8/6/2019 on Africa 2010

1/19

By Benon M. Mutambi

Presented at the Cogeneration World Africa 2010, 13th September 2010, Sandton Convention Centre

8/6/2019 on Africa 2010

2/19

I ntroductiony Uganda is largely dependent on hydropower y Situation changed in 2005 drought & deterioration in

hydrology. Hence reduced hydro generation.y Government energy policy aims at improving efficiency,

encourage private participation, and diversify energy sources.y A new energy strategic plan adopted in 2005 and a Renewable

Energy Policy was enacted in 2007.y There has been a tremendous response from sugar companies

to increase cogeneration capacity and sell the surplus to thegrid.

8/6/2019 on Africa 2010

3/19

Overview of Electricity Sector Reforms

y Uganda is among the 1st African countries to carry out reforms in theelectricity sector.

y Reforms were aimed at: improving the sector efficiency, attracting private investment, improving the reliability and quality of electricity supply.

y Enacted a new Electricity Act in 1999.y An independent regulator was set up. Responsible for licensing, tariff

setting, regulating the quality of service & technical standards and enforcing compliance.y A single buyer model was preferred.y I n 2001, UEB was unbundled.

8/6/2019 on Africa 2010

4/19

Status of Cogenerationy Three sugar companies (Kakira Sugar Works, Kinyara

Sugar Works, Sugar Corporation of Uganda Ltd)y Always produced electricity for own usey KSWL and Kinyara are now exporting power to the grid.

8/6/2019 on Africa 2010

5/19

Kakira Sugar Works Ltd (KSWL)y KSWL first submitted a proposal to the MEMD for expansion of

its cogeneration plant and sell 18 MW to the grid in 1998.y But the proposal was not taken up due to the demand & supply

forecasts (AES & Bujagali)y KSWL resubmitted a downsized proposal in 2001 to supply 7MW

to the grid y The 1st PPA was signed in 2003 to export 6 MW at peak at a

price of US$0.049/kWhy A 2 nd PPA was signed in 2007 to export 12 MW to the grid at a

price of US$0.0615/kWh

8/6/2019 on Africa 2010

6/19

Kakira Sugar Works cont..d y The PPA is based on a take or pay principle.y KSWL benefitted from a GEF grant of US$3.3 million and a loan

of US$8 million under the ERT refinance facility.y KSWL constructed a 14 KM 33-KV transmission line.y The line was transferred to UEDCL &O peration and

maintenance is done by Umeme.y I

n 2010, KSWL applied to the regulator for expansion of itscogeneration from 22MW to 50MW y The application is still being processed.y A new 33 KV transmission line is required.

8/6/2019 on Africa 2010

7/19

Kinyara Sugar Works Ltd y The factory has a cane crushing capacity of over 3,500 TCD.y Applied and was awarded a license for generation, own use and

sale of power to the grid in 2007.y The contract price in the PPA is US$0.07/kWhy Currently exporting 2 MW but likely to be stepped up to 5 MW b

January 2010.y Has experienced power evacuation problemsy The distribution line operated by Umeme is suffering from low

voltage constraints

8/6/2019 on Africa 2010

8/19

Kinyara Sugar Works Ltd cont..d y UEDCL has provided funding to install capacitor banks and

improve the voltagey Kinyara has finalized a study to increase generation to

30MW in the next two years.y Plan requires upgrade of the existing distribution

infrastructure to 132 KV.y Wants an increase of the tariff to US$0.1/kWh

8/6/2019 on Africa 2010

9/19

Sugar Corporation of Uganday I s a joint venture between GoU and I nternational I nvestment

Group Ltd which holds 76% sharesy Has a cane crushing capacity of over 550,000 TCY.y Applied for license to generate 6.6 MW and sell 3MW to the grid

in 2005 at a tariff of US$0.076/kWh.y Plan required construction of a 66 kV line.y

Total project costs were estimated at US$9.9 milliony The tariff was not acceptable to UETCL and PPA has never been

signed.

8/6/2019 on Africa 2010

10/19

Factors Supporting Cogeneration1. Legal and I nstitutional Factors:

y New Electricity Act enacted in 1999y

Government utility unbundled in 2001y I ndependent regulator established. Tariffs set at cost reflective

levels to recover all reasonable costs and return.y Single buyer form of market structure.y Standardised PPA & longterm (15-20 yrs)

y Arrangement has created market certainty, reduced commercial and political risks.

y The Act provides for open access to transmission network.

8/6/2019 on Africa 2010

11/19

Factors Supporting Cogeneration2. Policy Related Factors:

y Stable macroeconomic environment with strong growth

prospects.y Low inflation and relatively stable exchange ratey Liberalized capital account and no restrictions on repatriation

of dividends.y Formulation of a Renewable energy policy in 2007 y Feed-in tariffs for small hydro projects and cogeneration for a

3-year period.

8/6/2019 on Africa 2010

12/19

Feed-in Tariffs

Hydropower Cogeneration with bagasse

Year1 to 6

Year7 to 20

Simple WeightedAverage

Year1 to 6

Year7 to 15

Simple WeightedAverage

Feed-in tariff peak(US/kWh) 12.00 9.00 9.90 12.00 8.00 9.60Feed-in tariff shoulder(US/kWh) 6.40 5.40 5.70 6.00 4.50 5.10

Feed-in tariff off-peak(US/kWh) 4.00 1.50 2.25 4.10 4.00 4.04

Average Tariff 7.20 5.33 5.89 7.03 5.25 5.96

8/6/2019 on Africa 2010

13/19

Feed-in Tariff Designy Success of FiT depend on its designy Tariff calculation methodology should be transparent and be

based on actual costs of generationy

Differentiate FiT by technology and plant sizey Duration of payment should be reasonably longy Decide on appropriate financing mechanismy Reduce the lead time for project approval y Ugandas FiT missed out some of the above.y FiT now being revised.y Cogeneration plants are pushing for higher tariffs (US$0.1/kWh).

Government directive issued.

8/6/2019 on Africa 2010

14/19

Factors Supporting Cogeneration

y Availability of the Market :y Existence of strong market potential y Strong economic growth rates supported by sectors that are

energy intensivey Low access levels and supply lagging behind demand

y Sugar companies are already established companies and can easily arrange financing.

8/6/2019 on Africa 2010

15/19

Barriers to Growth of Cogenerationy Access to long-term financing:

y Commercial banks prefer short-term financingy I nadequate development financingy Limited risk mitigation measures such as partial risk guarantee

schemes.y I nadequate equity but sugar companies are better than investors

in other renewablesy Delays in closing financingy Difficulties in accessing revenue from carbon credits under the

CDM.

8/6/2019 on Africa 2010

16/19

Barriers to Growth of Cogenerationy I nadequate FiT policies:

y 1st phase of FiT (2007-2009) faced challenges.y Fast rising prices of commodities (steel etc)y No provision for escalation mechanismy Absence of clear FiT guidelinesy Resulted in case by case negotiation of tariffs.y Now FiT being revised and proper guidelines being put in

place

8/6/2019 on Africa 2010

17/19

Barriers to Growth of Cogeneration

y Grid connection and charging:y Cogeneration plants likely to be far from the main grid y High costs of interconnectiony Who should meet the costs of interconnection ?y Shallow connection charging is preferred y Who does the operation and maintenance of transmission line?y Reliability of the grid

Risks related to the offtaker (single buyer): Strength of the balancesheet; who meets additional costs of cogeneration?Credibility of the demand forecasts and energy mix Wheeling of Power: Absence of an acceptable wheeling framework.

Market structure constraints to wheeling.

8/6/2019 on Africa 2010

18/19

Concluding Remarksy Cogeneration potential in Uganda and a no. of other African is

great.y

Countries need to put in place effective regulatory and policy frameworks.

8/6/2019 on Africa 2010

19/19