Tanzania electricity challenges attract new investors, solutions

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Tanzania suffers from an extreme shortage of electricity access by a majority in sub-Saharan Africa’s sixth most populous nation.

As of 2017, the electricity access rate in Tanzania stood at 32.8 per cent falling behind Kenya which stood at 73.42 per cent.

Regionally, Rwanda stood at 29.37 per cent, Uganda at 26.7 per cent and Burundi at 7.5 per cent.

The World Bank’s The Energy Progress Report shows that electricity access rate in Kenya is the highest in East Africa.

The report tracks global achievements in sustainable energy for all and Kenya’s growth from 32 per cent in 2013. This was due to accelerated investments in the distribution network and renewable energy generation.

Tanzania targets universal electricity access

The East African nation targets universal access by 2030 for its 57 million-plus population.

Tanzania’s installed capacity according to the World Bank is 1,504 MW. Hydroelectric stands at 568 MW, thermal (generator) 925 MW and other renewables at 82.4 MW.

To address the deficit, Tanzania has made progress in grid expansion, increasing generation capacity with natural gas, facilitating an enabling environment for solar home systems, and publishing of new standard Power Purchase Agreement for small producers.

The country that connects six land-locked countries to the Indian Ocean has vast natural gas reserves presenting new opportunities for investment.

Tanzania is working with Power Africa which is offering support to the country’s energy sector through transaction assistance for priority generation projects, technical advisory services to help unlock constraints to private sector investment and capacity building for key institutions.

A new entrant in the market is CrossBoundary Energy Access (CBEA), Africa’s first project financing facility for mini-grids.

CBEA has announced it will finance 60 mini-grids in Tanzania in partnership with PowerGen Renewable Energy, one of the sector’s leading mini-grid developers and operators.

Since its founding in 2011, PowerGen has connected over 50,000 people to smart, clean mini-grids.

CBEA was established earlier this year with investments from the Rockefeller Foundation and Ceniarth to provide long-term funding for mini-grids on a project finance basis, delivering first-time grid-quality power to rural households and businesses.

As part of this transaction, CBEA has signed a loan agreement with the Renewable Energy Performance Platform (REPP).

REPP is a UK government-backed funding platform managed by Camco Clean Energy, focused on helping renewable energy projects attract and access private and institutional investment.

It will provide a long-term senior loan, structured as project finance debt, supporting this new asset class to be financially sustainable.

Powering rural homes and businesses in Tanzania

Such finance solutions will be key to unlocking the more than USD11 billion for mini-grids needed from investors to connect at least 100 million people in Africa.

CBEA’s initial USD5.5 million investment will fund 60 mini-grids providing grid-quality power for the first time to 34,000 people in rural homes and businesses in Tanzania.

It is the first time that a long-term project finance structure – traditionally used to fund large-scale infrastructure projects – is being used in the rural mini-grid sector in Africa.

Mini-grid developers like PowerGen have so far struggled to attract long-term financing for their projects because each mini-grid is too small to be individually financed.

To address this, CBEA established a special purpose entity in Tanzania that will purchase PowerGen’s existing and future operating mini-grids in Tanzania.

PowerGen will continue to provide long-term customer and asset management services to the mini-grid customers.

This minimizes transaction costs and allows investors and lenders to provide long-term financing based on the cash flow generated by the assets themselves, similar to how most of the world’s 1,000 gigawatts of wind and solar projects have been financed.

Partnerships for electricity supply

To make electricity available, USAID’s Development Innovation Ventures (DIV) and the US African Development Foundation’s Off Grid Energy Challenge have supported over 14 enterprises to deliver off-grid energy solutions in Tanzania.

Power Africa is also working to reduce losses and hybridize five isolated diesel generation plants in Tanzania.

These five sites will create opportunities for private sector investment in renewable power plants, which will help reduce dependency on expensive diesel generators.

The Tanzanian government has backed the development of new utility-scale power plants, including 200 MW of wind, 150 MW of solar, and 600MW of coal.

Power Africa is also supporting commercial off-grid power providers like Devergy, a social energy services company.

Devergy is pioneering the concept of affordable, rapidly deployable, “living” micro-grids, allowing customers to power household lighting and appliances.

With USAID DIV support, Devergy is testing various “productive use” models to encourage customers to use electricity for income-generating purposes, thereby facilitating the transition up the “energy ladder.”

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