How does GET FiT address these challenges?

The main purpose of the GET FiT Uganda Program is to fast-track a portfolio of about 20-25 small-scale renewable energy generation projects (1 MW - 20 MW) promoted by private developers with a total installed capacity of roughly 150 MW. An additional 20 MW was approved in the recently concluded solar tender, which has been implemented by ERA under the GET FiT Solar Facility. With the expected supply gap gradually increasing from 2014/15 until commissioning of several large hydropower plants, GET FiT will represent a timely intervention, particularly through; supported bagasse plants set for commissioning already in 2015; the range of hydropower plants in the GET FiT portfolio being stepwise commissioned after 2016 and; solar PV capacity expected on-grid in early 2016. The multiple support levers of the Program, described below, are designed to address (simultaneously and somewhat flexibly) the specific challenges described above.

A successful Program will be characterized by i) timely commissioning of up to 170 MW of renewable energy capacity (until 2018) representing a 21% increase relative to current installed capacity, ii) avoidance of significant costs for the sector and emissions from fossil fuel generation, iii) improved sector performance and investment attractiveness, iv) a sustainable exit, with cost-reflective and REFiT levels, and v) ERA better equipped to regulate the sector. 

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Figure 1: The GET FiT toolbox is designed to meet the primary challenges and barriers to energy sector investment

 


Each of the support and funding levers are critical contributions towards this success:

A. The GET FiT Premium Payment Mechanism. The primary support component of the GET FiT Program is the top-up payment provided to projects in terms of USDc/kWh (USDc 1.4/kWh for hydropower and USDc 1.0/kWh for biomass and USDc 0.5/ kWh for bagasse) for actual delivery of energy to the national grid over 20 years. However, the total support is front-loaded by means of discounting of the total support over the 20 years and disbursed based on the first five years of operation. The intention behind this payment flow setup is to enable commercial lending to projects, by providing additional cash flow to project owners during critical (early) debt repayment periods.

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Figure 2: The GET FiT Premium Payment Mechanism provides additional cash flow to project
owners in the critical, early phase of debt repayment

 

B. GET FiT Solar Facility. Technology costs for solar PV have plummeted in recent years, while investors show increasing interest for investment in solar PV in East Africa. The vast potential, the short lead-time and geographic flexibility of solar PV technology lead ERA to approach KfW in 2013 to include a component targeting on-grid solar PV under the GET FiT Solar Facility. The funds for this additional component of the GET FiT Program are provided by the EU. The GET FiT Solar Facility involves a reverse auction approach, whereby ERA has defined a tariff of USDc 11 for its contribution per KWh and GET FiT will provide the required top-up / gap payments to the tariffs offered by successful bidders. Thus, the amount (MW) of PV installations supported by the available GET FiT budget is a function of the reverse auction outcome. The facility benefits from the design and administrative set-up of the overall GET FiT Program and is implemented under its umbrella. The first tender resulted in the selection of 4x5MWp installations in Eastern Uganda. Figure 3 illustrates the prioritized geographic areas of the country, as determined by UETCL, UMEME and ERA.

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Figure 3: Priority regions under the GET FiT Solar Facility (based on insolation conditions, demand and grid readiness) 

 


C. Support to Standardization of legal documents. Bankable Power Purchase Agreement and Implementation Agreements as well as the related Direct Agreements are key for successful structuring of independent power producers, especially when they are project financed. While Uganda already had a standard set of legal documents before GET FiT, developers and their banks were not comfortable with the drafts leading to lengthy negotiations and case by case amendments. With the support of GET FiT an experienced law firm (Trinity International LLP) was contracted in 2012 to support UETCL, GoU and ERA in the review and standardization of PPA, IA and Direct Agreements for small independent power producers. In a consultative process, developers, their banks and lawyers were able to provide input, ensuring broad acceptance of the revised documents. By standardizing the documentation, transaction costs are reduced for both public and private stakeholders.  


D. World Bank IDA Partial Risk Guarantee Facility. On March 18th, 2014, a PRG facility in support of small scale renewable projects in Uganda was approved by the World Bank Group Executive Board. The PRG Program design and implementation are critically dependent upon the systems in place to implement, manage and monitor the GET FiT portfolio. The MUSD 160 committed for the PRG facility will specifically be deployed as three complimentary risk-mitigating components;

i. Facilitate the provision of short term liquidity support to the benefit of UETCL’s Power
   Purchase Agreement obligations. 

ii. Termination compensation for events of governmental/utility default under the PPA / IA.

iii. Commercial debt guarantee. 

The World Bank PRG team utilizes the application and appraisal documents of GET FiT Premium Payment Mechanism for their PRG approval process and closely work with the GET FiT Secretariat. Both application and appraisal processes are synchronized in terms of timing, thus reducing transaction costs for independent power producers interested in both components.


E. GET FiT Technical Assistance Facility. The Technical Assistance Facility for ERA includes measures ensuring the long term sustainability of the arrangements for support to renewable energy in Uganda, including enhancement of skills for REFiT tariff modelling, least cost development planning, project due diligence expertise, strategic communication and negotiation. The Technical Assistance Facility finances targeted trainings for selected staff members and groups through external as well as on-the-job training. 

 

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