Risk management

Risk management is a continuous process running through the lifetime of the Program where risks are identified and categorized, and measures introduced to reduce or eliminate the risks. For more information and detail on the risk matrix and methodology for risk categorization, please refer to earlier GET FiT reports.

The semi-annual monitoring undertaken by GET FiT measures progress on key indicators for the Program. Effectively, this contributes to identifying and addressing risks as it helps ERA, KfW, development partners and other stakeholders to keep track of progress and see periodical development. However, the day-to-day management of the Program is the primary source for risk identification and follow up.

Close communication with project developers and power sector institutions and stakeholders, access to key ERA staff via the GET FiT secretariat (which is hosted by ERA themselves), active participation in joint power sector planning by KfW and the secretariat and engagement of development partners are all key arenas that enable GET FiT to continuously identify and assess risks to Program implementation. This approach has proved vital to achieve progress, as it has allowed the Program to proactively address and mitigate risks across a wide range of issues and areas of the sector. These include both financial, legal and regulatory risks. However, this close interaction and follow-up has also contributed to increased management costs by KfW and need for additional consultant support. 

In terms of the ability to follow up on project specific technical, environmental and social risks, the supervision of construction is obviously the key tool, focusing on pro-active and flexible support and follow up of all projects until they reach commercial operations. These are key lessons learnt that could be taken into account for implementation of future GET FiT or similar schemes.

Key risks and ongoing GET FiT efforts
Based on the overall developments throughout 2016, GET FiT risk management efforts are currently largely focused within the following main areas of concern:

Grid interconnection. The lack of progress on grid infrastructure investments required for GET FiT projects in 2016 has made the anticipated interconnection risk even more critical. In addition to the various investments supported specifically by GET FiT and development partners (see grid interconnection support), some GET FiT projects are also affected by delayed implementation of smaller scale grid investments. Although less costly, these are equally crucial in terms of securing timely and adequate interconnection. As a response to these challenges, GET FiT has intensified efforts to support GoU entities in fast-tracking and coordinating required interventions. In late 2016, ERA also requested support from the Program to prepare an assessment of the overall deemed energy obligations that would be incurred by GoU in various scenarios of

  1. required timelines for implementation of grid infrastructure and
  2. implementation of the GET FiT portfolio.

The assessment was conducted by Multiconsult (GET FiT Implementation Consultant) and is aimed at assisting ERA, MEMD and the transmission and distribution companies in their continued planning and coordination. Currently, some 80 MW face risks regarding delayed grid interconnection. Apart from jeopardizing the achievement of GET FiT targets, this represents a huge challenge for the energy sector and the Ugandan economy since generated power has to be paid for without capitalizing on its benefits in terms of social and economic development. 

Importantly, the ongoing TA to ERA (see grid connection support for details) is progressing well and will be instrumental in increasing ERAs capacity to coordinate and monitor grid planning and operation, which will also benefit the ability to provide timely and adequate power evacuation for GET FiT and future embedded RE generators in Uganda. 

Late construction start for remaining projects. While most GET FiT projects are now financially closed and/or under construction, time is running out for the remaining projects under development to fully commence construction activities. Although it is understood that projects in general are facing a range of challenges, including delays caused by external factors, the pre-determined time frame for Program implementation requires that these projects break ground within early 2017.  ERA and GET FiT are making necessary efforts to help developers reach their required deadlines on development milestones set by the Program. This is achieved primarily by providing flexible support to the developers, e.g. on complying with required technical, environmental and social standards in order to proceed to construction. While it is still anticipated that the remaining projects in the portfolio will be implemented as part of the Program, there is a significant risk that some projects may not fulfil deadlines and hence lose GET FiT support. In order to address this, a re-appraisal of projects previously considered for support is currently being undertaken. If approved, these projects may replace potential drop-outs and thus contribute to achieving the capacity targets of the GET FiT project portfolio. 

Environmental and social risk. It is uplifting to note that the environmental and social performance across the project portfolio has improved noticeably in 2016. GET FiT continues to provide substantial support to developers in complying with international standards on issues such as resettlement, compensation, health and safety. This is vital not only to safeguard the overall success and legacy of the Program, but also to build developer capacity and to ensure sustainable utilization of Uganda’s small-scale RE potential for years to come. During GET FiT implementation, some developers have made impressive improvements in their capacity to manage a range of environmental and social issues. As a consequence of GET FiT, there is now a considerably higher degree of compliance with Ugandan and international standards than would otherwise have been observed. Nonetheless, E&S performance remains a key risk of the Program. With now many projects under construction it is vital that E&S standards are implemented according to agreed plans. GET FiT has allocated additional consultancy resources to ensure follow up throughout the construction phase of each project. These efforts are elaborated on in the chapter on E&S performance.

Notably, GET FiT is also in the process of allocating resources towards post-commissioning supervision visits to all projects in the portfolio. For environmental & social issues, several processes and obligations of the developer in achieving required standards require efforts beyond the date of commercial operation. Hence, in order to properly verify that plans are implemented according to requirements and enable follow up of deviations, conduction of post-COD supervision visits are considered instrumental.