Tanzania Case Study: Achievements and Challenges

Transcription

1 THE 3 RD GAMBIA NATIONAL FORUM: POLICY ON SMALL SCALE RENEWABLE ENERGY REGULATION Tanzania Case Study: Achievements and Challenges Msafiri Mtepa, Manager Financial Analysis and Modeling, Energy and Water Utilities Regulatory Authority 18 th 19 th June, 2014 Banjul, The Gambia.

2 CONTENTS 1. BACKGROUND 2. ELECTRICITY SUPPLY INDUSTRY 3. SPPs FRAMEWORK IN TANZANIA 4. OBJECTIVES OF SPPs FRAMEWORK 5. SPPs DEVELOPMENT STEPS 6. PROJECT APPROVAL PROCESSES 7. REGULATORY TOOLS FOR SPPs 8. ACHIEVEMENTS 9. CHALLENGES 10.CONCLUDING REMARKS 2

3 BACKGROUND Establishment of EWURA Was established in 2001 by EWURA Act (Cap. 414). It became Operational in June EWURA undertakes both Economic and Technical regulation of the Regulated Sectors: Electricity Natural Gas Petroleum Water Ensures quality of regulated services. 3

4 ELECTRICITY SUPPLY INDUSTRY The Tanzanian ESI is vertically integrated System Total Installed Capacity is 1,609.67MW (grid-connected capacity is 1,527.74MW and Isolated grid is 81.93MW) Total available Capacity MW (Main grid MW and Isolated grid is 53.77MW) Some IPPs (Songas, IPTL), EPPs (Aggreko, Symbion) and SPPs (Mwenga, TANWAT, TPC) sell power to TANESCO s grid; 4

5 Grid-connected Plants Installed capacity - 1, MW Availability capacity MW) Generation Mix (Grid) % Hydro Natural Gas 29% 37% Hydro Natural Gas HFO/IDO HFO/IDO SPPs SPPs % 5

6 Isolated Grid There are 21 Isolated mini-grids 19 (IDO 56.43MW); 2 (Natural gas 25.5MW) Installed capacity MW Available capacity 53.8 MW 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Installed (kw) Available (kw) - Kigoma Songea Mpanda Mbinga Biharamulo Ngara Mafia Tunduru Ludewa Liwale Somanga Sumbawa Kasulu Kibondo Loliondo Namtumbo Mtwara Bukoba Masasi Kilwa Ikwiriri 6

7 SMALL POWER PROJECTS FRAMEWORK 7

8 SPPs FRAMEWORK IN TANZANIA Energy Policy, Cap 131 and Cap 414 The National Energy Policy of 2003 promotes renewable energy sources and encourages private sector participation; Energy Policy Statement No. 36 Establish norms, codes of practice, guidelines and standards for renewable energy technologies, to facilitate the creation of an enabling environment for sustainable development of renewable energy sources Section 39(2) of the Electricity Act 2008 (Cap 131) requires EWURA to pursue a light-handed approach to regulating small renewable energy projects; 8

9 SPPs FRAMEWORK Pursuant to Section 17 of EWURA Act, Cap 414: In September 2008, EWURA approved Standardized Small Power Purchase Agreements (SPPAs) for main and mini-grids In September 2008, EWURA approved Standardized Tariff Calculation Methodology (STM) for the main grid and applicable tariff; In June 2009, the Authority approved a Standardised Tariff Methodology and applicable tariff for sale of electricity to mini-grids. Approval of SPPAs and STMs are aimed at promoting the development of renewable 9 energy resources in Tanzania.

10 SPPs FRAMEWORK Cont. What is an SPP An SPP is defined as a power plant that uses a renewable energy source, either directly or through cogeneration of heat and electricity, with an export capacity of between 100kW and 10MW. 10

11 FRAMEWORK cont Characteristics of SPPs The main characteristics of SPPs in Tanzania are: Technology: must be renewable source (hydro, biomass, cogeneration, solar, wind, biogas etc) Size: export capacity of 100kW - 10MW to Distribution Network Operator (DNO) TANESCO Dispatch: nondispatchable (must take), no take or pay obligations; Connection: Distributed generators Main grid; Isolated grid. 11

12 FRAMEWORK cont Types / Cases of SPPs Selling Wholesale to DNO Selling retail (directly to final customers) Connected to Main Grid Connected to Mini-Grid Case 1 Case 2 Case 3 Case 4 Case 1 Tariff is based on main grid avoided cost of the DNO Case 2 Tariff is based on mini-grid avoided cost of the DNO Case 3 and 4 The developer must submit to EWURA an application for a costs-based tariff 12

13 OBJECTIVES OF SPP FRAMEWORK To facilitate rural electrification by mobilising renewable energy resources. Reduce transaction and administrative costs and possible delays resulting from conventional bidding processes and negotiations. Negotiated tariffs requires more time and money Needs analysis of the project costs to establish reasonability and prudence. Streamline the process of developing SPPs in Tanzania by removing the need for negotiation and regulatory review of tariffs. 13

14 Objectives cont. Encourage private investments in power generation; Environmental benefits help to reduce deforestation as more people are connected to clean sources of energy 14

15 SPPs DEVELOPMENT STEPS Project identification Land acquisition Securing rights to resource Acquiring necessary consents and licenses Financing Construction Testing and commissioning; and Operation and reporting 15

16 PROJECT APPROVAL PROCESSES Land title or lease Resource Rights (e.g. water rights from River Basin Water Office) Letter of Intent (LOI) with DNO (Tanesco) Business license, tax registration, etc. Building Permit Sequence is important to avoid competing claims on project sites Environmental and Social Clearance (NEMC) SPPA EWURA license 16

17 APPROVAL PROCESSES cont LOI request to TANESCO 1. Name and Address 2. Locations 3. Fuel type (hydro, biomass, wind, gas, etc.) 4. Power capacity (MW), planned power export (MW), annual energy generation (GWh). 5. Copy of title deed, lease agreement 6. Rights to resource 17

18 REGULATORY TOOLS FOR SPPs Regulatory tools consist of the following: Acts: Cap. 414 and Cap. 131; Energy Policy of 2003; A Standardised Power Purchase Agreement (SPPA) A Standardised Tariff Methodology (STM); FITs for SPPs connected to the Main grid FIT for SPPs connected to the Isolated grid The Electricity (Development of Small Power Projects) Rules, 2014 Guidelines guide developers on steps necessary to acquire necessary permits and clearances to develop and operate an SPP 18

19 Standardised Power Purchase Agreement (SPPA) SPPA spells out standard contract terms for all SPPs selling electricity to a DNO TANESCO; It sets out risk allocations and technical supply standards; There are two kinds of SPPAs SPPA for SPPs connected to the Main Grid; SPPA for SPPs connected to the Isolated Grid; Key elements of the SPPA are: Contract term - up to 25 years Pre-determined Feed-in Tariff (FIT) 19

20 SPPA cont. Characteristics of SPPAs Terms and conditions are not negotiable - they are standardised for all SPPs to eliminate the imbalance in bargaining power that face SPPs Short, not detailed complemented by rules According to Tenenbaum, B et.al, there are mainly two reasons for Standardisation of PPAs Due to the structure of the industry (i.e. monopolistic), SPPs will have little power to negotiable a reasonable deal with the DNO; Limited administrative capacity of the national regulator to review project specific PPAs. 20

21 Standardised Tariff Methodologies Used for the determination of pre-determined tariffs; They are based on avoided cost principle: SPPs that can supply power cheaply than it cost TANESCO should be able to make reasonable profits; TANESCO s avoided cost is dependent on connection point and seasonality: Connection point SPPs connected to Isolated grid: The off-grid FIT is higher due to generation, transmission and distribution costs that TANESCO would incur 21

22 STM cont SPPs connected to Main grid: The tariff is lower due to generation mix in the grid; Seasonality tariff are adjusted to reflect the cost of generation in a particular season: Dry season: more expensive high tariff; Wet season: more hydro - low tariff. There are two Methodologies: STM for SPPs connected to the Main Grid; STM for SPPs connected to the Isolated Grid; Applicable FITs to SPPs are approved by EWURA on annual basis. 22

23 STM for Case 1 SPPs selling wholesale to main grid C case1 = C lrmc + 2 C srmc Where Clrmc is the long run marginal cost as defined by Tanesco s Power System Master Plan; and Csrmc is the projected cost of thermal generation in the next year. The computation takes into account: Transmission losses bonus to SPPs Three year rolling average to minimise price shocks Seasonality dry and wet seasons Price floor & caps 23

24 SPPT - Main Grid USc/kWh * Standardised Dry Season Wet Season *Proposed 24

25 Tariff Case 2: selling wholesale to a mini-grid C case2 = C lrmcgrid + 2 C srmcmini Where ClrmcGrid = long run marginal cost for gridpower (adjusted for losses) CsrmcMini = incremental cost of mini-grid power (levelized cost of electricity from a new mini-grid diesel generator). No seasonality adjustments Floor and Cap prices 25

26 SPPT - Isolated Grid USc/kWh * Standardised *Proposed 26

27 Price Floor and Ceiling The methodology provides limited protection to developers and DNOs; Both the price floor and the price ceiling are set at during the year of signing an SPPA. The price ceiling is set at 1.5 times the price floor. This price ceiling is indexed to inflation, using the five-year moving average of the annual change in the consumer price index built up since the signing of the SPP. 27

28 ACHIEVEMENTS 1. Policies, Legislation and Institutional Framework Energy sector reforms by the Government - aimed at attracting private sector investment National Energy Policy, 2003; EWURA Act, Cap establishment of SPP Programme; Electricity Act, Cap. 131; Rural Energy Act, 2005 establishment of REA and Rural Energy Fund; Public Private Partnership Act, 2010; 28

29 ACHIEVEMENTS cont 2. Attraction of Private Sector Participation In Renewable Energy - outcomes: 11 SPPAs (with a total export capacity of 40.34MW) have been signed. Of these, 4 SPPs (with a total capacity of 16MW) are operational; 12 LOIs with a total export capacity of 49.5MW have been signed; Several projects are online to be implemented 29

30 Signed SPPA by Dec, 2013 S/N SPP NAME TECHNOLOGY EXPORT CAP. (MW) LOCATION LOI DATE SPPA DATE COD/ EXPECTED 1 TANWAT - Njombe Biomass 1.5 Grid connec TPC - Moshi Biomass 9.0 Grid connec Mwenga - Mufindi Hydro 4.0 Grid connec Ngombeni - Mafia Island Biomass 1.5 Off Grid Feb-14 5 Symb-KMRI Tunduru Biomass 0.3 Off Grid Jul-14 6 Symb-KMRI Kigoma Biomass 3.3 Off Grid Dec-14 7 St. Agnes Chipole - Songea Hydro 7.5 Off Grid Jan-15 8 NextGen Solawazi - Kigoma Solar 2.0 Off Grid Jan-15 9 AHEPO - Mbinga Hydro 1.0 Off Grid Feb EA Power Ltd - Tukuyu Hydro 10.0 Grid connec Feb Darakuta - Manyara Hydro 0.24 Grid connec Nov-15 TOTAL CAPACITY

31 Signed LOIs by Dec, 2013 S/N SPP NAME TECHNOLOGY SELL CAP. MAX LOCATION LOI DATE REMARKS (MW) 1 Mapembasi - Njombe Hydro 10.0 Grid connec SPPA signing in process 2 Kikuletwa II Kilimanjaro Hydro 7.0 Grid connec Mofajus - Mpanda Hydro 1.2 Off Grid Tangulf - Nakatuta Hydro 10.0 Grid connec LOI extended for 6 months 5 Windpower - Mpanda Solar PV 1.0 Off Grid LOI extended for 6 months 6 Nkwilo Hydro - Sumbawanga Hydro 2.9 Off Grid Ilundo Community - Tukuyu Hydro 0.4 Grid connec Maguta Hydro - Kilolo Hydro 2.5 Grid connec Luganga Hydro - Iringa Rural Hydro 2.8 Grid connec Luswisi Hydro - Ileje, Mbeya Hydro 4.7 Grid connec Yovi Hydro - Kilosa Hydro 2.0 Grid connec Ilungu ward hydro - Mbeya Hydro 5.0 Grid connec TOTAL CAPACITY

32 CHALLENGES CHALLENGE / S/N BARRIER 1 Lack of long-term financing 2 Inadequacy/low tariff for some technologies 3 Delay or nonpayment by the DNO. DESCRIPTION Private sector faces difficulties in securing long-term financing due to business risks FITs are based on avoided cost of the DNO, TANESCO. It is based on the principle that "one size fits all". Some technologies, including solar and wind, are expensive to the extent that the FITs are lower to attract investments in such technologies Sometimes cash flow problems face the DNO to the extent of its failure to honour its maturing obligations. MITIGATION Provision of long-term financing -IDA, through REA, availed credit to local commercial banks for onlending to SPPs. Provision of subsidies by REA - for feasibility studies - Performance grants for generation and connection EWURA is establishing technology specific FITs. A consultant, Nexant, is finalising technology-specific FITs for solar, wind, biomass and mini hydro. Approve cost reflective tariffs for the DNO. Provide subsidies to the DNO to 32 mitigate its accumulated debts.

33 Challenged cont. 4 High project and operational costs during the early years of operation. 5 Concerns by SPP developers on applicable tariff when the isolated grid is connected to the main grid 6 Technical barrier for interconnection to the DNO's network. 7 Lack of technical expertise Revenues earned by SPPs in early years of operation cannot meet its project related costs (maturing loan obligations) and operational costs. When an Isolated grid is connected to the main grid, the applicable tariff will be that charged on main grid. The cost of interconnecting an SPP to the DNO's network is borne by the developer. Some networks require upgrades to be able to synchronise. Depending on the cost of interconnection, the SPP's profit is diluted. Lack of technical expertise could lead to higher project costs. Developers could be wrongly advised and commit funds on poor project/activity Provision of "top-up" subsidies to cover excessive costs far above the approved FITs Introduce two-phase FITs (higher tariff in early years and lower tariff after honouring loan obligations. DNO to provide a plan/forecast when an isolated grid will be connected to the main grid to enable SPP developers assess the financial viabilities of their projects. REA provided grants/subsidies for interconnection to some projects. Provision of capacity building to SPP developers is essential. Provision of technical guidance to developers is needed. 33

34 CONCLUDING REMARKS RE are essential for rural electrification; RE face technical, financial and socio-economic challenges; Streamlined and rather innovative policies are required to ensure their development; Policies backed up with Regulatory interventions are necessary should renewable energy bear the required fruits in the near term. 34

35 Website: 35