the sector.

Complementarity and coordination

Implemented in Angola between 2019 and 2022, the Angola Renewable Energy Program (AREP) supported by AfDB through SEFA has helped to establish a viable and sustainable procurement framework that stimulates investments by Independent Power Producers (IPPs) in the Angolan renewable energy sector, particularly in solar energy and hydropower. It aimed to reduce the country’s dependence on fossil fuels and mitigate the adverse effects of mega energy projects, with the goal of fostering private investment in the renewable energy sector and building capacity for project design, implementation, and monitoring. This proposed project under AESTAP will build on the outcomes of AREP, as well as ongoing and future activities of other institutions in the country related to the power sector listed below. There are a few players in the country, and there is no formal mechanism to coordinate donors’ interventions in the sector.

African Development Bank: The Power Sector Reform Support Program, approved in 2014 co-financed with JICA comprised four main reform components: the restructuring of the energy sector and improvement of the regulatory environment, the promotion of private sector investment in the energy sector, the improvement of transparency and efficiency in the management of public finances, the support for institutional capacity building and management training. The project, approved in 2019, provided $480 million in financing from the Bank, along with $50 million from the Africa Growing Together Fund, covers the first phase of the Energy Sector Efficiency and Expansion Program (ESEEP) in Angola, which assists the government to connect the country’s transmission grids and tackle limited operational capacity within the Angolan power distribution utility ENDE. And as part of the ESEEP, 860,000 pre-paid meters are installed, and 400,000 new customers will be connected to the grid and effectively metered.

• European Union: assisted the Government in the preparation of standard forms of Power
  Purchase Contracts (PPA) to be used in the electricity sector between the single-buyer (PRODEL)
  and various independent power producers (IPPs). These contracts will be extended to RE IPPs
  Norway: assisted the Government in the preparation of various regulations related to the 
  electricity sector generation, transmission, and distribution systems. This is part of the efforts to
  strengthen the regulations of Angola’s General Electricity Law and create an enabling
  environment for future private sector intervention.
• JICA: co-financed the Power Sector Reform Support Program with AfDB, approved in 2014, and supported the power development master plan in 2018, currently providing renewable energy advisory work to the Government for promoting private investment in renewable energy development.
• World Bank: provided 417 million USD for the Electricity Sector Improvement and Access Project. The project, approved in 2021, aims to improve the operational performance of the electricity sector utilities and increase electricity access in selected cities in Angola with five components:
  • Electricity access expansion and improvement of revenue collection; 2) Electricity service improvement, aims to improve the availability and reliability of hydrometeorological data, allowing to use storage capacity of reservoirs to help control downstream flooding in some cases; 3) Improvement of PRODEL’s capacity and strengthening sustainable management of generation plants; 4) Project management support, aims to finance the costs of the project coordination unit (PCU) to be established within MINEA, as well as additional expertise/support to be provided to the three power companies throughout project implementation; 5) The Contingent emergency response, aims to improve the country’s response capacity in the event of an emergency.
• IFC: supported the roadmap to make renewable energy IPP bankable and conducted the cost of service study.

PROJECT DESCRIPTION

Project rationale

The Africa Energy Market Place (AEMP) Angola was held in Luanda on October 26, 2023. AEMP is the AfDB’s high-level policy dialogue platform for identifying sector bottlenecks and discussing the way forward among stakeholders, including the government, the private sector, and development partners. The priority actions were recommended as an outcome of the policy dialogue, covering the whole value chain of the sector: sector reform, generation, transmission and market integration, and access to electricity. In particular, the issues surrounding the tariff framework, isolated and limited grid networks, and the energy sector market framework were highlighted, among others. Furthermore, it was recognized that the successful implementation of Angola’s IPP renewable procurement framework requires addressing these more urgent and fundamental issues, which cause a lack of liquidity and efficiency throughout the entire power value chain in the country.

Firstly, the Angolan energy sector is characterized by significant subsidies. To offset the high costs of electricity supply, the Government adopted an intensive subsidy policy, compensating operating companies and protecting consumers from paying the real economic cost of electricity, primarily due to over-reliance on diesel generators and the inefficiencies of the infrastructure. The Government has embarked on an ambitious program of cutting down these subsidies to the current levels of 0.9% of GDP as of 2018, which was particularly required given the significant decrease in state budget following the reduction of income from oil activities. However, power generation cost covers only OPEX at PRODEL (the state power generation company). Therefore, RNT (the state transmission company and system operator) buys electricity from PRODEL at 5 KWA (USD 0.7 cents), and there is no incentive to purchase electricity from IPPs. ENDE (the state distribution company) buys the electricity at 7 KWA (USD 1 cents) from RNT and sell at 14 KWA (USD 2 cents) to customers. IFC supported the cost of service study and formulation of the roadmap to increase renewable energy IPP bankability. Considering the strong government commitment, there is a specific need to follow up on the study and support the government in elaborating on the strategy and concrete action plans for progressively removing subsidies and increasing tariffs towards a cost-reflective level.

Secondly, the power transmission network is underdeveloped with limited interconnection between regions in the country, and the power network is not integrated into the Southern African Power Pool (SAPP). Studies are being carried out to assess the feasibility of integrating Angola into the SAPP. The government formulated a power development masterplan in 2018 with the support of JICA. Due to recent development of hydropower projects in the northern area and the assessed potential of variable renewable energy such as solar and wind, the master plan needs to be updated in alignment with the country’s energy transition strategies and regional connection to SAPP. Furthermore, several high-voltage industrial customers, including those with potential captive power investments, have not been connected to the grid system on the eastern side of Angola and the southern part of the DRC.

Lastly, the current market framework has been established through the unbundling of the vertically integrated utility into three companies and the establishment of an independent regulator since 2014, with the support of the AfDB. To improve sector operations and overcome sector-wide liquidity issues, a right enabling environment is needed to promote private investment. Therefore, the progress of the current energy sector reform and the current energy sector market framework should be reviewed.

Project objectives

The project aims to enhance sector performance and economics, thereby attracting more private investment in the energy sector in Angola. The objective is to address the issues of tariff framework, updating its integrated resource plan, and reviewing the current energy sector market framework.

Project description

The project supports deepening Angola’s power sector tariff reforms, updating its integrated resource plan, and reviewing the current energy sector market framework in collaboration with MINEA, IRESEA, and RNT in response to the outcome of AEMP 2023 and ERI recommendations to address identified gaps for enhancing the regulation in Angola.

Project Components and Activities

Component 1: Review of Tariff Framework towards Cost Reflectivity: (estimated budget: 250,000 USD, estimated duration: 24 months).

This component will review the existing Angola’s cost of service study and elaborate on the tariff reform strategy. The study will start with reviewing the cost of providing power to different types of consumers and at key stages of the value chain (Generation, Transmission and Distribution) and revisit a model for tariff restructuring and propose a comprehensive strategy and concrete action plans to reach cost reflectivity (tariff migration plan) through consultations with the key stakeholders including a time-based program, for transition from the existing financial to economic- based tariffs, and for addressing the subsidy.

Component 2: Updating Integrated Resource Plan and Strategy: (estimated budget: 250,000 USD, estimated duration: 24 months)

This component will update the existing Angola energy sector plans, including the regional connection to SAPP. The study will involve a review of the country’s current policy and long-term plans, which include “Long-term Strategy Angola 2025”, “National Energy Security Strategy and Policy”, “General Electricity Act”, “Public Private Partnership Law”, “Tariff Reform Initiative” and update the long-term planning as an Integrated Resource Plan. It incorporates the least-cost generation plan, the transmission network master plan supported by JICA, the rural electrification master plan, and other sector plans, in alignment with SAPP regional power planning as well as Angola’s policy direction to green the energy sector. Furthermore, in conjunction with the above-mentioned exercise, the study will support the transmission company (RNT) in developing its strategy to integrate captive investments and facilitate the connection of high-voltage clients, as a key action to stimulate additional investment and improve the financial position of the utility.

Component 3: Review of the Energy Sector Market Framework: (estimated budget: 200,000 USD, estimated duration: 24 months)

I am running a few minutes late; my previous meeting is running over. This component will assess the progress of the ongoing energy sector reform, which has been supported by the Bank with several instruments, and review the current energy sector market framework and assess how MINEA, the regulator, and three unbundled utilities work efficiently and effectively to improve the sector performance. Then, the study analyzes the challenges and issues and, through consultation with the key stakeholders, it makes recommendation including roadmap and its implication to the existing legal framework such as presidential decree, electricity law, and contractual agreements between three companies on the way forward in order to improve the sector performance, overcome the sector-wide liquidity issue, and set up the right enabling environment to promote private investment.

Component 4 Project Management (Cross-cutting component): (budget is centralized at the program level)

Ensure the day-to-day management and supervision of project activities, including related procurement and financial management aspects, and monitoring of activities/tasks.