KAMPALA, Uganda— Uganda’s quest to boost renewable energy through mini-grids faces a significant hurdle: concession periods deemed too short by private sector developers.
At a high-level panel discussion Thursday, industry experts urged policymakers to reconsider concession periods, citing the need for longer timelines to ensure viability and attract investment.
Alex Wanume, Country Director for NOA Uganda, emphasized the challenges faced by mini-grid developers. “We’re perceived as exploiting rural communities with high tariffs, hindering our ability to operate effectively,” Wanume said.
NOA Uganda operates 31 mini-grids nationwide and has a pipeline of upcoming projects. Wanume stressed the need for trust and cooperation between stakeholders.
“To achieve 2,000 mini-grids by 2030, significant adjustments are necessary,” Wanume said. “A 20-year concession period would allow us to plan for upscales and reinvestments, navigating demand risks and low capacity.”
Jeroen Van Linden, Regional Project Coordinator Beyond the Grid Fund for Africa NIRAS, highlighted regulatory framework shortcomings.
“Effective frameworks should outline licensing, concession periods, tariff approval, grid arrival, and compensation mechanisms,” Van Linden said.
Van Linden emphasized the need for clarity on grid encroachment options, including abandonment or Independent Power Producer (IPP) status.
“The devil is in the details, which are often missing, causing insecurity for mini-grid developers,” Van Linden noted.
Patrick Tutembe, Chief Economist at the Electricity Regulatory Authority (ERA), stressed that investment recovery is crucial.
“One thing that is very clear in regulation in our context is that any investment has to be recovered. Costs of investment have been recovered, including the cost of operation and the cost of capital.”
To ensure investment recovery, the government has capped customer charges at 30 cents.
Tutembe noted challenges in rural areas, including low demand and limited economic centers.
“They tend to be in far-flung rural areas with probably few economic centers. And that has a very big implication about the two things we’re talking about, the tariff and the concession premium.”
On concession periods, Tutembe said: “If the grid arrives before the concession agreement, it means that the government takes one of the most possible options is for the government to actually do compensation of the investor.”
Elizabeth Kaijuka Okwenjye, Principal Energy Officer at the Ministry of Energy and Mineral Development, said Uganda has up to 500 mini-grid sites that are realistic for implementation.
Okwenjye highlighted key challenges facing mini-grid development, citing the 2023 Energy Policy.
“Inadequate regulatory framework, lack of anchor loads, preference for grid connection over mini-grids, operation and maintenance challenges, and license duration,” Okwenjye explained.
On addressing regulatory framework challenges, Okwenjye noted: “We’ve been working through the Promotion of Mini Grids Project. We’ve developed instruments and mechanisms, including bundled tenders and a concession framework, to provide subsidies to developers and promote private sector investment with government support.”
Okwenjye emphasized opportunities for growth, including a concession framework built on lessons learned from previous projects and a debt access project funded by KfW to roll out 150 mini-grids.
“Our bundled tender mechanism promotes competition among developers. We’re evaluating the prequalification for the tender and look forward to opening up the market to bring in more competition,” Okwenjye said.
Henry Jumba, Country Coordinator for GET Transform under GIZ, emphasized the importance of private sector involvement.
“We all understand that government resources are constrained,” Jumba said. “There’s so much competition for different priorities in the country. Mini-grids are not an exception.”
Jumba explained that PPPs balance government and private sector interests.
“On the side of government, perhaps the interest is social equity and ensuring that the energy provided is affordable, but then also there is access. On the private sector side, the interest is, how can I recoup my investment and recouping that investment while making some profit on it as well?”
One of the biggest risks in the mini-grid business is grid arrival, Jumba noted.
“If I’m going to install a mini-grid right now and in the next two years, the grid is arriving, that means my business case is no longer viable. I’m out of business.”
To address this challenge, PPPs offer exclusivity for developers through government guarantees, Jumba said.
This framework also provides bankable, standardized content and technical standards tailored for mini-grids.
Jumba highlighted the importance of economies of scale through clustered projects.
“With the abundant nature of mini-grids projects, you find that you have clusters. Now, if you’re doing one mini-grid project, of course, the cost is going to be very high because you have operations besides the capital investment.”
Team Europe, comprising the European Union, Germany, and other partners, supports Uganda’s rural electrification through pioneering mini-grid initiatives.
The Pro Mini Grids project, funded by the European Union with 3.7 million euros and Germany with 0.8 million euros, has successfully demonstrated a sustainable electricity supply model for remote areas.
Led by GIZ and the Ugandan Ministry of Energy and Mineral Development, the project has electrified 28 Ugandan villages, enhancing quality of life and local economies.
The initiative has also provided clean and reliable energy to over 20,000 people in host and refugee camps.
Additionally, it has trained 250 solar technicians and established a Renewable Energy Training Centre, while supporting 300 small and medium-sized enterprises (SMEs), unlocking energy demand and creating jobs.
Building on this success, GET Access Uganda aims to scale up rural electrification to 150,000 households in remote areas, particularly in Northern Uganda and the shores of Lake Victoria.
The project is funded with 35 million euros from Germany, the European Union and the Ugandan government.
The Beyond the Grid Fund for Africa, funded by Denmark and Sweden with 18 million euros, targets off-grid solar electricity for 3 million Ugandans.
The project is expected to leverage 50-60 million euros in private financing.
EU Ambassador to Uganda Jan Sadek noted, “Uganda and the EU have an aligned vision for a just and clean energy transition.”
“As Uganda’s largest development ally, we are committed to supporting Uganda’s energy sector,” Sadek added.
The EU’s support focuses on rural electrification, renewable energy, and regional energy connectivity.
Key initiatives include the Pro Mini Grids project, GET Access Uganda, and the Beyond the Grid Fund for Africa.
Sadek emphasized, “Team Europe is at the forefront of key initiatives, catalyzing progress through strategic investments and collaborative efforts.”
The EU’s support aligns with Uganda’s Vision 2040 and National Determined Contribution, strengthening energy security, facilitating surplus renewable power export, and combating deforestation.
Through the Global Gateway, the EU and Uganda are working jointly towards sustainable development and shared prosperity, consolidating Uganda’s role as a global frontrunner in green energy.
