8 March 2013 – Dr Jan Martin Witte, senior project manager at KfW Development Bank in Germany says the new GET FiT renewable energy funding mechanism was designed to help finance ready-to-build small scale renewable energy projects in Uganda. It was also intended to deal with the financial challenges, particularly the comparatively low REFiT tariff schedule and the recent liquidity crisis at the Uganda Electricity Transmission Company which has undermined investor confidence.
Dr Witte explains how GET FiT will deal with these issues. “At the request of the government of Uganda, the World Bank is to cover the political and commercial risk through a modified version of its Partial Risk Guarantee product. Furthermore, KfW has raised funding from Norway, UK (International Climate Fund), Germany and EU-Africa Infrastructure Trust Fund to provide a tariff top-up of two additional dollar cents on the current rate. At this stage, Norway and the UK have committed funding to the programme.”
This will provide a strong incentive for private developers to bring projects to market. “It will also encourage commercial banks to enter the sector.” The implementation of the programme was targeted for February 2013.
Witte says this concept is unique and innovative, “because we try to incentivise the private sector to get involved and so leverage more private capital for investments in renewable energy generation in Africa. The traditional way in the past would be to provide cheap credit lines to commercial banks in countries to finance these projects. Our mechanism will provide support directly to projects. The combination of the proposed World Bank guarantee mechanism (which would for the first time be applied to a series of smaller renewable energy generation projects) and the GET FiT tariff increment is something that has not been done before.”
He says furthermore that in development projects the money is usually provided upfront. “However”, he explains, “in this case, we will provide the tariff increment to the investors once the projects have delivered electricity – we shift the entire performance risk to the private sector.”
KfW plans to kick off the first GET FiT financed projects in Uganda and is also looking at countries such as Zambia, Rwanda, Ghana and Tanzania for future implementation. Says Witte, “the legal and regulatory framework conditions for private investments in energy must be right – we do not expect easy replication of GET FiT from Uganda to other markets.”
According to Witte African governments and donors alone will not be able to finance the huge energy infrastructure requirements of the continent. He notes, “The private sector will have to play a crucial role, by providing capital and expertise. Proper regulatory and legally enabling conditions need to be in place, however, for the private sector to come on board. GET FiT is one small way in which donors and DFIs can support reform-minded governments in the region to leverage private capital for investment.”
The new GET FiT investment mechanism which brings private and public investors together and the proposed BRICS Bank and China’s funding relationship with Africa are some of the updates featured during the Investment & Finance track of the upcoming African Utility Week conference and expo from 14-15 May in Cape Town. The event brings together more than 5,000 power professionals across the entire ecosystem for the African water and power sectors.