In Uganda: government renewables strategy makes the jump from words to action
Kampala, 28.01.2008
Platts Renewable Energy Report
Few developing nations confront the energy problems faced in Uganda, where a near-total lack of fossil fuels and continual power shortages create seemingly insurmountable obstacles to economic development. Can renewable energy provide a solution that other nations can replicate? David R. Jones from Platts reports.
Developing nations in Africa, Asia and Latin America are pursuing renewable energy with a variety of goals. Many countries, lacking substantial fossil fuel resources – or any – are implementing renewables policies to bolster security of energy supplies. Others are looking to diversify their energy portfolios, create jobs and spur economic development, while still others are intent on meeting carbon-reduction targets to combat global warming.
In the east African nation of Uganda, policy-makers are promoting renewable energy in part simply to keep the lights on. Following years of government-sponsored terror against citizens in the 1970s and early 1980s under Presidents Idi Amin and Milton Obote, Uganda has since 1986 settled into “relative stability and economic growth” under the rule of Yoweri Museveni, according to the CIA Factbook analysis of the country.
Still, the country faces disruption from “armed fighting among hostile ethnic groups, rebels, armed gangs, militias, and various government forces that extend across its borders,” the Factbook notes, including Rwandan, Congolese and Sudanese refugees as well as insurgency from the Lord’s Resistance Army, a fanatical guerilla group that attacks from Sudan and the Democratic Republic of the Congo.
This turmoil, combined with the Uganda’s heavy reliance on large hydropower, has left the nation with enormous barriers to providing electricity to rural communities and maintaining power supplies in urban areas as it tries to develop its economy. “Uganda has one of the lowest rates of electrification in the world and currently faces a serious economic crisis due to the lack of power generating facilities capable of producing electricity at affordable prices,” said executives with Linklaters, an international law firm that recently forged a hydropower deal in Uganda. “Uganda’s electricity demand growth has outstripped the capacity of existing hydroelectric power generation facilities on the Nile River, causing severe disruptions to Uganda’s economic activities and forcing reliance on expensive emergency generators that burn diesel transported by tanker trucks over long distances.”
Uganda, like many sub-Saharan African nations, enjoys abundant sunshine and other potential renewable resources – and like many of its neighbors has yet to exploit its renewables’ potential.
The nation has no proven oil, gas or coal reserves, an analysis by the US Energy Department’s Energy Information Administration points out, and relies entirely on imports to meet its oil needs. “While Uganda has an endowment of a variety of renewable energy sources, only large hydro resources along with Nile have been developed to some extent to provide electricity through a national grid. The other resources that have remained largely untapped include small hydro, biomass, solar, wind and geothermal resources,” according to The Renewable Energy Policy for Uganda, a 2007 strategy document issued by the government’s Ministry of Energy and Mineral Development.
Confronted with these obstacles, the Ugandan government is pursuing both a broad national renewable energy strategy as well as specific projects designed to generate clean energy while relieving the strain on the country’s overtaxed grid. Together, these approaches offer lessons for nearby East African nations – along with other developing countries struggling to meet popular demands for electricity service without relying on costly imported fossil fuels and other uncertain energy sources.
From general to specific
In its 2007 renewables strategy, the government outlined its vision of making “modern renewable energy a substantial part of the national energy consumption,” with the overall goal of boosting the use of renewables, including large hydropower, from the current 4% to 61% of the total energy consumption by 2017. National goals are broken down into numerical targets, either for power production or for number of installations. These objectives grew out of the 2002 Energy Policy for Uganda, which outlined the government’s commitment to developing and using renewable energy and technologies.
Uganda’s strategy encompasses smallscale renewables investments, particularly for tackling rural poverty, through a national policy for offering feed-in tariff (currently negotiated on a case-by-case basis); solar energy technologies; biofuels for both transportation and power generation; and so-called modern biomass use combined with legislation to control open biomass burning – the current source of 90% of the nation’s energy.
These approaches, in turn, are designed to deal with specific challenges:
- “Unprecedented electricity supply deficit on the national grid due to the fall in Lake Victoria water levels as a result of prolonged drought,” the strategy said, causing hydropower output to plummet and forcing installation of more than 100 MW of diesel generation;
- Escalating world oil prices;
- Scarcity of electricity in rural areas; and
- The government’s commitment under the Kyoto Protocol to cut CO2 emissions.
Ugandan policy-makers have responded with specific programs designed to tap the country’s renewable resources for solving problems. A key to getting programs off the ground has been enlisting the aid of a variety of international aid and technical assistance groups.
A new program in the capital of Kampala, for instance, is geared to soak up sunshine with solar water heaters, freeing up electricity for other uses. In essence, the initiative, supported by the Renewable Energy & Energy Efficiency Partnership, uses renewable energy as an energy-efficiency strategy. REEEP is coordinating with the government to establish legal and institutional frameworks for expanding solar water heaters, with the goal is of installing 500 solar water heaters in the capital.
“They have blackouts and problems of peak demand,” REEEP official Peter Richards told Platts. REEEP is undertaking a similar program in South Africa, which also suffers from chronic power shortages. “Solar water heating is becoming appreciated as a demand-side tool,” Richards said.
Other international organizations have also stepped in to foster renewables development – in some cases, in Uganda as well as neighboring countries. In another recent initiative, Greening the Tea Industry in East Africa, the United Nations Environment Program, the UN/World Bank Global Environmental Facility and the African Development Bank have joined with the East African Tea Trade Association to construct small hydropower plants (200 kW-5 MW) in the region.
Like REEEP’s solar heating initiative, the Greening the Tea Industry program is aimed at reducing electricity use – in this case by tea companies – from current energy sources by setting up six small hydroelectric demonstration programs in the region, “preferably with an attached rural electrification program,” a UNEP fact sheet said. The project also includes financing to encourage tea-processing plants to switch to green energy.
Complementing the tea industry program is another UNEP/GEF/ADB initiative being carried out with sugar companies and other agricultural operations. The Cogen for Africa program, also targeted to Uganda and other East African nations, has set the goal of developing 40 MW of co-generation through full-scale projects and lay the groundwork for 200 MW of additional co-generation in the long term. REEEP is chipping in funds for both the tea and cogeneration initiatives.
Uganda is carrying out its own programs to use renewable energy to boost rural electrification. These include the Kisiizi power project, in which a hospital’s 60-kW mini-hydropower dam is being expanded to 294-kW and a small mini-grid constructed; the West Nile project, another mini-hydroelectric project; and the Kakira cogeneration project for using sugar cane bagasse to generate 14 MW, 6 MW of which will be sold to the main grid.
Companies participating in renewables programs in rural areas include Chinese developer China Shan Sheng. With aid from international organizations as a foundation, Uganda has now begun to attract private investment in renewable energy. New York-based Sithe Global Power, an affiliate of private investor the Blackstone Group, recently joined with the Aga Khan Fund for African Development to set up a company to build the 250-MW Bujagali hydroelectric dam on the Nile River. The first unit of the planned $867 million dam – the largest private-sector investment in East Africa to date –is projected to come on line in 2010.
A consortium of lenders, including the African Development Bank, the European Investment Bank and the German development agency KfW, provided senior loan facilities, while several World Bank operations, such as the Multilateral Investment Guarantee Agency provided political risk coverage.
This large hydropower project offers a small-scale reflection of the difficulties in promoting renewables in Uganda – as well as possible solutions. As in many developing countries, private investment in Uganda raises concerns about political risk, “and you certainly had it here,” said Martin Kavanagh, managing associate at Linklaters, who helped lead a team that advised the lenders. Uganda has made great political strides in developing its legal structure and regulatory framework and has a growing economy, he said in an interview, but “it wasn’t long along that a civil war was going on.
Political risk is something investors are worried about.” As a result, the World Bank played a crucial role in covering political risk if the government reneged on its promises, which enabled Sithe Global to bring its private equity to the deal. The negotiators hammered out a complicated deal over about 18 months. “The documentation is well structure between the government and the development company,” Kavanagh said. “This puts in place a template for deals in that region.
There was very rigorous environmental and social review of this project. It has a robust contractual structure.” With the World Bank acting as backstop for private investors, “we’ll see more commercial money coming into deals like this,” he said. Other private investment could be in the works. The Kampala Monitor newspaper reported in December that South African company Okhela Renewable Energy is negotiating a power purchase agreement with the government with the goal of developing renewable power from domestic wastes, small hydropower, and micro hydropower.
The Uganda model for renewable energy development, then, can be characterized by four stages. With the first two stages completed, the country’s policy-makers are working to channel international assistance into renewable-energy initiatives, which might eventually serve as the basis for more private equity investments.
Will Uganda’s ambitious goals be achieved and its innovative projects pan out? The answers might not be known for years, even decades, to come. Yet the country has set a course for moving from broad strategies to specific initiatives, with targets and timetables – as well as programs designed to meet them. If Uganda can make renewable energy a vital tool for addressing both chronic energy shortages and deep-rooted social problems like poverty and economic fragility, it might offer a model for other developing nations facing far less daunting challenges.