RURAL ENERGY AGENCY (REA)

1. “Rural Electrification Context in Tanzania”. Presented at:“7th Annual Meeting of the Club of African Agencies and Structures in charge of Rural Electrification (ER-CLUB) 23 - 26 March 2010 – Mombasa Kenya”By: George M.J. Nchwali. RURAL ENERGY AGENCY (REA)

2. Outline • Overview of REA • Energy Situation in Tanzania • Electricity Generation and Supply • Challenges • REA - Roles & Functions • Projects Financing

3. Energy Situation in Tanzania • Energy consumption in rural areas accounts for 85% of total national consumption, • Energy balance is dominated by biomass-based fuels particularly fuel-wood, • Biomass-based fuel accounts for more than 90% of primary energy supply, • Commercial energy sources i.e., petroleum and electricity accounts for about 8% and 1.5% resp. of the primary energy used.

4. Energy Situation in Tanzania cont.. • Coal, solar, and wind account for about 0.5% of energy used, • Tanzania has a forest area of about 35.5 million hectares of which around 80,000 hectares are plantation forest and 70,000 hectares are privately owned.

5. Energy Situation in Tanzania cont.. • Energy consumption per annum > 22 million tones of oil equivalent (TOE) per annum or 0.7 TOE per capita; • Per capita electricity consumption: 150 KWh (versus 500 KWh required for quality life); • Poor spend 35% of their income on energy • Potential • Hydro: 4.7 GW (only 12% developed); • Coal: 1.2 billion tones of which 304 million tonnes are proven; • Natural Gas: > 45 billion cubic meters; • Others: Solar, Biomass, Wind, Geothermal • Petroleum/Oil: Prospecting activities on-going.

6. Electricity: Generation & Supply • Installed Capacity stands at (1006 MW) of which • hydropower comprise 561 MW • thermal 445 MW • Co-generation (Sugar & Wood Processing Plants) accounts for: 35.8 MW • Total connections in the country is 794,921; • Average connections per annum is 50,000 customers (plan 100,000 customers/annum);

7. Percentage of households with access to grid electricity (HBS 2000/2001)

8. Challenges • Increased electricity demand which require massive investments in generation, transmission and distribution; • Escalating petroleum prices; • Inadequate private sector participation in investment; • Limited long-term financing especially for small / isolated rural energy projects; • High interest rates loans from commercial banks;

9. Financing of Small Power ProjectChallenges • Un surveyed area i.e. area with no title deed • Experience of key project promoter/management • Lack or inadequate equity by project promoters • Financial capacity of buyer • Lack of/inadequate Development Finance Institutions (DFI’s) in Tanzania • Absence of Credit Support Facility (CSF) for SPP

10. Rural Energy Agency (REA) • “Rural energy is diverse and characterized by various actors and interests. A sustainable institutional framework that can cope with the diversity, manage, coordinate various efforts, is a key factor for successful development of rural energy.” • “The Rural Energy Agency was established as an institutional framework to mobilise, coordinate and facilitate private and public initiatives in rural Mainland Tanzania .”

11. Rural Energy Agency/Rural Energy Fund • Established under the Rural Energy Act No.8 of 2005; • REA is governed by a Board of Directors (Rural Energy Board) • Composition of the bOard • Ministry of Finance • PMO RALG • Private Sector Foundation • Tanzania Bankers’ Association • Consumers’ Association • Civil Society • Ministry of Energy and Minerals • Development Partners • Ministry of Finance • PMO RALG • Private Sector Foundation • Tanzania Bankers’ Association • Consumers’ Association • Civil Society • Ministry of Energy and Minerals • Development Partners

12. Roles and Functions of the Agency • Promotes, coordinates and facilitates private and public sector initiatives and entrepreneurship in rural energy supply; • Ensure continued electrification of rural commercial centers and households; • Promotes accessibility and affordability to modern energy services by low income groups; • Continued research, development and application of appropriate rural energy solutions;

13. Roles and Functions of the Agency • Provides finance through the REF • Primarily as co-financing of those projects identified by the REA • REF provides subsidies • Monitoring and evaluating progress • Learning from experience • Activities to improve chances for future success and improved impacts

14. Sources of Funds • Government annual budgetary allocation • Contributions from international financial organisations, multilateral and bilateral agencies and other development partners; • Levies of up to five percent on the commercial generation of electricity from the national grid; • Levies of up to five percent on the generation of electricity in specified isolated systems • Fees in respect of programmes, publications, seminars, consultancy services and other services provided by the agency • Interest or return on investment

15. Projects Financing • Tanzania Energy Development Access Project (TEDAP) provides two types of subsidies to project developers: • Performance grant • Matching grant • These grants are provided to buy down developers investment costs.

16. Performance Grant • Eligible project (i) Grid connected mini-grids; (ii) Isolated/green-field mini/micro-grids; (iii) Solar Photo-Voltaic (PV) Systems; (iv) Off-grid energy investments including hybrid systems, (v) Other non electric energy sources (biomass, biogas, and improved stoves). • Funds cannot be used for financing or acquisition of existing assets (including land) or refinancing of existing debts or accrued interest.

17. Eligible project developers • Any private enterprise, • NGOs, • Community, • Co-operative • Individual operating in Tanzania, registered as a legal entity, and having the capacity to enter into a binding contract under the laws of the United Republic of Tanzania, with sufficient technical, financial management and procurement capacity to implement the proposed project

18. Eligible products • Power generators using renewable energy, • Transmission and distribution networks and consumer connections to serve consumers on the mini-grids • Solar photovoltaic systems ranging from solar lanterns to larger systems to meet household and institutional requirements.

19. Subsidy Provided • Tanzania Energy Development Access Project (TEDAP) support facilities to project developers: • Mini-grid projects • US$ 500 for each new connection in rural energy projects under mini-grids, and green-field areas ; • Maximum amount up to 80% of total investment cost • Commercial PV • Average of US$ 2 per Watt-peak for solar PV installations

20. Subsidy payment A: Mini-grid payment modalities: • 40% mobilization and after signing; • 40% after delivery of goods on site; • 20% after approval of customer acceptance receipts by REA

21. Matching Grant MG will provide technical assistance to: Government Institutions (MEM, REA, EWURA, Project Developers) Financial institutions Other stakeholders Forms of assistance provided Training Consultancy services 21

22. Disbursement • First payment after at least fifty percent of counterpart contribution (in cash) from project promoter for the assignment has been disbursed and proof of this cleared by REA • First payment is an amount equal to fifty percent (50%) of agreed level of support • The balance 50% will be released when a completion report, acceptable to REA is submitted, together with supporting evidence of completion and achievement of agreed activities and supporting procurement documentation including ToRs; • Payments based on agreed deliverables in Grant Agreement

23. TEDAP – initial results positive Number of Projects: 22 advanced projects (over 60 in development) 11 projects – 42 MW - supply into main grid under Standardized PPA/T 5 projects – 17 MW – supply into existing isolated grids under Standardized PPA/T 6 projects – green field isolated grids Project Promoters: 9 well established private sector promoters 6 projects advertised for private sector participants 5 cooperatives / community based project promoters Technology: 16 small hydro projects 6 biomass projects Portfolio Costing: Total portfolio cost: US$154,7 million Smallest project: US$0.2 million Largest project: US$31.0 million Median: US$7.0 million

24. Credit line • Support development of long-term finance for renewable energy / infrastructure projects • Pilot program ($25 million) – to demonstrate commercial viability of renewable energy projects • Build capacity of Tanzanian rural and renewable energy project developers (private sector, cooperatives…) • Build capacity of Tanzanian banking sector to identify and appraise rural and renewable energy projects • Help to develop long term market financing instruments

25. THANK YOU www.rea.go.tz