Section 12 Case study – Tanzania anzania’s renewable hybrid mini-grid market Today, Tanzania has 209 known mini-grids installed. took off in the early 2010s, earlier than else- With an aggregate capacity of 231,7MW, these proj- where in Sub-Saharan Africa, thanks primarily ects account for about 15 percent of the country’s Tto robust regulations and international assistance. total capacity of 1,461MW.17 Of these projects, al- However, weak implementation of policies, rule most one-third are either solar or solar hybrid mini- changes and ambiguity about the role mini-grids grids. On a per-MW basis, renewable mini-grids are play within the larger goal of improving energy ac- dwarfed by older hydro and diesel projects (Figure cess are making developers uncertain about the 105, Figure 106). market’s future. Market growth has slowed, however. Weak en- forcement of existing regulations plus rule chang- 12.1 Over view es have made players wary of developing new projects. Mixed signals from the government are Tanzania has one of the lowest electrification rates partly to blame. The Ministry of Energy and Min- in East Africa. At the end of 2018, one-third of the erals’ latest long-range electrification strategy general population, and only a quarter of the ru- emphasizes grid expansion and large generation ral population had access to power. The Tanzanian capacity building but leaves the role of mini-grids mini-grid market started developing earlier than somewhat ambiguous (Ministry of Energy and Min- others in Sub-Saharan Africa thanks to a well-de- erals, 2016). These factors might have contributed signed regulatory framework, along with financial to the slowdown in project development over the support from DFIs and donor agencies. past few years. Figure 105 Figure 106 Tanzania’s installed mini-grids, by projects Tanzania’s installed mini-grids, by capacity Number of mini-grids installed Cumulative capacity installed (MW) 200 250 175 200 150 Other Solar hybrid 125 Solar hybrid 150 Other 100 Biomass Solar 100 75 Diesel and/or HFO Biomass 50 Solar 50 Hydro 25 Hydro Diesel and/or HFO 0 0 2013 2015 2017 2019 2013 2015 2017 2019 Source: BloombergNEF, GIZ, Carbon Trust, CLUB-ER, World Re- source Institute, surveyed developers. Note: Operating projects 17 This excludes projects where either the operation year or project without a specified commissioning year are not included. status was not specified. 140 STATE OF THE GLOBAL MINI-GRIDS MARKET REPORT 2020 regulations in the power sector. It sets grid elec- 12.2 Distributed power tricity tariffs and fixed tariffs paid to SPPs, devel- market structure ops guidelines and oversees licensing. Tanzania’s Rural Energy Agency (REA) is the government’s Tanzania’s mainland power sector is dominated by dedicated organization for electricity access and the state-owned vertically integrated utility Tanza- manages the Rural Energy Fund (REF). The REF nia Electric Supply Company (Tanesco). Tanesco is funded by international donor agencies, DFIs owns most of the country’s bulk generation directly. and the government via the annual budget and In the distributed segment of the power-generation from commercial generation levies. It also pro- market, however, private companies hold sway. vides financing to fund rural energy projects in the form of: Tanzania’s Small Power Producers Framework policy defines any project 10MW or smaller in size as a small • Grants for feasibility studies up to USD 100,000 power producer (SPP). The framework allows electrici- or 80 percent of the study cost ty from mini-grids to be sold directly to consumers, or • Grants of USD 500 per household connection to to Tanesco if the central grid expands to where a mini- distribution grids or mini-grids, or a maximum of grid is operating. As of the end of 2018, there were 80 percent of the project’s transmission and dis- nine registered SPPs serving off-grid communities. tribution costs • Construction loans up to 85 percent for <3MW The Energy and Water Utilities Regulatory Author- generation projects (70 percent for projects ity (EWURA) oversees technical and economic greater than 3MW). Figure 107 Tanzania’s distributed power market structure Source: BloombergNEF. 141 STATE OF THE GLOBAL MINI-GRIDS MARKET REPORT 2020 announced it was constructing 11 more mini-grids 12.3 Current market to serve more than 80,000 Tanzanians. These were status commissioned in June 2019. The mini-grid market in Tanzania took off earlier than Devergy, a Tanzanian social energy utility, was in neighbouring countries. Favourable regulations founded in 2010 and began operating its first and rural electrification programmes have attracted mini-grid two years later. The company installed a diverse range of developers (Figure 108). The au- an adaptive DC mini-grid system to supply 60 to thors identified nine developers active in the market 400 households with electricity. It sets up local ki- with Jumeme and PowerGen as the two largest in osks where customers pay for use of electricity at terms of the number of mini-grids installed. daily, weekly or monthly rates via mobile money. As a complementary revenue stream and a way to After successfully developing projects in Kenya boost household consumption, customers can also and Zambia, PowerGen began installing mini-grids purchase DC-compatible and energy- efficient ap- in Tanzania in 2015. The organization will expand pliances from the kiosks. Devergy communicates its portfolio further with a project financing deal with its mini-grids through wireless Internet com- it secured with CrossBoundary Energy Access munication systems that enable remote monitoring (CBEA) and other financiers in July 2019. CBEA has and control down to the individual household and an agreement with the Renewable Energy Perfor- meter level (USAID, 2018). mance Platform (REPP), managed by Camco Clean Energy, to finance an initial debt investment of USD With both on-grid and off-grid projects throughout 5.5 million to build 60 mini-grids in Tanzania (Rocke- West and East Africa, German company Redavia feller Foundation, 2019). In August 2019, PowerGen rents solar hybrid mini-grid systems to household also acquired EON subsidiary Rafiki Power, which and commercial and industrial (C&I) customers. Af- has built eight mini-grids ranging from 5kW to ter a certain period and depending on the structure 50kW for customers in Tanzania. of the rental contract, customers have the option to own the system. Co-funded by the EU, solar hybrid mini-grid op- erator Jumeme aims to build 300 systems and The government has recently stepped back on serve 1 million people by 2022. In March 2019, it encouraging mini-grid development, and ap- Figure 108 Mini-grid developer landscape in Tanzania Source: BloombergNEF, company logos. 142 STATE OF THE GLOBAL MINI-GRIDS MARKET REPORT 2020 pears to be prioritizing grid expansion for elec- Rural electrification mechanism tricity access. This has led to uncertainty among developrs around how the government recog- The government designed its national electrifi- nizes the role of mini-grids in its rural electrifi- cation policy with international interventions in cation strategy, which has hindered growth and mind. Specifically, it developed the National Ru- may lead to stagnation in the coming years. Some ral Electrification Programme (NREP) to proceed developers the authors spoke to stated that they the country’s participation in the Scaling-Up may focus their efforts on expanding into other Renewable Energy Programme in Low Income countries in the region. Countries (SREP), administered by Climate Invest- ment Funds (CIF). 12.4 Policy and In 2016, the International Development Association regulations (IDA), CIF and other development partners com- bined to provide USD 467 million in loans, grants As of the end of 2018, Tanzania’s national electri- and direct aid to implement the Rural Electrification fication rate was 33 percent. In rural areas where Expansion Programme (REEP). The programme ad- two-thirds of the population resides, the rate was dresses three of the four electrification goals out- considerably lower at 23 percent (World Bank, lined in the NREP (Figure 109). As a result, it aims to n.d.). The Tanzanian government aims to have all connect 2.5 million rural households. REEP applied 12,268 villages in mainland Tanzania electrified a programme-for-results mechanism that links the through grid expansions or off-grid renewable disbursement of funds directly to the delivery of energy by 2021 (REA, 2017). This means that all defined results. public buildings, including schools, clinics and churches, will have access to electricity when the Results-based financing programmes target is met, but not necessarily households. Overall, Tanzania has established robust regula- The REA has established a number of results-based tions for mini-grids compared to other countries financing (RBF) programmes to assist mini-grids to in Sub-Saharan Africa. However, recent actions date. In its first programme, the REA disbursed USD have called the government’s commitment into 500 and USD 600 grants per new connection for a question with developers complaining of weak hydro mini-grid and a solar hybrid mini-grid respec- enforcement of regulations. tively under the Tanzania Energy Development and Figure 109 How Tanzania’s Rural Electrification Expansion Programme (REEP) builds off its National Rural Electrification Programme (NREP) Source: BloombergNEF, World Bank (2016). 143 STATE OF THE GLOBAL MINI-GRIDS MARKET REPORT 2020 Access Expansion Project (TEDAP) administered by Small Power Producer Framework the World Bank in FY2014/15.18 As a result, USD 2.3 million was awarded to three hydro mini-grids con- Tanzania defines an SPP as a generation facility be- necting over 4,600 customers. low 10MW that produces power from renewable or fossil sources, or has cogeneration, or is a hybrid sys- In 2016, the UK’s Department for International De- tem.