Private power producers to get $83m for renewable energy projects
From left: A Biogas digestor, a solar cooker and the 19MW Buseruka hydropower station launched in January 2013. Photos/FILE
What you need to know:
The power projects are expected to generate 125MW of electricity to help ease rising energy bills.
The World Bank is to provide the partial risk guarantee against political and commercial risks that are associated with investing in renewable energy projects, while Deutsche Bank will offer debt and equity products through commercial banks in Uganda to plug financing gaps.
Independent power producers in Uganda are lining up for cash from a number of agencies that are to fund up to 15 renewable energy projects under a new programme that is being piloted only in the country.
The projects, that include mini- hydros, are expected to generate 125MW of electricity.
The amount so far committed to the programme dubbed the Global Energy Transfer Feed-in Tariffs (GET FiT) is €65 million ($83.4 million) from the government of Norway, Britain’s Department for International Development and Germany, all channelling the funds through German funder KfW Development Bank. However, the kitty could get bigger.
“We have had discussions with other donors to support the programme and hope they come on board eventually,” KfW’s senior project manager for energy and environment Africa Dr Jan Martin Witte said.
The power projects are expected to help ease rising energy bills which despite new plants, have pushed the cost of doing business to historic highs.
The full commissioning of the 250MW Bujagali hydropower dam in October last year has not helped much in addressing electricity shortages.
This, happening at a time when Uganda is producing surplus electricity of 22MW at peak demand and up to 43MW off-peak, is a signal of the distribution challenges utility firm Umeme is facing.
Last year, Uganda shut down the expensive emergency thermal power plants that had been established to plug generation shortfalls from 2005.
GET FiT, developed in 2010 to promote renewable energy investments in developing regions, rides on three features — a premium payment mechanism, a guarantee facility and a private financing mechanism, which is a debt and equity instrument at competitive rates. These three combine to offer a huge attraction for investors.
The premium payment is what the private developer is paid as top-up on the existing renewable energy feed-in tariff that bulk buyer Uganda Electricity Transmission Company Ltd (UETCL) pays as per the power purchase agreement.
For instance, the current tariff paid by single buyer UETCL for hydropower plants of 9-20MW is $0.079 per kilowatt hour, but instead of getting an upfront subsidy, GET FiT will pay developers top up of $0.02 per kilowatt an hour based on actual generation that the new plants feed into the grid.
The tariff for plants of 1.9MW capacity is $0.082-$0.092 but the top up premium is the same as the one for 9-10MW plants. The UETCL tariff for baggasse and biomass plants is $0.081 and $0.103 respectively, both attracting a $0.01 top-up.
IPPs argue that although Uganda’s energy sector was unbundled years ago to allow private players into power generation, the lack of a standardised tariff structure has been a concern for investors.
“There are many challenges in this sector. One of these is the lack of a standardised power purchase agreement; and on our part, we started the project without achieving financial value because we did not want to lose time,” said Rao Venugopal, the director of Hydromax Ltd, the developer of Buseruka 19MW mini hydropower dam that was launched in January.
Initially, lack of standardised tariffs made investments in small-scale renewable energy generation unattractive. Then the government launched the second phase of renewable energy feed-in tariff programme. Still, tariffs offered to developers remained low and hence the need for a top-up mechanism.
In addition, standardised implementation agreement plus uncertainty among investors and financiers regarding UETCL’s ability to pay, held back investment. These concerns are addressed by GET FiT through the World Bank’s guarantee facility that was requested by the Uganda government.
“The Government has taken positive steps to level the playing field, but very few projects have gone forward in the past three years. You recall UETCL’s difficulty in paying the bills on time in 2012 that led to some IPPs shutting down; so producers need guarantees that power will be paid for. That’s part of what the programme does,” said Dr Witte.
The World Bank is to provide the partial risk guarantee against political and commercial risks that are associated with investing in renewable energy projects, while Deutsche Bank will offer debt and equity products through commercial banks in Uganda to plug financing gaps, programme officials said.
Sector regulator Electricity Regulatory Authority (ERA) revealed 16 developers had already gone through the preliminary stage two weeks ago during which they were vetted on project information and capacity of what they intend to develop as Uganda seeks to increase power generation to an ambitious 3,800MW by 2016.
“Among these are seven projects that had already advanced in the project cycle. We expect in another two months they should have signed up, and start by July,” said Patrick Mwesige, director of financial and administration at ERA.
Despite the current electricity surplus after the full commissioning of the Bujagali hydropower plant, Uganda’s power generation vis-à-vis demand is set to run into a deficit in about two-three years.
In the intervening period, the additional 125MW of renewable energy from the KfW-run project is not only welcome news for electricity consumers, but also environmentally, it means generation of much-needed clean energy that will result in reductions of some 11 million tonnes of carbon dioxide.
After Uganda, the programme could be rolled out in Tanzania, Zambia, Mozambique and Ghana, Dr Witte said.
