Portugal's African Energy Bet: How Mozambique's Drought Reshapes Investment and Energy Security

Portugal-based energy infrastructure operator Redes Energéticas Nacionais (REN) holds a 7.5% stake in Mozambique's Cahora Bassa dam, which has just reported €95.5M in net profits despite suffering through the worst drought in four decades—a performance that raises important questions about regional energy security and Portuguese investment returns in African infrastructure.

Why This Matters for Portuguese Investors

• Portuguese Exposure: REN's 7.5% stake ties Portugal's energy grid operator directly to sub-Saharan hydroelectric volatility and climate risk.

• Regional Significance: Cahora Bassa supplies South Africa, Zimbabwe, and Mozambique, making it a critical component of Southern African energy infrastructure during periods of reduced generation.

• Resilience Test: The dam's ability to maintain profitability amid a 30% production drop demonstrates the value of disciplined management and diversified revenue streams.

• Strategic Partnership: REN's involvement reflects Portugal's historical economic ties to Mozambique and ongoing energy sector engagement in the region.

Severe Drought, Solid Returns

Hidroeléctrica de Cahora Bassa (HCB)—the Mozambican utility operating Africa's fourth-largest reservoir—generated 10,921 GWh of electricity in 2025, a 30% year-on-year decline from the 15,754 GWh produced in 2024. The drop was driven by the most severe hydrological crisis to hit the Zambezi basin since the early 1980s, with reservoir storage plunging to 24% of active capacity by May 2025 and the water level falling to just 306 meters.

Despite these challenges, the company posted revenues of $344M (€293.2M) and net income of $112M (€95.5M), figures approved by shareholders on April 30. HCB contributed roughly $300M (€255.7M) to the Mozambican state through taxes, fees, and dividends, reinforcing its fiscal importance to the national budget. Company president Tomás Matola attributed the result to "prudent management of water and financial resources" and sustained fulfillment of commercial contracts despite the hydrological squeeze.

The dam continued to supply Eletricidade de Moçambique (EDM), South Africa's Eskom, Zimbabwe's ZESA, and the broader regional grid, ensuring energy security even as the Zambezi basin recorded its worst rainfall performance in over 40 years. The El Niño phenomenon, active since 2023, compounded the deficit: cumulative precipitation in the 2023–2024 season was the lowest in three decades, producing a significant shortfall in inflow to the reservoir relative to the historical mean.

What This Means for Portugal and Regional Investors

REN's 7.5% stake in HCB—acquired as part of Portugal's historical economic ties to Mozambique—exposes the Lisbon-listed utility to both the upside of African energy demand and the downside of climate volatility. HCB's 2025 profit performance demonstrates operational resilience despite production constraints, driven by prudent resource management and the strategic value of regional energy interconnection.

For Portuguese investors and policymakers, the Cahora Bassa case illustrates several key lessons: the importance of disciplined infrastructure management during climate stress, the value of cross-border energy cooperation, and the ongoing significance of Portugal's energy sector partnerships in Africa.

Portugal's involvement in Mozambique's energy sector reflects broader economic relationships and shared interests in regional energy security and sustainability. The Cahora Bassa case highlights both the opportunities and climate-related risks inherent in African energy infrastructure investment during a period of increasing hydrological volatility.

Regional Energy Security Context

The interconnected nature of Southern African power systems means that drought in the Zambezi basin affects multiple countries simultaneously. The ability of Cahora Bassa to maintain operations and supply commitments despite a 30% production decline underscores the value of regional energy infrastructure and cross-border electricity trade arrangements.

Climate variability will remain a defining challenge for hydroelectric-dependent infrastructure across Southern Africa. For Portugal, understanding these dynamics is essential for managing both the risks and opportunities associated with Portugal's ongoing investments in the region's energy future.