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Cabo Verde's Electricity Market

Understanding Cabo Verde's Electricity Market: What Investors Need to Know

Background: How the System Currently Works

The Monopoly Structure

Cabo Verde's electricity sector is currently dominated by Electra S.A. (Empresa de Electricidade e Água), a state-owned company that controls both the transmission and distribution of electricity across almost the entire country. Electra operates under a 36-year concession contract signed with the government in May 2002.

There's one exception: on Boa Vista island, a public-private company called AEB (Águas e Energia de Boavista) handles production, transport, and distribution independently from Electra.

How Foreign Investors Currently Participate

Because the government owns the transmission network through Electra, foreign investors can't own the grid itself. Instead, they participate as Independent Power Producers (IPPs) who generate electricity and sell it to the grid.

Here's how it works:

  • The Single Buyer Model: Electra is the only buyer of electricity. Investors build and operate power plants (typically wind or solar farms) and sell the electricity to Electra through long-term contracts called Power Purchase Agreements (PPAs).
  • Fixed Payments: Producers receive a fixed rate for every kilowatt-hour (kWh) they deliver to the grid. This rate is set by the regulator (ARME) and guaranteed for 15 years, providing predictable returns.
  • Example - Cabeólica: The best-known example is Cabeólica S.A., a Public-Private Partnership involving foreign investors like the Africa Finance Corporation and Finnfund. Cabeólica operates four wind farms and sells all its electricity to Electra under a PPA.

Current Challenges in the System

The existing structure has some significant problems that affect investors:

  • Financial Instability: Electra has historically struggled with high debt and negative equity. This creates "payment risk"—the company that's supposed to buy your electricity may have difficulty paying you on time.
  • Grid Limitations: Cabo Verde's grid is actually nine separate island grids, and they're small. This creates technical problems absorbing renewable energy, which fluctuates with weather conditions. In 2017, Electra had to reject up to 46% of wind energy on Sal island because the grid couldn't handle it. When your power is rejected (called "curtailment"), you lose revenue.

What's Changing: Major Reforms Underway

The government is fundamentally restructuring the electricity sector through Decree-Laws No. 52/2021 and 34/2022. The goal is to reduce financial risk and improve efficiency by breaking up Electra's monopoly.

The New Structure

Electra is being split into three separate companies:

  1. Generation Company (GenCo/EPEC): Will handle electricity production. The government plans to sell up to 75% of this company to private investors.
  2. Distribution Company (DisCo/EDEC): Will handle distribution and retail sales to customers. This company will also be privatized.
  3. Transmission System Operator (ONSEC): Will manage the transmission network and coordinate the overall system. This will remain government-owned.

Solving the Technical Problems

To address grid instability and curtailment issues, the government is investing heavily in energy storage:

  • A Pumped Storage Hydropower project on Santiago island
  • Battery storage systems (BESS) on Sal and São Vicente islands

These storage facilities will allow the grid to absorb more renewable energy, making PPAs more financially viable.

Advice for Investors

Short-Term Opportunities (Current System)

If you're looking to invest now under the existing PPA model:

  1. Focus on renewable energy projects (solar and wind) that qualify for the attractive regulatory framework—fixed payments guaranteed for 15 years.
  2. Carefully assess payment risk. While the government is taking on some of Electra's old debt to improve the company's finances, Electra's financial challenges remain a concern. Consider requiring payment guarantees or insurance.
  3. Check grid capacity before committing. Work with ARME (the regulator) to understand curtailment risks for your specific location. Islands with better grid infrastructure or planned storage projects present lower risk.
  4. Target islands with storage investments. Santiago, Sal, and São Vicente are getting energy storage facilities, which will reduce curtailment risk and make your investment more profitable.

Medium-Term Opportunities (Privatization Era)

The upcoming privatization creates fundamentally new opportunities:

  1. Consider investing in the distribution company (DisCo/EDEC). This is rare—you'll potentially be able to own the actual distribution network serving customers, not just generate power for someone else to distribute. This offers more stable, regulated returns.
  2. Participate in the generation company (GenCo/EPEC) privatization. Owning a stake in the main generation company could provide economies of scale and reduced offtaker risk, since you'd be part of the same corporate structure as the buyer.
  3. Monitor the privatization timeline. Engage early with Cabo Verde TradeInvest to understand the tender process, qualification requirements, and timeline.

Risk Mitigation Strategies

Whatever your entry point:

  • Register your investment with the Central Bank through Cabo Verde TradeInvest from day one. This is legally required to repatriate profits later.
  • Negotiate payment security mechanisms in your PPA, such as letters of credit, escrow accounts, or sovereign guarantees, especially until the restructuring is complete.
  • Plan for storage. If you're building a large renewable project, consider including battery storage in your own design to reduce dependence on grid absorption capacity.
  • Engage with the regulator (ARME) early to understand the specific fixed tariff rates and terms available for your project type and location.

Bottom Line

Cabo Verde's electricity sector is in transition from a state monopoly to a more open, privatized structure. The current PPA model offers opportunities but comes with financial and technical risks. The upcoming privatization could provide access to distribution and generation assets—a significant upgrade from the current generation-only model. The key is timing your entry to match your risk tolerance and investment goals.

For current opportunities, focus on projects with strong payment guarantees on islands with good grid infrastructure. For future opportunities, prepare now to participate in the privatization process.

Cabo Verde Understanding Cabo Verde's Electricity Market

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Cabo Verde Understanding Cabo Verde's Electricity Market

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Cabo Verde Understanding Cabo Verde's Electricity Market

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Cabo Verde Understanding Cabo Verde's Electricity Market

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