Uganda Launches Innovative Feed-in Tariff Programme

The programme was jointly developed by the Ugandan government, the Electricity Regulatory Agency (ERA), German development bank KfW and Deutsche Bank, and is supported by the governments of Norway (contributing €5.05 million), Germany (€15 million) and the UK (€23 million) as well as the World Bank through its Partial Risk Guarantee (PRG) instrument.

Uganda’s government says the programme will direct more than €300 million of private capital into renewable energy development, fast-tracking a portfolio of up to 15 small-scale (1 MW-20 MW) projects promoted by private developers under the nation’s Renewable Energy Feed-in Tariff (REFiT) scheme. The government expects the programme to add around 125 MW to the nation’s electricity grid over the next three to five years.

GET FiT’s purpose is to address the key barriers to private investment in the sector: low FiTs (some below the levelised cost of energy) for renewable energy, high perceived offtaker risks (with subsequent demand for offtaker guarantees), and lack of availability of long-term commercial financing at acceptable terms and conditions. In addition, according to KfW Uganda is generally perceived as a risky investment destination.

GET FiT will combine a so-called Premium Payment Mechanism (a results-based top-up on the existing REFiT on a per-kWh basis, funded by the development partners through KfW); a Guarantee Facility to secure against offtaker and political risks, managed by the World Bank; and a Private Financing Mechanism from Deutsche Bank that will offer debt and equity at competitive rates.

In a presentation to the Climate Investment Fund Panel in November 2012, Jan Martin Witte of KfW said that in order to avoid load shedding or procurement of expensive emergency generation capacity between 2014 and 2019, Uganda will need to bring at least 150 MW online within the next five years. According to Witte, no power purchase agreement (PPA) has been concluded since the launch of the new REFiT in 2011, despite what he called a significant pipeline of ready-to-build projects.

Dirk Niebel, Germany’s Federal Minister of Economic Cooperation and Development, said: “By combining three instruments – a top-up payment on the tariff, a guarantee mechanism and access to debt and equity funding – GET FiT constitutes an innovative approach to facilitating private investments in renewable energies. This is very much in line with the priorities of the German Government in the energy sector,” while Norwegian ambassador Thorbjørn Gaustadsæther said: “We find it very encouraging to see that so many developers are interested in developing renewable energy projects in Uganda. GET FiT has provided a big push to private investment into the sector.”

The European Commission is currently evaluating the possibility of additional EU support to the programme. GET FiT is a pilot programme that, if successful, will be implemented in other countries.  

Lead image: Uganda flag via Shutterstock