Creating Enabling Environment - Light Handed Regulation on Small Power Projects (SPP) in Tanzania

1. … Creating Enabling Environment -Light Handed Regulation on Small Power Projects (SPP) in Tanzania Presentation at the Workshop Innovations in Off-grid Lighting Products and Energy Services for Rural Tanzania 8th & 9th April 2010 Presented by:Eng. Norbert Kahyoza – Commercial Manager (Electricity) EWURA

2. Outline • Electricity Supply – Basic Facts • Legislative Framework • Objectives • Standardized Power Purchase Agreement • Standardized Tariff Methodology • Rules and Guidelines • Licensing Requirements

3. Basic Facts on Electricity Supply in Tanzania (2009) • Installed Capacity – 1051MW • Dependable Capacity – about 55% • Still Hydro dependent – 53.4% • Major threat from diminishing water resources • Peak demand – close to 740MW • Customer base – 740,954 • Electricity Access level – 12.7% (HBS 2007) • (Grid + Solar)

4. Basic Facts on Electricity Supply in Tanzania (2009) – Cont. • Why Small renewable now? • No strategic promoters, Planners, Financiers, Service Companies, etc. • Abundant resources • Clean Energy • Capacity addition to grid • Boost Rural Electrification • Promotes Entrepreneurship

5. Legislative Framework • National Energy Policy, 2003 • Energy and Water Utilities Regulatory Authority Act, Chapter 414 of the Laws of Tanzania, 2001 • Operations Commenced February, 2006 • Rural Energy Act (2005) • Establishing REA & REF • The Electricity Act, 2008

6. Legislative Framework – Cont. • Energy Policy Statement No. 36 • Establish norms, codes of practice, guidelines and standards for renewable energy technologies, to facilitate the creation of an enabling environment for sustainable development of renewable energy sources

7. SPP Regulatory Framework Objectives • To support the enabling environment for sustainable development of renewable energy sources through Light-handed regulation • Minimizing amount of information that is required. • Minimizing the number of separate regulatory requirements and decisions. • Use of standardized documents so as to reduce need for case-by-case analysis and negotiation.

8. SPP Framework Structure • Standardized Power Purchase Agreement • Grid and Off-grid Connections • Standardized Tariff Methodologies • Grid and Off-grid Connections • Rules and Guidelines • Standard Forms

9. Standardized Power Purchase Agreement (PPA) • It is a legal contract between an electricity generator and a power purchaser • The PPA is a central document in the development of independent power plants, and is a key to obtaining project financing for the project. • In some renewable energy contracts, the buyer has the option to purchase the facility at the end of the term.

10. Standardized Power Purchase Agreement (PPA) – Cont. • Key provisions include • Definitions • Sale of Capacity and Energy • Term and Termination • Operation, Metering and Payment Terms • Force Majeure • Dispute Resolutions • Representations and Warranties • Miscellaneous • Annexes (contain most of technical details)

11. Standardized Tariff Methodology • Tariff Categories • Calculated separately for Main Grid and Mini-grids • Based on TANESCO’s avoided costs of generation • At the moment it is technology free, • Actual calculation somehow complicated involving a number of conversions and adjustments, • Specifies Floor Price and Price Cap for each SPP

12. Tariff for Mini-grid • Calculation Steps • LRMC at MV Distribution level of main grid (same as for Main Grid Adjusted for avoided Transmission losses) • Incremental Capacity and Variable Cost of Mini-grids (Based on cost of investment and Operation of a 1MW diesel generator) • Standardized Mini-grid SPP Tariff for the year is the average of (a) and (b) above OR Tariff Case 2 = ½(ClrmcGrid + CavgMini)

13. Tariff Cases 3 (main grid) and 4 (isolated): selling also at retail to end use customers • Tariff is proposed by SPP generator, subject to EWURA review • Less oversight demanded in cases in which community is in agreement with proposed tariff • Where possible, EWURA draws on financial analysis submitted to REA for rural electrification subsidy • Case 4 also applies for an SPP cum DNO

14. Rules and Guidelines • Rules & Guidelines, as for SPPA, are developed through extensive consultation with stakeholders, • They are all addressing the SPP implementation requirements, But • The Rules are legal requirements that shall be complied to and are enforceable by law, while • The Guidelines are procedural steps to guide the parties when carrying out a requisite process.

15. Rules and Guidelines – Cont. • The Guidelines and Rules are intended to assist Small Power Project (SPP) developers to understand; • the SPP legal framework and process, • EWURA’s licensing requirements and procedures, • how to obtain authorizations from other government institutions, and • other technical, commercial and regulatory requirements necessary to bring an SPP into operation.

16. Main Aspects of the Guidelines • Two main components: • Procedural and Technical requirements • Audiences: SPP developers, EWURA, TANESCO, REA, Bankers, etc • Purpose: Guidance to an SPP on how to acquire necessary consents and make safe interconnection to existing network. • Goal: Backed by the Rules, achieve light handed regulation on SPP and promote development of renewable energy sources in Tanzania .

17. Main Contents of the Guidelines • Process Guidelines • Project Development Sequence • Licensing Requirement • Reporting requirements • Tariff Issues • LicenceFee • Working group operations • Dedicated SPP Unit for a DNO • Interconnection of the Main Grid with the mini-grid

18. Main Contents of the Guidelines – Cont. • Interconnection Guidelines • These are guidelines for technical reference for design, construction, testing and operation of the interconnection between SPP and a grid/mini-grid systems in Tanzania. • They are prepared in three categories • Part A: scope, mandatory requirements, and the procedure for testing. • Part B: instructions on how to classify projects depending on the different network arrangements, and the types of protection equipment and their settings to be provided. • Part C: technical reference providing information directly relevant to embedded generator protection, and associated designs.

19. Sample procedure for the necessary permits and clearances Land title or lease Resource Rights (e.g. water rights from River Basin Water Office) Letter of Intent (LOI) with DNO (Tanesco) Sequence is important to avoid competing claims on project sites Business license, tax registration, etc. Building Permit Environmental and Social Clearance (NEMC) SPPA EWURA license

20. Standard Forms • Establishes minimum necessary information • Enhances transparency in the implementation process • Includes • Application forms • Letter of Intent • Interconnection Certificate • Registration Forms (SPP < 1MW) • Licence Application form (SPP>1MW)

21. EWURA license • SPPs up to 1 MW are exempt from EWURA’s licensure requirements • Must submit completed registration form • Location, business registration, capacity of facility, GWh/yr, date of planned construction • Non-exempt (>1 MW) • Submit license application • Same as registration, plus • Section on managerial competence • Feasibility study • Business plan • Permits and clearances (NEMC, water rights, etc.) • Where possible, EWURA draws on financial analysis submitted to REA for rural electrification subsidy

22. Proposed rules related to EWURA license • The Authority shall approve or disapprove a license not later than forty-five (45) days after receipt of such application. • An initial license will be granted for fifteen (15) years. Subsequently, renewed licenses will be granted for fifteen (15) years. • All generators are required to submit, on an annual basis, a completed SPP Annual Reporting Form. • The EWURA license application requires a fee of Tsh 100,000 (about US$75).

23. . • Thank you