Finance Mechanisms, Opportunities, and Constraints for Financing Private Sector Investment in Renewable Energy Access in Uganda

Finance Mechanisms, Opportunities, and Constraints for Financing Private Sector Investment in Renewable Energy Access in Uganda.

An Environmental Alert Policy Brief, September 2019.

For more information, contact the Executive Director, Environmental Alert.

Tel: +256-414-510547/510215 FinanceEmail: [email protected] Mechanisms, Opportunities, and Constraints for Financing Private Website: www.envalert.orgSector Investment in Renewable Energy Access in Uganda.

An Environmental Alert Policy Brief, September 2019.

ForThisFor more policy more briefinformation, information is an output, contactcontact from a thestudy the Executive commissioned by Environmental Alert with financial support from Norad ExecutivewithinDirector, the framework Director,Environmental of Environmentalthe project Alert. titled, ‘Increasing Alert. access to sustainable and renewable energy alternatives in the AlbertineGraben’ that is implemented by WWF-Uganda Country Office.”

Tel:Tel: +256-414-510547/510215 +256-414-510547/510215 Email:Email: [email protected] [email protected] Website: www.envalert.org Website: www.envalert.org

This policy brief is an output from a study commissioned by Environmental Alert with financial support from Norad within the framework of the project titled, ‘Increasing access to sustainable and renewable energy alternativesThis policy brief in is the an output AlbertineGraben’ from a study commissioned that is implemented by Environmental by WWF-Uganda Alert with financial Country support Office.” from Norad within the framework of the project titled, ‘Increasing access to sustainable and renewable energy alternatives in the AlbertineGraben’ that is implemented by WWF-Uganda Country Office.”

Acknowledgements

Environmental Alert1 acknowledges the financial support from Norad through WWF-UCO as the major funder to the research and production of this policy report on Financing Mechanisms for Private Sector Investment in Renewable Energy Access in Uganda. We want to thank all respondents for accepting to participate in the study through interviews and validation workshop despite their busy schedules. Acknowledgements Also, the efforts and inputs by the technical team at Environmental Alert, namely: Dr. Joshua Zake (Ph.D.), Ms.Environmental Racheal Nalule, Alert Ms.1 acknowledges Ephrance Nakiyingi the financial, Mr. Jolly supportKayita, from Mr. ArafaNorad Kamoga, through andWWF Mr.-UCO Stephen as the Oundo major is fundercommended to the researchand appreciated. and production Further, of the this efforts policy andreport support on Financing Mr. Daniel Mechanisms Lukwago forand Private Mr. Robert Sector MugambwaInvestment of in Nonner Renewable Consults, Energy and Access the CSOs in Uganda. and Networks We w engagedant to thank in renewable all respondents energy for sub accepting-sector in to Ugandaparticipate are inappreciated the study throughin the production interviews ofand this validation policy brief worksho. We palso despite than ktheirall thebusy participants schedules. that were involved in the process of validation and compilation of this brief. Also, the efforts and inputs by the technical team at Environmental Alert, namely: Dr. Joshua Zake (Ph.D.), Ms. Racheal Nalule, Ms. Ephrance Nakiyingi, Mr. Jolly Kayita, Mr. Arafa Kamoga, and Mr. Stephen Oundo is commended and appreciated. Further, the efforts and support Mr. Daniel Lukwago and Mr. Robert Mugambwa of Nonner Consults, and the CSOs and Networks engaged in renewable energy sub-sector in Uganda are appreciated in the production of this policy brief. We also thank all the participants that were involved in the process of validation and compilation of this brief.

1 Further information about Environmental Alert is available in Box 1. 1

Table of Contents List of the Abbreviations...... 3 1.0 Introduction...... 4 2.0 Background and Rationale ...... 4 3.0Table Key of findings Contents...... 5 3.1 Private sector Actors in Renewable Energy in Uganda ...... 5 List of the Abbreviations...... 3 3.2 Available Financing Opportunities for the Private Sector...... 5 1.0 Introduction...... 4 3.3 Procedures Required by the Private Sector to Obtain the Various Forms of Financing...... 6 2.0 Background and Rationale ...... 4 3.4 Opportunities for the Financing of Private Sector Investment...... 7 3.0 Key findings...... 5 3.5 Constraints limiting financing of private sector investment ...... 7 3.1 Private sector Actors in Renewable Energy in Uganda ...... 5 4.0 Conclusions and Recommendations...... 8 3.2 Available Financing Opportunities for the Private Sector...... 5 4.1 Conclusions...... 8 3.3 Procedures Required by the Private Sector to Obtain the Various Forms of Financing...... 6 4.2 Recommendations...... 8 3.4 Opportunities for the Financing of Private Sector Investment...... 7 5.0 References ...... 11 3.5 Constraints limiting financing of private sector investment ...... 7 Box 1. About Environmental Alert...... 12 4.0 Conclusions and Recommendations...... 8

4.1 Conclusions...... 8 4.2 Recommendations...... 8 5.0 References ...... 11 Box 1. About Environmental Alert...... 12

List of the Abbreviations

CBA Commercial Bank of Africa CDM Clean Development Mechanism CERs Certified Emissions Reductions ListDFID of the AbbreviationsDepartment for International Development DFIs Development Finance Institutions CBADPs CommercialDevelopment Bank Partners of Africa CDMDTB CleanDiamond Development Trust Bank Mechanism CERsEA CerEnvironmentaltified Emissions Alert Reductions DFIDERA DepartmentElectricity Regulatory for International Authority Development DFIsEU DevelopmentEuropean Union Finance Institutions DPsGCF DevelopmentGreen Climate Partners Fund DTBGEF DiamondGlobal Environment Trust Bank Facility EAGETFiT EnvironmentalGlobal Energy Alert Transfer for Feed-in-Tariff ERAGIZ ElectricityGerman Agency Regulatory for International Authority Cooperation EUGoU EuropeanGovernment Union of Uganda GCFKIIs GreenKey Informant Climate FundInterviews GEFMDIs GlobalMicrofinance Environment Deposit Facility-Taking Institution GETFiTMEMD GlobalMinistry Energy of Energy Transfer and Mineralfor Feed Development-in-Tariff GIZMFIs GermanMicrofinance Agency Institutions for International Cooperation GoUMoFPED GovernmentMinistry of Finance, of Uganda Planning, and Economic Development KIIsNGO KeyNon Informant-Governmental Interviews Organization MDIsNORAD MicrofinanceNorwegian Agency Deposit for-Taking Development Institution Cooperation MEMDRE MinisRenewabletry of Energy Energy and Mineral Development MFIsREA MicrofinanceRural Electri ficationInstitutions Agency MoFPEDREFIT MinistryRenewable of Finance, Energy PlanningFeed-in Tariff, and Economic Development NGORESP NonRural-Governmental Electrification Organization Strategy and Plan NORADRET NorwegianRenewable Agency Energy for Technologies Development Cooperation RESIDA RenewableSwedish International Energy Development and Cooperation Agency REASME RuralSmall Electri and Mediumfication AgencyEnterprises REFITUDB RenewableUganda Development Energy FeedBank-in Tariff RESPUECCC RuralUganda Electrification Energy Credit Strategy Capitalization and Plan Company RETUNCDF RenewableUnited Nations Energy Development Technologies Fund SIDAUNREEA SwedishUganda InternationalNational Renewable Development Energy and and Cooperation Energy Efficiency Agency Alliance SMEUSAID SmallUnited and States Medium Agency Enterprises for International Development UDBWWF-UCO UgandaWorld Wide Development Fund-UgandaBank Country Office UECCC Uganda Energy Credit Capitalization Company UNCDF United Nations Development Fund UNREEA Uganda National Renewable Energy and Energy Efficiency Alliance USAID United States Agency for International Development WWF-UCO World Wide Fund-Uganda Country Office

The study employed both quantitative and qualitative approaches – mainly making use of review of relevant publications, and key informant interviews (KIIs) with over 21 institutions at the national level. A validation workshop was held on 23rd August 2019 with selected stakeholders, where the research team presented the draft preliminary findings, conclusions and recommendations and facilitated discussion among the participating stakeholders around them.

1.0 Introduction This policy brief presents key recommendations for increasing financing for private sector investment in renewable energy access in Uganda. The policy brief was compiled through a review of the study report on, ‘Financing Mechanisms for Private Sector Investment in Renewable Energy Access in Uganda,’ conducted by Environmental Alert in partnership with WWF-UCO and with financial support from Norad. The policy brief presents targeted key practical policy and practices recommendations which are suggested for implementation by key stakeholders with an overall target of increasing financing for private sector investment1.0 Introduction in renewable energy access in Uganda. This policy brief presents key recommendations for increasing financing for private sector investment in Therenewable study employed energy access both quantitative in Uganda .and The qualitative policy brief approaches was compiled – mathroughinly makinga review use ofof thereview study of reportrelevant on , publications,‘Financing Mechanisms and key informant for Private interviews Sector (KIIs) Investmentwith over in Renewable 21 institutions Energy at the Access national in Ugandalevel. A,’validationconducted workshopby Environmentalwas held Alerton 23 inrd partnershipAugust 2019 withwith WWF selected-UCO stakeholders and with financial, where support the research from Norad. team presentedThe policy thebrief dr aftpresents preliminary targeted findings, key practicalconclusions policy and and recommendations practices recommendations and facilitatedwhich discussionare suggested among the for implementation by key stakeholders with an overall target of increasing financing for private sector participating stakeholders around them. th investmentFigure in renewable1: Participant energys during access Validation in Uganda. meeting on 10 September 2019. Photo credit: EA.

2.0The Background study employed and Rationaleboth quantitative and qualitative approaches – mainly making use of review of relevant Thepublications, Government and of key Uganda informant made interviews domestic (KIIs) and internationalwith over 21 commitments institutions at to the increase national accesslevel. Ato validationmodern energyworkshop serviceswas heldto all onUgandans23rd August through2019 thewith Vision selected 2040, stakeholders National Development, where the Planresearch II, and teamSustainable presented Energythe dr aftfor preliminaryAll (SE4ALL) findings, Action conclusions Agenda. In and the recommendations National Development and facilitated Plans II ,discussiongovernment among targets the governmentparticipating aims stakeholders to increase around overall them. access to electricity to 30% and per capita consumption to 584 kWh by 2020 (Republic of Uganda, 2015). Under the SE4ALL Action Agenda, Uganda targets to double the share of renewable energy in the energy mix by 2030 (National Planning Authority, 2015).

Figure 1: Participants during Validation meeting on 10th September 2019. Photo credit: EA.

2.0 Background and Rationale The Government of Uganda made domestic and international commitments to increase access to modern energy services to all Ugandans through the Vision 2040, National Development Plan II, and Sustainable Energy for All (SE4ALL) Action Agenda. In the National Development Plans II, government targets government aims to increase overall access to electricity to 30%th and per capita consumption to 584 kWh by 2020 (RepublicFigure 1: Participantof Uganda,s during2015). ValidationUnder the meeting SE4ALL onAction 10 Sept Agenda,ember Uganda2019. Photo targets credit:to doubleEA. the share of renewable energy in the energy mix by 2030 (National Planning Authority, 2015). 2.0 Background and Rationale The Government of Uganda made domestic and international commitments to increase access to modern energy services to all Ugandans through the Vision 2040, National Development Plan II, and Sustainable Energy for All (SE4ALL) Action Agenda. In the National Development Plans II, government targets government aims to increase overall access to electricity to 30% and per capita consumption to 584 kWh by 2020 (Republic of Uganda, 2015). Under the SE4ALL4 Action Agenda, Uganda targets to double the share of renewable energy in the energy mix by 2030 (National Planning Authority, 2015).

The abundance of renewable energy resources presents a great opportunity for Uganda to ensure energy mix by investing in all forms such as solar, geothermal, biogas, efficient biomass systems, among others. Box 1. Definition of Renewable Energy According to the Renewable Energy However, until now, Uganda has found it challenging to Policy (2007), modern renewable energy utilize many of these renewable energy resources and to means renewable energy resources that Theensure abundance energy mix of renewableto accelerate energy energy resources access. presents Despite a greatare opportunity transformed for Ugandainto modern to ensure energy energy mixthe recentby investing efforts byin theall formsgovernment such asto increasesolar, geot accesshermal, to services like electricity, which can be biogas,electricity efficient by all biomass Ugandans, systems more, amongthan twoothers.-thirds of the generated from water power, wind power, population lack access to electricity. Uganda is among solarBox 1. energy,Definition geothermal of Renewable energy Energy and According to the Renewable Energy countries with the lowest electricity access rate, at only biomass cogeneration. However, until now, Uganda has found it challenging to Policy (2007), modern renewable energy utilize19%. Themany rural of theseelectricity renewable access energy rate isresources only 19% and, with to means renewable energy resources that ensure93% of energy the populationmix to accelerate relying onenergy biomass access. for Despiteenergy are transformed into modern energy the(USAID recent, 2019). effortsIncreasing by the gove accessrnment to toelectricity increase will access require to a sharpservices increase like inelectricity, energy access which investments.can be electricitySince public by fundsall Ugandans, are limited more, the thannecessary two-thirds investments of the cannotgenerated be madefrom waterby the power, government wind power, alon e. populationTherefore, thelack mobilization access to ofelectricity. private investment Uganda isand among finance is crucial.solar energy, geothermal energy and countries with the lowest electricity access rate, at only biomass cogeneration. 19Studies%. The by ruralEnvironmental electricity accessAlert in rate2018 isand only Uganda 19%, withRenewable Energy and Energy Efficiency Alliance 93(UNREEEA)% of the inpopulation 2017 found relying limited on access biomass to finance for energy as among the key challenges the private sector faces (USAIDin investing, 2019). in renewableIncreasing energy.access toPrivate electricity sector will investment require a sharp in renewable increase energyin energy projects access in investments. Uganda is, Sincehowever public, still fundslimited are as limitedtheir ,bankabilitythe necessary is considered investments low cannotand financial be made institutionsby the governmentoften lack marketalone. Therefore,awareness. the Thus, mobilization Environmentof private Alert investment undertook andthis financestudy tois examine crucial. the current finance mechanisms for private sector investment in renewable energy access in Uganda. Studies by Environmental Alert in 2018 and Uganda Renewable Energy and Energy Efficiency Alliance 3.0(UNREEEA) Key findings in 2017 found limited access to finance as among the key challenges the private sector faces in investing in renewable energy. Private sector investment in renewable energy projects in Uganda is, 3.1however Private, still sector limited Actors as their in Renewable bankabilityEnergy is considered in Uganda low and financial institutions often lack market Inawareness. 1999, the Thus,Government Environment of Uganda Alert undertookundertook thisextensive study toreforms examine which the currentincluded finance the unbundling mechanisms of thefor Ugandaprivate sector Electricity investment Board in andrenewable increasing energy the access role ofin Uganda.the private sector in electricity generation, and distribution. The private sector actors in the RE sub-sector can be categorized as micro, small, medium, 3.0and Keylarge findings-scale. These work in different ways, and the kind of markets and products they provide are unique. Some are at an early stage (start-ups), growth stage, and mature stage. Those that are early stage 3.1usually Privateraise sector their capitalActors througin Renewableh equity (Energyi.e., Self in-investment, Uganda friends & family, NGOs). Those at growth Instage 1999, usually the Governmentraise their capital of Uganda through un qdertookuasi-equity extensive(i.e., Venturereforms capitalists).which included While the those unbundling at the mature of the Ugandastage can Electricity raise their Board capital andthrough increasing debt from the financial role of institutions. the private sector in electricity generation, and distribution. The private sector actors in the RE sub-sector can be categorized as micro, small, medium, and3.2 Availablelarge-scale. Financing These work Opportunities in different for ways the, Pandrivatethe S ectorkind of markets and products they provide are unique.There is Somea wide are atrange an early of financingstage (start mechanism-ups), growth for stage private, and sectormature investment stage. Those in thatrenewable are early energy stage usuallytechnologiesraise (RETs).their capital These throug include:h equity (i.e., Self-investment, friends & family, NGOs). Those at growth stage usually raise their capital through quasi-equity (i.e., Venture capitalists). While those at the mature stagea. Government can raise their: This capital is mainly through through debt the: from financial institutions. . Uganda Energy Credit Capitalization Company (UECCC), which offer products such as Credit 3.2 Availablesupport Financing facility (CSF), Opportunities Solar Loan for theProgramme, Private S ectorWorking Capital Facility for Solar Companies, There isConnectiona wide range Loan ofProgramme financing formechanism On-grid Connections, for private sectorDomestic investment Biogas Loanin renewable Programme, energy and technologiesTransacti (RETs).on Advisory These include: Services and other early-stage support, among others (Ayiekoh, D. 2016); . Uganda Development Bank (UDB) with various products such as project finance, trade finance, a. Governmentequity, and: This quasi is mainly-equity through; the: . Uganda Energy Credit Capitalization Company (UECCC), which offer products such as Credit 5 support facility (CSF), Solar Loan Programme, Working Capital Facility for Solar Companies,

Connection Loan Programme for On-grid Connections, Domestic Biogas Loan Programme, and Transaction Advisory Services and other early-stage support, among others (Ayiekoh, D. 2016); . Uganda Development Bank (UDB) with various products such as project finance, trade finance, equity, and quasi-equity;

. Uganda Development Corporation (UDC) which is the government vehicle for investment in strategic sectors of the economy in partnership with the private sector; . Grants, rebates and fiscal incentives such as Renewable Energy Feed-in Tariff (REFIT), Energy Rebates under ERA, and Tax incentives, i.e. tax credits to RE generators, or VAT exemptions. b. Development Partners: Major Development Partners (DPs) providing funding to the private sector investment in renewable energy include DFID, EU, Norway, China, USAID, SIDA, UNCDF, and KfW. .DevelopmentUganda DevelopmentPartners provid Corporatione funding mainly(UDC) through:which is i)the Grant gov-fundedernment investments vehicle for such investment as Global in Energystrategic Transfer sectors for Feed of the-in economy-Tariff (GET in partnership FiT); ii) Risk with sharing the private and blended sector; finance through Guarantees .suchGrants, as crowd rebates funding and, fiscalresults incentives-based financing such as (RBF), Renewable and Challenge Energy Feed funds;-in Tariffand iii)(REFIT), Public -EnergyPrivate DevelopmentRebates under Partnership ERA, and(PPDP); Tax incentivesamong others., i.e. tax credits to RE generators, or VAT exemptions. c.b. VentureDevelopment Capital, Partners Private: MajorEquity ,Developmentand Funds: SeveralPartners private (DPs) equityproviding and fundingimpact investorsto the privatecan provide sector fundinginvestment to thein renewable private sector energy investment include DFID, in renewable EU, Norway, energy. China, Some USAID, of these SIDA, include: UNCDF, Responseand KfW. DevelopmentAbility, ACUMEN, Partners Energy provid Accesse funding Ventures, mainly Alphamundi, through: i)Sunfunder, Grant-funded Root investments capital, Norfund, such asNovastar, Global EnergyShell Foundation, Transfer for Phillips Feed- inLighting,-Tariff (GET Grofin, FiT); the ii) AbraajRisk sharing Group, and Global blended Leap, finance Africa through Renewable Guarantees Energy suchFund as, Arch crowd Africa funding Renewable, results Power-based Fund,financing DI Frontier, (RBF), andEvo lutionChallenge II, DSI funds; frontiers, and Frontieriii) Public II,- PrivateAECF, DevelopmentEngie, among Partnership others. (PPDP); among others. c.d. VentureDevelopment Capital, Finance Private Institutions Equity, and (DFIs)Funds: Major: Several DFIs includeprivate Worldequity Bankand impact(IDA, IFC, investors and MIGA),can provide Africa fundingDevelopment to the Bank, private East sector African investment Development in renewable Bank, andenergy. Proparco Some, ofamong theseothers. include: DFIs Response provide Ability,funding ACUMEN,to assist inEnergy financial Access de-risking Ventures, of private Alphamundi,-sector Sunfunder,lending. Aside Root from capital, providing Norfund, concessional Novastar, debt,Shell DFIsFoundation, help build Phillips the capacity Lighting, of Grofin, local financing the Abraaj institutions Group, Globalby passing Leap, on Africa their experienceRenewable throughEnergy theFund preparation , Arch Africa and Renewableanalysis of technicalPower Fund, and financialDI Frontier, documents Evolution for II, RE DSI projects. frontiers, Frontier II, AECF, Engie, among others. e. Local Financial Institutions: Several local financial institutions provide funding to the private sector d. investmentDevelopment in Financerenewable Institutions energy. Among(DFIs): Majorthese DFIsare Centenary include World Bank, Bank Post (IDA, Bank, IFC, Finance and MIGA), Trust AfricaBank, PrideDevelopment Micro Financ Bank,e, East Stanbic African Bank, Development Equity Bank Bank,, Exim andBank Proparco, Commercial, amongBankothers. of AfricaDFIs provide(CBA), Diamondfunding to Trust assist Bank in financial (DTB), Kenyade-risking Commercial of private Bank-sector (KCB),lending. Barclays Aside fromBank. providing These offer concessional financing throughdebt, DFIsCorporate help build lendingthe capacity, Project of local finance financing (or institutions“limited recourse” by passing finance), on their Subordinatedexperience through Debt (Mezzaninethe preparation Finance and analysis), Refinancing, of technical and Asset and financial-backed (documentsi.e., Asset- backedfor RE projects.securities) lending. f.e. OtherLocal sourcesFinancial: TheseInstitutions include: SeveralThe Currency local financial Exchange institutions Fund (TCX);provide Insurancefunding; Carbon to the financingprivate sector such investmentGlobal Environment in renewable Facility energy. (GEF), Among Climate these Investment are Centenary Funds (GIBank,F), andPost Green Bank, ClimateFinance Fund Trust (GCF); Bank, Prideand small Microscale Financ projecte, Stanbicfinancing Bank, (i.e., Aggregation).Equity Bank, Exim Bank, Commercial Bank of Africa (CBA), Diamond Trust Bank (DTB), Kenya Commercial Bank (KCB), Barclays Bank. These offer financing 3.3 Proceduresthrough Corporate Required lending by the, PProjectrivate Sfinanceector to (orObtain “limited the Vrecourse”arious Forms finance), of Financing Subordinated Debt The (Mezzanineprocedures Financerequired), Refinancing,by the private and sector Asset to-backed obtain (thei.e., variousAsset-backed forms securities)of financing lending. depends on the sources, and these are: a.f. Government.Other sourcesThe: These procedures include Thefor accessingCurrency Exchangefunding from Fund UECCC (TCX); areInsuranceset by; CarbonParticipating financing Financial such InstitutionsGlobal Environment (PFIs). The Facility UDB (GEF), conditions Climate include Investment among others:Funds (GIcollateralF), and whichGreen could Climate be Fundfixed assets,(GCF); fixedand small deposscaleits, First project-class financingbank guarantees, (i.e., Aggregation). GoU bonds; social-economic impact; addresses issues of environment and social risk; proven capacity to implement the project; and well-developed 3.3 Proceduressustainability R plan.equired by the Private Sector to Obtain the Various Forms of Financing b.The Developmentprocedures required Partners. by Conditions the private DPs sector (such to asobtain UNCDF) the various include formsclear ofadministrative financing depends and functional on the sources,governance and thesestructures are: like a Board, and administration; Audited books accounts; Business plan; Ability a. toGovernment. absorb the facilityThe procedures and payback for; andaccessing Social Impactfunding of from the investment;UECCC are amongset by others. Participating Financial Institutions (PFIs). The UDB conditions include among others: collateral which could be fixed assets, fixed deposits, First-class bank guarantees, GoU6 bonds; social-economic impact; addresses issues of environment and social risk; proven capacity to implement the project; and well-developed sustainability plan. b. Development Partners. Conditions DPs (such as UNCDF) include clear administrative and functional governance structures like a Board, and administration; Audited books accounts; Business plan; Ability to absorb the facility and payback; and Social Impact of the investment; among others.

6 c. Green Climate Fund (GCF). The private sector company has to respond to the request for Proposals, and the company has to be accredited. d. DFIs. Do not lend directly to micro, small, and medium enterprises or individual entrepreneurs, but many of their clients are financial intermediaries that on-lend to smaller businesses. e. Local Financial Institutions. Ability and integrity of the borrower, present and potential profitability of the business; and the level of capital that the owner has in the business; among others. f.c. VentureGreen Climate Capital, FundPrivate (GCF). EquityThe, privateand Funds. sector Sufficiencycompany has of tothe respond project tocash the requestflows for for making Proposals the, andexpectedthe company (or a reasonable) has to be profitaccredited. for the equity investor. d. DFIs. Do not lend directly to micro, small, and medium enterprises or individual entrepreneurs, but many of their clients are financial intermediaries that on-lend to smaller businesses. e.3.4 OpportunitiesLocal Financial for Institutions.the FinancingAbility ofand Private integrity Sector of the Investment borrower, present and potential profitability of the business; and the level of capital that the owner has in the business; among others. f.SeveralVentureopportunities Capital, existPrivate for financingEquity, and for pFunds.rivate sectorSufficiency investment of the in projectRE, some cash of themflows include: for making the a. expectedSupportive (or policy a reasonable) and regulatory profit frameworkfor the equity. Elaborated investor. through the Electricity Act 1999; Energy Policy 2002, Renewable Energy Policy 2007, Rural Electrification Strategy and Plan (RESP) 2013-2022, Biomass Energy Strategy, 2013, Scaling-Up Renewable Energy Programme Investment Plan, and 3.4 OpportunitiesEnergy Efficiency for Strategythe Financing for 2010of- 2020.Private Sector Investment b.SeveralFiscalopportunities incentives. existSome for offinancing the fiscal for incentivesprivate sector in theinvestment RE sub in-sector RE, some include of themi) Renewable include: Energy a. SupportiveFeed-in Tariff policy (REFIT) and regulatory designed framework to provide. Elaborated price certainty through to renewablethe Electricity energy Act 1999;generators; Energy ii) Policy Tax 2002,incentives Renewable under the Energy Income Policy-tax A ct2007,and VATRural Act Electrification, and iii) Concessions Strategy, i.e.andto Plan UMEME (RESP) and ESKOM.2013-2022, Biomass Energy Strategy, 2013, Scaling-Up Renewable Energy Programme Investment Plan, and c. FundingEnergy Efficiencythrough StrategyUganda forEnerg 2010y -Credit2020. Capitalization Company with subsidized funding provided through PFIs to enable them to offer lower interest rates on the RE loans they provide to the private b. sector.Fiscal incentives. Some of the fiscal incentives in the RE sub-sector include i) Renewable Energy Feed-in Tariff (REFIT) designed to provide price certainty to renewable energy generators; ii) Tax d. Supportiveincentives under Institutions the Income such- taxas MoFPED,Act and VAT MEMD, Act, and ERA,iii) ConcessionsREA, Bank of, i.e. Uganda,to UMEME and andCapital ESKOM. Markets Authority among others who are mandated to develop and implement the law and policy frameworks c. forFunding financingthrough for private Uganda sector Energ investments.y Credit Capitalization Company with subsidized funding provided through PFIs to enable them to offer lower interest rates on the RE loans they provide to the private e. sector.International financing opportunities. These financing opportunities can be accessed through: i) Feasibility study funding opportunities from, i.e. Belgian Investment Organization (BIO), the Nordic d. SupportiveProject Fund Institutions (NOPEF), such the as Norwegian MoFPED, DevelopmentMEMD, ERA, AgencyREA, Bank (NORAD); of Uganda, ii) Debtand Capitalor equity Markets(i.e., Authoritymezzanine among finance, others corporate who are finance, mandated project to develo finance,p and venture implement capital the, lawand anddedicated policy frameworksfunds); iii) forGrants financing; iv) Climate for private finance sector fina investments.ncing. e.f. InternationalDomestic financial financing institutions opportunities. Several. Thesefinancial financing institutions opportunities are offering can beloans accessed for privatethrough: sector i) Feasibilityinvestments study in RE. funding Among opportunities the key ones fromare CBA,, i.e. DTB,Belgian KCB, Investm Centenaryent Organization Bank, Barclays(BIO), Bank the Uganda, Nordic ProjectStanbic BankFund Uganda,(NOPEF), Finance the Norwegian Trust Bank, Development and Post Bank Agency Uganda. (NORAD); ii) Debt or equity (i.e., mezzanine finance, corporate finance, project finance, venture capital, and dedicated funds); iii) 3.5 ConstraintsGrants; iv) Climate limiting finance financing financing of private. sector investment There are several constraints at both international and domestic levels limiting financing of private sector investmentf. Domestic in REfinancial in Uganda institutions; some .of Severalthem include:financial institutions are offering loans for private sector a. Internationalinvestments inlevel RE.: i)Among Many REthe keyprojects ones are are tooCBA, small DTB, for KCB,mainstream Centenary investors, Bank, Barclaysbanks, or Bank even Uganda,DFIs; ii) higherStanbic risk, Bank and Uganda, lower financial Finance returnTrust Bank,of many and RE Post investments; Bank Uganda. iii) Uncertainties over Carbon Financing especially sale of Certified Emissions Reductions (CERs); and iv) Foreign exchange risks, among 3.5 Constraintsothers. limiting financing of private sector investment There are several constraints at both international and domestic levels limiting financing of private sector 7 investment in RE in Uganda; some of them include: a. International level: i) Many RE projects are too small for mainstream investors, banks, or even DFIs; ii) higher risk, and lower financial return of many RE investments; iii) Uncertainties over Carbon Financing especially sale of Certified Emissions Reductions (CERs); and iv) Foreign exchange risks, among others.

7 b. Domestic level: i) underdeveloped financial markets and inappropriate financing terms and conditions for RE projects; ii) Inadequate long-term, Equity, and Project Financing; iii) Limited awareness of energy financing opportunities for instance only 65% in Kampala and 85% upcountry of companies did not know any relevant upcoming funding/financing opportunities in Uganda (UNREEEA, 2017); iv) High and uncertain project development costs; v) Lack of well-defined bankable projects; vi) Poor credit profile and financial records; vii) Unclear taxation and subsidies; viii) Low RET Sales; and ix) Fragmented funding landscape and a scattergun approach to private sector support; among others.

b. Domestic level: i) underdeveloped financial markets and inappropriate financing terms and conditions for RE projects; ii) Inadequate long-term, Equity, and Project Financing; iii) Limited awareness of energy financing opportunities for instance only 65% in Kampala and 85% upcountry of companies did not know any relevant upcoming funding/financing opportunities in Uganda (UNREEEA, 2017); iv) High and uncertain project development costs; v) Lack of well-defined bankable projects; vi) Poor credit profile and financial records; vii) Unclear taxation and subsidies; viii) Low RET Sales; and ix) b. DomesticFigure 2 :level:Mr. Danieli) underdeveloped Lukwago (Consultant) financial marketspresenting and the inappropriate draft research financing report during terms a andvalidation conditions Fragmented funding landscape and a scattergunth approach to private sector support; among others. for RE projects; ii) Inadequatemeeting long-term, on 10 Equity,Sept emberand Project2019. Financing; iii) Limited awareness of energy financing opportunities for instance only 65% in Kampala and 85% upcountry of companies did 4.0 Conclusionsnot know any and relevant Recommendations upcoming funding/financing opportunities in Uganda (UNREEEA, 2017); iv) High and uncertain project development costs; v) Lack of well-defined bankable projects; vi) Poor credit 4.1 Conclusionsprofile and financial records; vii) Unclear taxation and subsidies; viii) Low RET Sales; and ix) GovernmentFragmented of Uganda funding has landscape made domestic and a scattergun and international approach commitments to private sector to incr support;ease access among to others. modern energy services to all Ugandans. The abundance of renewable energy resources presents a great opportunity for Uganda to ensure energy mix by investing in all forms of renewable energy through the private sector. However, there are various barriers which hinder the private sector in Uganda from accessing finance. Some of these include underdeveloped financial markets; inappropriate financing terms and conditions, limited long-term financing, limited awareness of energy financing opportunities, and few well-defined bankable projects.

4.2 Recommendations In line with the constraints discussed above that are limiting financing private sector investment in renewable energy in Uganda, we propose the following recommendationsrecommendations. in Table 1:

Figure 2: Mr. Daniel Lukwago (Consultant) presenting the draft research report during a validation meeting on 10th September 2019.

4.0 Conclusions and Recommendations

4.1 Conclusions GovernmentFigure of 2Uganda: Mr. Daniel has madeLukwago domestic (Consultant) and international presenting commitmentsthe draft research to incr reportease during access a validationto modern energy services to all Ugandans. Themeeting abundance on 10th Septof renewableember 2019 energy. resources presents a great opportunity for Uganda to ensure energy mix by investing in all forms of renewable energy through the private4.0 Conclusions sector. However, and Recommendations there are various barriers which hinder the private sector in Uganda from accessing finance. Some of these include underdeveloped financial markets; inappropriate financing terms and4.1 conditions, Conclusions limited long-term financing, limited awareness of energy financing opportunities, and few wellGovernment-defined bankable of Uganda projects. has made domestic and international commitments to increase access to modern energy services to all Ugandans. The abundance of renewable energy resources presents a great 4.2opportunity Recommendations for Uganda to ensure energy mix by investing in all forms of renewable energy through the Inprivate line with sector. the However,constraints there discussed are var aboveious barriersthat are which limiting hinder financing the privateprivate sectorsector ininvestment Uganda fromin renewableaccessing energy finance. in Uganda,Some of wethese propose include theunderdeveloped following recommendations financial markets; in Table inappropriate1: financing terms and conditions, limited long-term financing, limited awareness of energy financing opportunities, and few well-defined bankable projects. 8 4.2 Recommendations In line with the constraints discussed above that are limiting financing private sector investment in renewable energy in Uganda, we propose the following recommendations in Table 1:

Table 1: Policy and practice recommendations. Key Constraint Recommendations a. MoFPED needs to work with the Bank of Uganda, DPs, and financial institutions to simplify lending requirements and repayment process for RE projects, i.e. use of vendor lending, combining grants with concessional loans, among others. i) Underdeveloped financial markets and Tabinappropriatele 1: Policy financing and practice terms and recommendations b. Government. through Bank of Uganda needs to establish an Keyconditions Constraint for RE projects. Most local Recommendationsinnovation fund, linked to the renewable energy strategy to provide financial institutions have limited a. acMoFPEDcess to needsfinance to for work entrepreneurs with the Bank and of local Uganda, businesses. DPs, and financial awareness and interest in lending to RE institutions to simplify lending requirements and repayment process projects in the context of their wider loan c. Thefor RE UECCC projects needs, i.e. touse provide of vendor more lending, incentives combining for more grants financial with product since they view RET and concessionalinstitutions, especially loans, among MDIs others. and MFIs, to participate in the scheme productsi) Underdeveloped as having financialhigh levels markets of risk. and since they are better suited to delivering RE credit on a sustainable inappropriate financing terms and b. Governmentbasis to SMEs. through Bank of Uganda needs to establish an conditions for RE projects. Most local innovation fund, linked to the renewable energy strategy to provide financial institutions have limited d. acFinancialcess to Institutionsfinance for shouldentrepreneurs train their and loans local officers businesses. on different RET awareness and interest in lending to RE products and their benefits. This will make them more confident in projects in the context of their wider loan c. Thepromoting UECCC financial needs products to provide to fund more purchases incentives of RETfor more technologies. financial product since they view RET and a. institutions,UECCC needs especially to raise MDIs awareness and MFIs of, toon participate-lending facilities in the schemefor RE products as having high levels of risk. sinceprojects they among are better market suited participants to delivering through RE creditdeveloping on a sustainabl marketinge ii) Limited awareness of energy financing basismaterials to SMEs. and organizing promotional events. opportunities. Most private sector actors in the RE often are unaware of the b.d. MoFPEDFinancial Institutionsneeds to shouldundertake train theira comprehensive loans officers onreview different of RETthe available finding. A study by UNREEEA performanceproducts and oftheir the benefits.UECCC Thistowardswill financingmake them the more private confidentsector toin in 2017) found that over 65% in Kampala promotingascertain whether financial it's products meeting to the fund set purchases objectives. of RET technologies. and 85% upcountry did not know any a. UECCC needs to raise awareness of on-lending facilities for RE relevant upcoming funding/financing c. projectsPFIs should among increase market awareness participants of the through private developingsector about marketing the RE opportunitiesii) Limited awareness in Uganda. of energy financing materialsfinancing especiallyand organizing from promotionUECCC throughal events. extensive dissemination of opportunities. Most private sector actors information on the scheme through the use of media (radio and TV in the RE often are unaware of the b. MoFPEDtalk shows) needs and other to appropriateundertake acommunication comprehensive channels review of the availableiii) Lack of finding. well-defined A study bankable by UNREEEA a. performanceFinancial Institutions of the UECCC should towards build thefinancing capacity the privateof smallsector scale to inprojects. 2017) foundFunders that are over looking 65% infor Kampala proven borrowers;ascertain whether teach themit's meeting how to the write set objectives.bankable proposals and give andbusiness 85% upcountrymodels and did well not-developed know any them financial literacy training sessions to enable them access and relevantbusiness upcoming plans. However funding/financing, a study by c. PFIseffectively should utilize increase borrowed awareness funds. of the private sector about the RE UNREEEAopportunities in in2017,Uganda. found that At least financing especially from UECCC through extensive dissemination of 63% in Kampala and 78% upcountry of b. informationThe associations on the representingscheme through the differentthe use ofactors media in (radio the RE and sub TV- the companies either have no previous talksector shows) should and build other the appropriate capacity ofcommunication their members channels to improve their experienceiii) Lack of well writing-defined funding bankable proposals or a. Financialbusiness operationsInstitutions through should training build andthe advisory,capacity establishof small marketscale haveprojects. failed. Funders are looking for proven borrowers;and financial teach linkages them and how carry to write out thebankable necessary proposals policy andresearch give business models and well-developed themand advocacy. financial literacy training sessions to enable them access and iv)business Uncertainties plans. H overowever Carbon, a study Financing. by a. effectivelyPrivate sector utilize actors borrowed should funds. build their capacity to solicit for climate UNREEEAThe sale of in 2017,CERs foundthrough that CDMAt least is a finance (such as GCF) to finance RE projects. The GCF’s Private 63%widely in recognizedKampala and sourc 78%e upcountryof revenue of for b. SectorThe associations Facility could representing be used theto createdifferent a actorsrisk mitigation in the RE facility sub- theRE companiesprojects ineither developing have no previouscountries . dedicatedsector should to supporting build the REcapacityprojects. of their members to improve their experienceHowever, writingthere funding are proposalssignificant or business operations through training and advisory, establish market haveuncertainties failed. over the timing and b. andGovernment financial andlinkages DPs andneed carry to build out thethe necessarycapacity of policy private research sector amounts of revenues from the sale of andplayers advocacy. to enable them access to climate finance. iv)CERs Uncertainties (World Bank, over 2013). Carbon Financing. a. Private sector actors should build their capacity to solicit for climate The sale of CERs through CDM is a finance (such as GCF) to finance RE projects. The GCF’s Private widely recognized source of revenue for Sector Facility could be used to create a risk mitigation facility RE projects in developing countries. dedicated9 to supporting RE projects. However, there are significant uncertainties over the timing and b. Government and DPs need to build the capacity of private sector amounts of revenues from the sale of players to enable them access to climate finance. CERs (World Bank, 2013).

9 v) Unclear taxation and subsidies. Most a. MoFPED should put in place a stable and predictable taxation tax and subsidy regimes favor large- regime for the RE sub-sector, for instance reviewing the VAT scale electricity generation rather than regulations as far as the exemption of developers as well as small-scale RE projects. Also, there are providing uniform incentives for all RETs including cookstoves. high levels of ambiguity on the VAT exemptions and inconsistent application of import duties. a. Advocate for increased private sector investments in off-grid power v) Unclear taxation and subsidies. Most a. systemsMoFPED for should purposes put ofin breaking place a up stable the binding and predictable constraints taxationtowards tax and subsidy regimes favor large- energyregime accessfor the for RE all. sub-sector, for instance reviewing the VAT scale electricity generation rather than regulations as far as the exemption of developers as well as small-scale RE projects. Also, there are b. providingAdvocate uniformfor increased incentives access for toall information RETs includin on gREcookstoves loans especially. high levels of ambiguity on the VAT under the UECCC and financial institutions. Increased access to vi) Advocacy by Environmental Alert and exemptions and inconsistent application information on RE will require undertaking a study to review the partners of import duties. performance of the UECCC towards financing the private sector to a. ascertainAdvocate whetherfor increased it's meeting private the sector set objectives. investments in off-grid power systems for purposes of breaking up the binding constraints towards c. Advocateenergy access for the for government all. to establish an innovation fund linked to the renewable energy strategy to provide access to finance for b. entrepreneursAdvocate for increased and local accessbusinesses. to information on RE loans especially under the UECCC and financial institutions. Increased access to vi) Advocacy by Environmental Alert and information on RE will require undertaking a study to review the partners performance of the UECCC towards financing the private sector to 5.0 References ascertain whether it's meeting the set objectives. Ayiekoh, D (2016). UECCC’s Financing Mechanisms that Accelerate Mitigation Actions in RE in Uganda; Presentation at Practitioner’s workshopc. Advocate on Climate for the governmentFinance for tolow establish carbon anDevelopment innovation fund 29thlinked to the renewable energy strategy to provide access to finance for August 2016, EADB office, Kampala. entrepreneurs and local businesses. Environmental Alert (2018). Unlocking Financing and Investments for Clean and Renewable Energy Access in Uganda: A Case of the Albertine Region. Kampala. http://envalert.org/wp- content/uploads/2019/06/Energy-Financing_Report-final-BUILT.130619pdf.pdf

Environmental Alert (2019). Financing Mechanisms for Private Sector Investment in Renewable Energy Access in Uganda. Kampala.

Republic of Uganda (2015a). Scaling-Up Renewable Energy Programme Investment Plan

National Planning Authority (2015). Second National Development Plan (NDP II): 2015/16 – 2019/20. Kampala. Available at: http://npa.go.ug/wp-content/uploads/NDPII-Final.pdf

UNREEEA (2017). RECP Private Sector Cooperation: Understanding UNREEEA Member Companies’ Profiles and Needs. Kampala.

USAID (2019). Energy Sector Overview. Uganda Power Africa Fact Sheet. Kampala. Available at: https://www.usaid.gov/powerafrica/uganda.

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Box 1. About Environmental Alert Environmental Alert (EA) was founded in 1988 and has developed and transitioned into a National Non- Governmental organization contributing to an enabling policy environment for sustainable agriculture and sound environment and natural resources management at community, local, national and international levels. EA is officially registered with the NGO Board as a Ugandan non-governmental organization (NGO), incorporated as a company limited by guarantee. EA is governed by an Independent Board that is responsible for providing strategic5.0 References oversight of the organization including ensuring its integrity as a voluntary service organization. Ayiekoh, D (2016). UECCC’s Financing Mechanisms that Accelerate Mitigation Actions in RE in Uganda; EA is a 1st Presentationprize winner at of Practitioner’s the Energy workshop Globe A onward Climate for environmentalFinance for low carbonsustainability Development-2005 29thunder the category, earth.August 2016, EADB office, Kampala.

EA isEnvironmental a member of Alert the (2018).International Unlocking Union Financing for Conservation and Investments of Nature for Clean(IUCN) and and Renewable a Member Energy of The IUCN National CommitteeAccess forin Uganda:Uganda. A Case of the Albertine Region. Kampala. http://envalert.org/wp- content/uploads/2019/06/Energy-Financing_Report-final-BUILT.130619pdf.pdf EA envisions, ‘Resilient and dignified communities, managing their environment and natural resources sustainably.’Environmental Alert (2019). Financing Mechanisms for Private Sector Investment in Renewable Energy Access in Uganda. Kampala. EA’s mission is to, ‘Contribute to improved livelihoods of vulnerable communities by enhancing agricultural productivityRepublic and of sustainableUganda (2015a). natural Scaling resources-Up Renewable management’ Energy Programme Investment Plan

ProgramNational and Planning institutional Authority Components: (2015). Second National Development Plan (NDP II): 2015/16 – 2019/20. a. EnvironmentKampala. and NaturalAvailable resources at: http://npa.go.ug/wp management;-content/uploads/NDPII-Final.pdf b. Food security and Nutrition; c. UNREEEAWater, Sanitation (2017). a REnd CPHygiene; Private Sector Cooperation: Understanding UNREEEA Member Companies’ d. FinanceProfiles and Administration; and Needs. Kampala. e. Resource mobilization and Investment. USAID (2019). Energy Sector Overview. Uganda Power Africa Fact Sheet. Kampala. Available at: Scale of Implementation:https://www.usaid.gov/powerafrica/uganda. EA operates in selected districts for generation of evidence to inform policy engagements on agriculture, environmentWorld Bank and (2013). natural Financing resources renewable at National energyand OptionsInternational for Developing levels. Currently Financing EA’s Instruments operations Using are in 40 districts acrossPublic the Funds.country. Washington EA undertakes D.C. area wide targeted awareness on selected issues in agriculture, environment and natural resources engagements

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