How does GET FiT address these challenges?
The main purpose of the GET FiT Uganda Program is to fast-track a portfolio of about up to about 20 small-scale renewable energy generation projects (1 MW - 20 MW hydro and biomass/bagasse projects) promoted by private developers with a total installed capacity of up to 150 MW. An additional 20 MW was approved in the solar tender of late 2014, which has been implemented by ERA under the GET FiT Solar Facility. With the expected supply gap gradually increasing until commissioning of several large hydropower plants, GET FiT will represent a timely intervention, particularly through the supported bagasse plant commissioned and delivering electricity already combined with the range of hydropower plants in the GET FiT portfolio being commissioned from 2016 and solar PV capacity expected on-grid in mid-2016/early 2017. 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 approximately 20 percent 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) a better positioned ERA in regulating the sector.
Figure 1: The GET FiT toolbox is designed to meet the primary challenges and barriers to energy sector investments.
Each of the support and funding levers are critical contributions towards this success:
- 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 discounting the total support over the 20 years and disbursing these funds through 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.
Figure 2: The GET FiT Premium Payment Mechanism provides additional cash flow
to project owners in the critical, early phase of debt repayment
- 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 led 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.
Figure 3: Priority regions under the GET FiT Solar Facility (based on insolation conditions, demand and grid readiness)
- 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 producers1, 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.
- 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 USD 160M committed for the PRG facility will specifically be deployed as three complimentary risk-mitigating components;
- Facilitate the provision of short term liquidity support to the benefit of UETCL’s Power Purchase Agreement obligations.
- Termination compensation for events of governmental/utility default under the PPA / IA.
- 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.
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 training for selected staff members and groups through external as well as on-the-job training.
GET FiT Interconnection Support. As the GET FiT portfolio of projects has increased, bottlenecks in the Ugandan transmission/distribution grid have emerged as an increasing risk to the Program. Construction of new grid infrastructure, as well as reinforcement of existing infrastructure, is needed to ensure adequate interconnection and power evacuation for several GET FiT projects. As a response, GET FiT development partners have committed financial support to the required grid investments, as well as associated Technical Assistance to ERA. The support has been designed to complement ongoing grid infrastructure programmes by several donors and intends to fill identified gaps in existing support. KfW and the GET FiT Secretariat are actively coordinating between the Ugandan entities, donors and GET FiT developers, to facilitate timely implementation.
1) An Independent Power Producer (IPP) is a non-public utility who owns a power generating facility, producing electric power for sale to utilities and end users.