Ensure that due diligence for power infrastructure programs integrates robust scenario analysis, incorporating uncertainty from exogenous factors including climate shocks. The Infrastructure Development Project (IDP) evaluation observed significant deterioration in Malawi’s ability to generate power due to a reduction in water levels at its key hydropower facilities located in the Shire River basin, owing to drought conditions that set in partway through the compact implementation period. This shortage of power supply continued throughout the remainder of the compact, serving as an additional major factor behind the chronic load shedding that was prevalent at the time of the final evaluation. The generation shortfall also exacerbated effects of the increased demand from new connections noted above. Limited generation capacity was among the number of challenges identified during compact development, and the compact agreement did include strategies to promote increased capacity in the near term, as well as over a longer planning horizon through emphasis on sector reforms to attract private investment. The compact design ultimately reflected a strategy of focusing direct investments in transmission capacity, and the MCC Country Team believes this prioritization remains valid even in the face of the environmental risks that materialized during the compact. Yet, the outsized role and magnitude of generation shortfalls had on final IDP outcomes underscores the need to fully explore and analyze a wide range of scenarios as part of compact due diligence, and to rigorously model and assess implications of exogenous factors that can pose severe risks to the achievement of program objectives. Where relevant for power systems (such as those heavily reliant on hydropower generation), short term risks due to climate shocks should be carefully examined, accounting for the level of uncertainty that may be present, particularly where future conditions may be difficult to model or predict.
Lesson Learned