Monday, 12 August 2019
Charles Owori

"Electricity Sector"


Renewable Energy Feed-In-Tariffs (“REFIT”) are standardized tariffs for sales to the grid of electricity generated by renewable energy technologies of a maximum capacity of 20MW and under Section 10 of the Electricity Act, 1999, the Electricity Regulatory Authority (“ERA”) is mandated to review the country’s tariff structure. Following the recent review of the REFIT, questions have been asked regarding the certainty of the balance of the generation mix in Uganda’s electricity sector. The generation mix in this instance refers to the balance of renewable energy sources such as solar, biomass and biogas used to generate electricity in the country. It is expected that the maintenance of bi-lateral tariff negotiations in the REFIT will be the determinant in reframing the generation mix in Uganda as well as an answer to many of the questions that may unfold.


The country’s current generation mix is predominantly hydro-power based with a figure of approximately 84% of the power generated and minimal investments noticed in other technologies such as bio-energy. From critical analysis of the new REFIT, the tariff ceiling for biogas has remained at USDc/kwh 11.5 and the key affected technologies being landfill gas and biomass/waste to energy which have both dropped from USDc/kwh 8.9 to USDc/kwh 6.6 and USDc/kwh 11.3 to USDc/kwh 9.5 respectively since the last 2016 review. The review has seen the tariffs fall by an average of USDc/kwh 1.37. The maximum return on investment also significantly dropped from the previous 18% in 2016 to 13.5% in 2019. What then does this mean for the country’s generation mix, particularly to bio-energy technologies yet to be tested on the national grid?


The tariff and consequent return on investment as the most sensitive parameters for investors in making the most optimal investment decisions play a key role in the generation mix. By systematically keeping profit margins and tariffs low, one cannot guarantee investment in the sector or that the growing economy will attract the right investors. Renewable energy technologies have different functionalities in the market hence the need for the different tariffs to create the necessary balance. Tariff ceilings are likely to disrupt the generation mix however; this will probably not be the case for Uganda. The Renewable Energy Directive (2009/28/EC) on best-practice design features of support schemes indicated that ceilings are practical for well-studied technologies, with readily available data. In that case, ceilings would be ideal for hydro technology unlike bio-energy.


The Regulator in its review was cognisant of this and slotted room for bi-lateral negotiations despite setting ceilings on the tariffs, on the basis that these technologies are yet to be tested on the national grid. In light of this, there is room for investors in bio-energy technologies to have a shot at electricity generation particularly during such a time when the country is heavily reliant on hydro-power. The cost-reflective nature of the tariff should form the basis for these negotiations however, at the same time bearing in mind that such proposed tariffs should be within ceiling range and not too high or low to create an inefficient equilibrium in the electricity market. The popular pragmatism about diversity investment in the generation mix is that it creates equilibrium in respect to short notice electricity requests and a secure electricity supply.


The new REFIT has shown that ERA is well on its way to steering the electricity sector in the positive direction with the primary focus of balancing the generation mix as well as maintaining a reasonable tariff, uncharacterized with economic inefficiency or unaffordability for the end-user.

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