A Chinese state-owned engineering and construction company successfully completed river closure last week marking the start of the main building phase of the $214 million Nyabarongo II Multipurpose Project in Rwanda.

In the country’s quest for more renewable energy to meet demand, the project undertaken by PowerChina is the largest hydropower development supported by the Chinese government in the East African nation. It is also one of the key projects of the “Eight Major Action Plans” of the 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC).

Nyabarongo II is funded by a concessional loan from the China Exim Bank, accounting for more than half of Kigali’s total borrowing from China since 2015 and a small share of Rwanda’s $8.9 billion total public debt.

This month, the Ministry of Finance and the Saudi Fund for Development (SFD) signed a $20 million loan concessional loan for transmission systems that will connect some 60,000 households in the Southern and Northern Provinces. The Nyabarongo is in the Northern province and could probably have its power transmitted through these newly funded distribution networks.

The Nyabarongo II Multipurpose Project is located about 20 kilometers from Kigali between Gakenke and Kamonyi districts on the Nyabarongo River. When fully operational, the new plant will generate 43.5 megawatts of electricity to power at least 43,000 homes and also provide water for domestic consumption and irrigation as well as mitigate flooding downstream.

Nyabarongo II Comes as Hydropower Falls Out of Favor Globally

Hydropower is one of the sectors the Rwanda Development Board (RDB) highlights among several other renewable energy generation opportunities including standalone solar systems for households and other users.

Tapping into reliable renewable energy sources would help reduce the country’s expenses on fuel. However, this will take some time to realize since hydropower projects require long construction periods and high capital costs before they become active.

In addition, hydropower generation faces a bleak future due to uncertain weather patterns including droughts and floods.

Climate change effects are dampening the outlook for hydropower across the world since rivers are drying up or flooding posing a risk to energy generation.

In Rwanda, the devastating effects of unpredictable weather are evident in severe flooding and landslides. With these becoming more common, they also pose a threat not only to the Nyabarongo II but also to other hydro projects and different economic sectors.

Elsewhere, in Zambia and Zimbabwe, drought caused water levels to fall to critically low levels at the Kariba Dam hydroelectric leading to severe power cuts lasting for several weeks.

Last year, China added 24 gigawatts (GW) of hydropower capacity but drought decreased the efficiency of hydroelectric power generators which led to the country increasing its reliance on coal-generated electricity after hydropower generation dropped in the southern provinces.

Globally, capacity utilization is dropping due to persistent droughts in countries like Canada, the United States, Turkey and Western Europe.

Why is This Important?

Climate change effects will play a major role in how effective this project will be in Rwanda, whose energy projects are expected to increase economic and social development.

To make the target of 100% access to electricity by 2024 possible, the country has various players funding its power projects which is growing its loan portfolio.

For China and other financiers, the debt issue will be interesting to watch.

The highly concessional nature of Chinese debt in Rwanda translates into favorable affordability metrics. However, if the nature of the loans changes, then it’ll be a different ballgame altogether.

How this combination of factors plays out will determine the flow of foreign funding into Rwanda.