Renewable energy: Investing in Africa

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1 1. Who is responsible for energy policy? 2. To what extent have generation, transmission and distribution activities been unbundled? The Ministry of Energy & Minerals (MEM) has primary responsibility for dictating the n renewable energy policy, as it does for managing all of the country's energy and mineral resources. The Energy & Water Utilities Regulatory Authority (EWURA) is responsible for the technical and economic regulation of electricity and water, while the Rural Energy Agency (REA) is tasked with promoting and facilitating improved access to modern energy services in the rural regions of. Generation, transmission and distribution activities have been unbundled to a small extent. The Electric Supply Company (TANESCO) is a vertically integrated government owned company which owns and operates the vast majority of generation and distribution assets and solely owns all transmission assets throughout. 3. Who owns and operates the (grid-connected) generation, transmission and distribution assets? TANESCO remains the major owner and operator of the generation and distribution assets, and the sole owner of transmission assets. In terms of electricity generation, alongside TANESCO there are also two large independent power producers namely IPTL, who use heavy fuel oil, and Songas, who use natural gas. There are also three small power producers, TPC, TANWAT and Mwenga, who base their electricity production upon renewable energy sources. The electricity produced by the IPPs and SPPs is supplied both to TANESCO and to customers directly. Service providers actively carrying out distribution and supply include TANESCO and Mwenga Hydropower. Transmission services are still a TANESCO monopoly. 4. Who is responsible for supplying electricity to consumers? 5. Who is the power purchaser under IPPs? TANESCO is responsible for supplying electricity to consumers and has entered into power purchase agreements with IPPs such as IPTL and Songas. Certain SPPs supply directly to consumers in rural areas with assistance from the REA. Only between 15-20% of individuals are connected to the grid. Therefore, most consumers use biomass such as wood and coal to generate power. TANESCO purchases the power produced by the IPPs.

2 6. Is the consumer tariff costreflective? 7. Is there an independent regulator? If so, which activities are subject to economic regulation? 8. Does the country belong to a regional power pool and are any interconnectors in place? 9. Who is responsible for planning and procuring additional capacity to meet demand? TANESCO's consumer tariff is not cost reflective. Since 2002 it has regularly suffered losses due to regularly purchasing power from expensive Emergency Power Producers (EPPs). Since the tariff is regulated by the EWURA, TANESCO has to carry such additional costs on its balance sheet unless it receives revenue grants from the Government, or passes them on to ratepayers. Low electricity tariffs create a problem in for potential IPPs as they would be unable to cover their costs, meet debt service and achieve a reasonable profit. In January 2012, raised its electricity tariffs by 40.29%. Despite this increase, TANESCO continues to incur losses owing to its heavy reliance on high-cost emergency generators contracted after a prolonged drought which significantly reduced hydropower availability. In January 2014 another tariff increase of 39.19% was approved. Recently TANESCO applied for an increase of power tariffs of 18.19%. This tariff has yet to be considered by EWURA and the public. If it is approved then the new tariff will be effective from January EWURA is an autonomous multi-sectoral regulatory authority established by the EWURA Act Cap 414 of the laws of. It is responsible for technical and economic regulation of the electricity, petroleum, natural gas and water sectors in. is a member of the South African Power Pool. Currently, there aren t any interconnectors in place, but there has been a plan for the last few years to install interconnectors between Zambia, and Kenya. Work has begun on the Zambia- side but only feasibility studies have taken place between and Kenya. It is envisaged that parts of this project will be complete by December 2017 and that the line should be operational by MEM is responsible for setting policy as to procuring additional energy. TANESCO is also heavily involved in the procurement of additional capacity and releases tenders for project work. Currently it has several tenders listed, including those for the Kenya- Interconnector project. The Public Procurement Regulatory Authority (PPRA) is also charged with regulatory functions and vested with oversight

3 powers and responsibilities on all public procurement activities carried by all public bodies in the mainland. 10. What is the installed generating capacity? Is it adequate to meet existing demand? What is the energy generation mix? (In the case of renewables, please identify the technologies) 11. What is the projected demand and what additional capacity is planned to meet it? What is the proposed energy mix? (In the case of renewables, please identify the technologies) 12. Is there a history of IPPs (excluding the renewable energy sector (other than large hydro))? If so, what procurement method was used? How have they performed? The current installed generating capacity is 1,600MW but it is expected that a further 100 MW of solar energy and 200 MW of geothermal energy will be acquired by The electricity generation mix consists of hydropower 42%, natural gas 41% and liquid fuel 17%. In 2012, MEM made projections for unconstrained electricity consumption for the period 2010 to 2035, forecasting that per capita electricity consumption would increase five-fold by The investment required in generation and transmission to increase installed power generation capacity to 8,960MW and to increase overall electrification rate from 14% to 72%, is expected to be more than USD 40 billion, the same order of magnitude as s GDP (USD 49 billion in 2014). Rural electrification presents a further problem. Coverage is low in, with 15% of the rural population having access to electricity. Preliminary figures indicate that investments of about USD 3.5 billion will be needed to increase the rural electrification ratio from 6.6% to 36.6%, and the urban rate from 34.2% to 75.7%. n energy policy actively encourages private investment. The private generation of electricity accounts for more than 40% of the available installed base and private producers are expected to continue to contribute to the total energy mix both with larger IPP and SPPs. IPP's have performed relatively well. As an example, Songas owns and operates the Ubungo power plant in Dar es Salaam. The plant was built in 1995 and used oil to produce electricity. Subsequently, after a period of droughts and a need to increase electricity supplies, the company planned to obtain gas from the Songo gas fields in southern. Songas was given the contract to operate the power plant and began commercial operations on in Also, Symbion runs three plants in (Ubungo, Arusha and Dodoma). The Ubungo plant runs on natural gas from the Mnazi Bay gas field in Southern and generates 120MW at full capacity.

4 13. Is there a specific programme for procurement of grid-connected renewable energy? If so please provide details (including who will manage the process, the procurement method, criteria to be applied, process efficiency tools such as standardised documentation, the PPA term offered, incentives/comfort for investors including government guarantees and multilateral support instruments, responsibility for grid connection, other assistance e.g. in obtaining finance or with bid costs, the scale and structure of the programme, the status of the programme). 14. Please outline the legal framework applying to any programme. Is it reasonably clear? Renewable projects (above 10MW) are procured in the same manner as traditional, non-renewable power projects. MEM is responsible for placing projects for tender and these are listed on their website, TANESCO's website, or on the website of the PPRA. The process is managed by TANESCO and overseen by the PPRA and EWURA. Procurement is carried out according to the International Competitive Bidding, and National Competitive Bidding processes. There are standardised forms on the EWURA website relating to electricity licences which must be sought before a procurement application can be made to TANESCO. The PPRA then issues standardised forms relating to 'medium or large works'. There are no specific forms relating to grid connected renewable energy. Multilaterals are involved in energy projects as detailed in Box 15 below. Despite these advancements, the policy and regulatory framework for (non-hydro) renewable energy is yet incomplete. For example, there are no feed-in tariffs or other clear incentives for renewable energy larger than 10 MW, and there is no specific legal and regulatory framework in place for geothermal development. The recent enactment of the Electricity (Development of Small Power Projects) Rules 2016 implemented an improved SPP framework for solar, wind, small hydro and biomass between 100 kw up to 10 MW. EWURA is responsible for the management of the process and sets tariffs according to the type of energy, the amount of energy to be produced and when the SPPA was executed. The new framework also provides a competitive bidding procedure for solar and wind energy projects between 1 MW and 10 MW. Funding may be available through the REA if a project meets the eligibility criteria. Procurement of grid connected renewable energy is conducted in accordance with the Public Procurement Act 2011, the Public Procurement Regulations 2013, and the Public Private Partnership Act The procuring entity must first be awarded a licence by EWURA according to Electricity (Initiation of Procurement of Power Projects) Rules Once complete the procuring entity can apply to TANESCO in respect of the project. The PPRA is then responsible for overseeing the procurement process. The PPRA is duty bound to, amongst other things, ensure the application of fair, competitive,

5 transparent, non-discriminatory and value for money procurement standards and practices; in order to set standards for the public procurement systems in. The legal framework has made applying to any programme clearer. 15. Have any specific issues or concerns been expressed regarding the procurement programme? 16. Is investment in transmission and distribution required in order to increase the capacity of the system? If so, is there an effective programme in place? 17. Is there a specific programme for the procurement of/facilitation of off-grid renewable energy? If so please provide key details. None found. Investment is required in particular to increase the availability of electricity throughout. Several development projects are in place to extend and upgrade the transmission and distribution sectors to cope with expanding demand and supply, to interconnect the isolated grid, to increase international electricity trade with neighbouring countries and to improve the general reliability of the system. The network has reached its capacity limit on several lines and is therefore being upgraded and expanded. The Five Year Development Plan includes 10 network projects for a total investment of almost TZS 4 trillion (around USD 2 billion); the Power System Master Plan foresees the reinforcement of the regional network integration. However, transmission is solely the responsibility of TANESCO (but for in some cases, SPPs are responsible for isolated micro and mini-grids) and TANESCO is the only investor in transmission assets. Thus there is no programme in place to effectively increase the capacity of transmission assets. Distribution is mainly the responsibility of TANESCO. Again there is no programme in place to encourage distribution from private sources. The n Government established the Rural Energy Board (REB), the Rural Energy Agency (REA), and the Rural Energy Fund (REF) to promote, stimulate and facilitate improved access to modern energy services in rural areas. These bodies have developed a procurement programme for off-grid renewable energy that is far clearer than that promoted by TANESCO for larger projects. A set of simplified procedures, including tariffs, has been put in place for SPPs to produce electricity for the grid and for off-grid solutions. On 29th February 2016, EWURA approved the Competitive

6 Bidding Framework for Solar and Wind Small Power Projects under the Second Generation SPP Framework. Under this framework, proposals for competitive tendering will be accepted for projects to generate between 1 MW and 10 MW using wind and solar generation technologies, or hybrid systems, while solar and wind SPPs of capacity up to 1 MW will be exempted from competitive bidding. Further advice should be taken before relying on the contents of this summary. Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co LLP. Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority. Clyde & Co LLP 2016