RURAL ENERGY AGENCY (REA)

1. Financing Challenges and Options for Rural Energy ProjectsPaper Presented on:Workshop on Innovations in Off-grid lighting products and Energy Services for Rural TanzaniaAICC , ARUSHA, 8th and 9th APRIL 2010Eng. Bengiel H. MsofeDirector Technical Services, REA. RURAL ENERGY AGENCY (REA)

2. Outline • Establishment of REA and REF • REA/REF Governance arrangement • Roles and Functions of REA • Sources of Fund • Eligible projects and developers • TEDAP Off-grid component • Solar PV trainings and projects by REA • Credit line • Challenges • End Workshop on LRTC 2010 Competition, AICC, Arusha

3. 1.0: Establishment of 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 and co-ordinate various efforts, is a key factor for successful development of rural energy. So far, appropriate focus for handling rural energy services is lacking. There is a need to establish an institutional framework that can mobilise, co-ordinate and facilitate private and public initiatives in rural and renewable energy” (Source: Energy Policy 2003; pg 27) • The Rural Energy Agency (REA) was established as an institutional framework to mobilize, coordinate and facilitate private and public initiatives in rural Mainland Tanzania . REA/REF started operations in October, 2007. Workshop on LRTC 2010 Competition, AICC, Arusha

4. REA/REF Cont. • REA/REF were established under the Rural Energy Act No.8 of 2005; • REA/REF are governed by Rural Energy Board(REB) • The REB is appointed by the Minister responsible for energy and the terms of the Board is three years • The Board appoints a Trust Agent who is responsible for disbursement of grant payments from the Fund and ensuring that any pre-condition set by the Board for making a grant payment are met by the developer. • Besides disbursing of grant payments, the Trust Agent also verify and monitor projects activities being done by developers. Workshop on LRTC 2010 Competition, AICC, Arusha

5. Board reports to both Ministers MEM MoFEA Minister appoints Board from stakeholder reps Rural Energy Board Stakeholders REB governs REA is REF secretariat to REB Rural Energy Staff of Rural Fund Energy Agency REB appoints Trust Agent to Works with manage REF payments project developers Trust Project Developers Agent & Partners 2.0: REA/REF Governance Arrangements Workshop on LRTC 2010 Competition, AICC, Arusha

6. Rural Energy Agency as Facilitator PROJECT CHAMPIONS & COLLABORATORS RURAL ENERGY AGENCY/ FUND INVESTORS & FINANCIAL ASSISTANCE TECHNICAL EXPERTISE & TRAINING VIABLE RURAL ENERGY INVESTMENTS, PROJECTS AND VENTURES Workshop on LRTC 2010 Competition, AICC, Arusha

7. 3.0: Roles and Functions of REA Main roles and functions include:- • 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; Workshop on LRTC 2010 Competition, AICC, Arusha

8. Roles and Functions cont. • Provides finance through the REF • Primarily as co-financing of priority projects • REF provides subsidies to project developers that meet the eligibility criteria • Monitoring and evaluating progress of projects • Learning from experience • Activities to improve chances for future success and improved impacts Workshop on LRTC 2010 Competition, AICC, Arusha

9. 4.0: Sources of Funds Sources of funds include according to Section 19(3) of the Act include:- • Government annual budgetary allocation • Contributions from international financial organisations, multilateral and bilateral agencies and other development partners; • Levies of up to 5% on the commercial generation of electricity from the national grid; • Levies of up to 5% 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. Workshop on LRTC 2010 Competition, AICC, Arusha

10. 5.0: Eligible projects and developers Eligible projects include:- • Grid connected mini-grids; • Isolated/green-field mini/micro-grids; • Solar Photo-Voltaic (PV) Systems; • Off-grid energy investments including hybrid systems, • Other non electric energy sources (biomass, biogas, and improved stoves). According to Section 22(3) of the Act, the Fund cannot be used for financing operation costs or debts services costs of any project or developer. Workshop on LRTC 2010 Competition, AICC, Arusha

11. Eligible projects and developers Cont. • Any private enterprise, • Non-Governmental Organizations, • 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. Workshop on LRTC 2010 Competition, AICC, Arusha

12. 6.0: TEDAP Off-grid component • This is a project being financed by World Bank. The project provides two types of subsidies to project developers: • Performance grant • Matching grant • These grants are provided to buy down developers’ investment costs. Workshop on LRTC 2010 Competition, AICC, Arusha

13. TEDAP Cont. For Performance Grant, US$ 500 for each new connection in rural energy projects under mini-grids, and green-field areas is given ;maximum amount up to 80% of total investment cost For commercial PV, average of US$ 2 per Watt-peak for solar PV installations Matching Grant provides technical assistance to public Institutions Project Developers), Financial institutions and the stakeholders Forms of assistance provided include training and Consultancy services 13 Workshop on LRTC 2010 Competition, AICC, Arusha

14. TEDAP ongoing solar PV projects Currently the following projects are ongoing:- Rukwa Sustainable Solar Market Programme (SSMP). The contractor has been procured and the inauguration of the project is planned before end of April, 2010 A Consultant, Data Vision is carrying out feasibility study for SSMP2 programme to cover five regions of Kigoma, Tabora, Kagera, Ruvuma, and Shinyanga A solar Cluster programme is being carried out by a Consultant, M/s CAMCO for Tea growers of Tukuyu, cashew nut farmers of Mtwara and VODACOM.

15. 7.0: Solar PV trainings and projects by REA The Agency is currently supporting solar PV trainings and projects with project developers as follows:- • Installation of two solar PV charging stations in one secondary school in Kasulu and Kibondo District s with an American Company, Dissigno. • Solar PV trainings has been carried out in Mpwapwa town and Ukiriguru centre, Mwanza • Installation of solar PV systems at three dispensaries in Mkuranga District • Support installations of solar PV systems for a dispensary at Mtanza (Rufiji District), a dispensary and a secondary school (Singida); solar lanterns awareness campaign in Musoma Rural; installation of solar PV systems in three dispensaries at Karatu and support of solar PV at secondary schools in Hanang District. Workshop on LRTC 2010 Competition, AICC, Arusha

16. 8.0: Credit line Due to huge financial requirements for development of energy projects, the Government has requested the World Bank to support long-term financing of renewable energy / infrastructure projects • Initial request of $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 Workshop on LRTC 2010 Competition, AICC, Arusha

17. Credit line cont. • Need of Equity from project developers • Bank of Tanzania to oversee that Participating Financial Institutions (PFI) adhered to banking regulations • Tanzania Investment Bank to disburse the Credit to PFIs • Project developers to apply the credit to PFIs through Rural Energy Agency • PFIs to ensure that risks management is considered accordingly • Project Developer scan also access subsidies through TEDAP performance arrangement Workshop on LRTC 2010 Competition, AICC, Arusha

18. 8.0: Challenges • Increased electricity demand which require massive investments in generation, transmission and distribution; • Inadequate funds allocation and availability while the grants requests are ever increasing • Inadequate private sector participation in investment; • Limited long-term financing especially for small / isolated rural energy projects; • High interest rates loans from commercial banks; Workshop on LRTC 2010 Competition, AICC, Arusha

19. Challenges cont. • Need to review Land ownership and water rights for renewable energy projects especially mini-hydro plants • Lack of experience of key project promoter/ management • Lack or inadequate equity by project promoters/developers • Limited financial capacity of buyers/consumers • Lack of/inadequate Development Finance Institutions (DFI’s) in Tanzania Workshop on LRTC 2010 Competition, AICC, Arusha

20. THANK YOU Workshop on LRTC 2010 Competition, AICC, Arusha