Power policy

Madagascar does not have a legislated clean energy target, although it is aiming for 85% of power generation to come from renewables by 2030, consisting of 75% hydro, 5% solar and 5% wind. The country’s current electricity generation mix is dominated by 1,039 megawatts (MW) of oil and diesel sources, followed by 790MW from small hydro plants, 30MW from natural gas, 26MW from biomass and 15MW from solar. Renewables projects are given priority grid access.

The government has big plans to fully tap into Madagascar’s clean energy potential, such as through the upcoming 192MW Sahofika hydropower project and 120MW Volobe hydropower station. It also aims to hybridize all grid-connected thermal power plants with solar.

The government is looking to install around 100MW of new renewables across 2015-2030 – a target that likely excludes large hydro. In 2018, a 20MW solar project was commissioned by state-owned utility Jirama and the government held a tender for 25MW of solar with storage supported by the World Bank's Scaling Solar program. These are the most tangible signs of progress towards the country’s renewables goal. While the government can hold tenders for energy projects under the 2017 Electricity Code, no new auctions have been held since the solar PV tender in 2018.

Madagascar is trying to encourage private sector investment in renewables capacity, particularly as it looks to improve access to electricity. It has eliminated import tariffs and value-added tax on solar technology.

A national electrification strategy is currently under development as a continuation of the National Energy Policy introduced in 2015. The 2015-2030 National Energy Policy is extremely ambitious and aims for 70% of the population to have access to electricity and modern lighting by the end of this decade. Some 70% of this target is based on extending the power grid, 20% on building mini-grids and 10% on individual off-grid solutions. While there are grid extension plans, they are not publicly available.

Madagascar also announced in March 2019 that it is working with the World Bank to bring electricity access to a minimum of 1.7 million people by the end of 2023.

Power prices and costs

The government subsidizes electricity through the subsidy of fuel. The electricity distribution tariffs offered by Jirama are also subsidized, although the state-owned utility plans to gradually increase them. Last year, there was a substantial hike in tariffs.

The direct retail of electricity to industrial and commercial users can be priced bilaterally. Residential customers have seen power prices jump by 29% year-on-year in 2022.

Power market

Independent power producers (IPPs) can sell their electricity to state utility Jirama, which is the sole offtaker for Madagascar’s main grid. However, in the private market, IPPs represent just 6.5% of electricity production and the remainder is accounted for by private suppliers in rural areas.

The country’s power sector has been open to IPPs for over a decade and there is a clear intention to attract more private and international investment. The World Bank has helped develop a standard power purchase agreement (PPA) template to use. In July 2021, Rio Tinto signed a corporate PPA for solar and wind to power the operations of its ilmenite mine in Southern Madagascar.

In terms of generation, for projects that are smaller than 5MW, no public tender needs to be issued. Instead, negotiation happens directly between the producer and buyer. For projects over 5MW, a public tender must be issued and this process is overseen by ADER, the country’s rural electrification agency. ADER plans to tender a selection of sites for all regions in Madagascar until the end of 2022.

The retail of electricity can be conducted by independent companies through direct sales or within rural electrification concessions. However, experience in this segment remains limited.

Doing business and barriers

Navigating administrative processes and land acquisition can be difficult and lengthy in Madagascar. Moreover, access to financing is generally complicated. The country’s financial sector is not well developed and the lack of de-risking financial mechanisms, such as capital subsidies, guarantees and soft loans, makes it difficult to attract private investment at a large scale.

The quality of the grid can also cause issues for larger projects, which is why most solar developers are encouraged to not only include storage in their projects, but also to finance their own connection to the grid. While the ADER and the Board of Electricity Regulation monitor and enforce clear rules on grid interconnections, there is currently no publicly available data on grid extensions to help developers plan for the medium to long term.

Furthermore, the distance of potential wind sites to villages adds an extra expense for transport lines, resulting in increased costs for wind energy development. Also, since houses in rural areas are spread out throughout villages, distribution costs are higher, adding an additional obstacle in light of households’ low payment capacity. The wind sector needs scale to be able to evolve faster than demand. It has been growing steadily for the past few years, even during the Covid-19 pandemic.

Owing to difficulties in collecting tariff payments, companies in Madagascar’s utility sector – including public ones – are heavily indebted. Jirama, which is the sole off-taker on the main grid, is under considerable financial stress and generators have been paid in treasury bonds. The growth of renewables in the mix should improve Jirama’s financial health.

The main obstacle to retailing off-grid electrification products continues to be the low income of the target population. There are also administrative barriers. According to the 2017 Electricity Code, distributors of solar equipment under 10 kilowatts (kW) must fill out a simplified declaration form on behalf of their customers and submit it to the Authority for Power Regulation (ARE). For solar installations between 10-150kW, they must fill out a proper declaration form and submit an environmental impact assessment.

EV market

The government has yet to implement any substantive policy support in this sector and the electric vehicle market remains at an early stage.

EV policy

The government has yet to implement any substantive policy support in this sector.

Buildings market

Madagascar’s climate means the focus is on cooling rather than heating buildings. The government has yet to implement any substantive policy support to improve the energy efficiency and carbon intensity of these efforts.

Buildings policy

There are no specific laws.