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Financing renewable energy projects in Uganda

uganda-diagramExploring the GET FiT Uganda programme: An innovative approach to facilitating private sector investments into renewable energies

In recent years, Uganda has been impressed with solid economic growth rates and political stability. The electrification rate has been rising, slowly, but steadily from less than 10% in 2010 to 15% in 2014. As a result, electricity demand is increasing at an annual rate of about 6-8%. This poses a big challenge to the country, that being, adding about 50MW of new generation capacity to the grid in order to avoid supply shortages. A massive challenge, considering that Uganda’s total available capacity today is only about 600MW.

In the medium term, the Government of Uganda intends to develop two large hydro plants along the Nile River, namely the 600MW Karuma and 188MW Isimba hydro dams. However, building these plants is taking some time and to avoid power shortage in the interim, as well as to improve technical and geographical diversification of generation, there is a need for investments in smaller, quicker to realise generation plants.

Motivating private sector participation

Uganda has rich renewable energy resources for hydro power, biomass and solar. Since public funds are limited the necessary investments cannot be made by the government alone. Therefore, there is a need for private capital, but the private sector faces significant barriers to invest in the Ugandan power sector.

Until recently, small-scale renewable energy projects in Uganda remained financially unattractive for private developers due to low feed-in tariffs. In addition, perceived, high political and economic risks and the lack of access to long-term debt and equity financing kept investors from entering the market. Therefore, very few investments were made by the private sector in Uganda’s renewable energy resources – despite the huge potential.

This has changed since 2013 when the GET FiT Programme was launched to motivate the private sector investment. The programme, jointly designed by the Government of Uganda, the Electricity Regulatory Agency (ERA) and KfW, the German Development Bank to leverage more private capital into renewable energy generation. GET FiT is supported with grant funding from the Government of Norway (EUR equivalent of about 17 million), the Government of the United Kingdom (EUR equivalent of 40 million), the Government of Germany (EUR 15 million), the European Union (EUR 20 million) as well as the World Bank through a Partial Risk Guarantee.

Objectives and Instruments of the GET FiT Programme

The main objective of the GET FiT Programme is to overcome investment barriers for private developers of smallscale (1-20 MW) renewable energy projects. The programme enables the realisation of about 20 energy generation projects with a total installed capacity of roughly 170MW. This will help to add much-needed, low cost generation to the Ugandan energy mix. In addition, GET FiT tries to improve access to commercial financing for renewable energy projects.

To accomplish its objectives, GET FiT combines two innovative instruments:

1. GET FiT Premium Payment Mechanism: In Uganda, low feed-in tariffs have thus far undermined the financial sustainability of renewable energy projects. The GET FiT Premium Payments are additional payments per kWh – on top of the regulated feed-in tariff (REFiT). The Premium Payment Mechanism allows developers of small-scale renewable energy projects to earn an adequate…

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