THE LEGACY OF GET FIT
A key purpose of GET FiT Uganda is to leverage commercial investment in small- and medium sized renewable energy projects in Uganda. The Programme is widely viewed as an emerging success, with Uganda now among the top destinations for renewable Independent Power Producers on the African continent. The Programme has demonstrated the success of simultaneously targeting the framework, legal documentation, incentives and processes in a concerted effort to pave the way for an entire infrastructure portfolio. The programmatic strategy taken in GET FiT Uganda has overall been key to the successful financing of a significant RE project portfolio.
However, during the implementation of GET FiT, electricity demand in Uganda has not yet increased to the extent that was anticipated. With the GET FiT portfolio well underway and the large hydropower projects (Karuma, Isimba) reportedly on track for 2020 commissioning, Uganda is now facing a power surplus in the medium term. From the Government’s perspective this represents a major financial risk, as excess power will generate deemed energy payment obligations to plant owners. As a result, UETCL has become reluctant to executing new PPAs with project developers in the wake of GET FiT, and new investments into on-grid renewable energy has slowed down.
How do these developments affect the impact and legacy of the GET FiT Programme? Here we discuss the GET FiT legacy and argue that impacts are likely to stick, regardless of shorter term fluctuations in the investment climate and political trends.
Looking back: The Ugandan Power Crisis
In the years that followed the Ugandan power market reforms and the 1999 Electricity Act, the newly established ERA and the sector as a whole experienced major challenges. Private investment in power production and distribution did not occur as quickly or to the degree that had been hoped for, meaning that the sector remained dependent on state budgetary support to maintain existing power production. This resulted in a power crisis emerging in the mid-2000s.
In 2006 the crisis deepened due to poor regulation of hydropower plants on the Nile and critically falling water levels in Lake Victoria. Consequently, existing hydropower plants could no longer generate at full capacity. In order to help maintain a reasonable level of electricity supply, the Ugandan Government with support from development partners were forced to invest in heavy fuel oil power plants. These thermal plants provided nearly 40 per cent of Uganda’s total electricity production in the period 2009–2011 (figure 8).
Figure 8 – Total electricity supply in Uganda by technology, 2005-2014
In 2012 the Bujagali 250 MW hydropower plant was commissioned, enabling Uganda to significantly reduce consumption of expensive fossil fuels for electricity generation. Nonetheless, electricity demand projections for Uganda indicated that the country would face a steady and significant demand increase in the period 2013-2020. With new large hydropower schemes on the river Nile (Karuma, Isimba) expected to achieve commissioning around 2020, a gradually increasing production shortfall was again anticipated to arise within this period. How would Uganda mitigate the risk of entering into a new power crisis, and further investment into costly thermal power?
The introduction of GET FiT
As a response to the anticipated capacity gap, the GET FiT Programme was introduced to bring a targeted 170 MW and 830 GWh/year of renewable energy to the Ugandan grid, gradually commissioning in the period 2014-2017. This would increase the national production capacity by some 20 per cent, and was expected to displace most of the thermal production needed to meet the expected demand increase towards 2020.
After nearly 5 years of implementing the GET FiT, despite overall delays in its portfolio implementation, the Programme is well on track to achieving its targets, with nearly 60 MW of new capacity (solar, bagasse and hydropower) installed by 2017 and another 45.5 MW due for commissioning in 2018. To what extent GET FiT will actually contribute to displacing thermal power still largely depends on when the new, large hydropower plants will start generating power, as well as the development of electricity demand1.
Modest demand increase causes investor reluctance
With a looming power surplus commercial RE investments are indeed showing signs of slowing down. While Uganda was impressively rated the 2nd best renewable energy investment destination in Africa in 2016 by Bloomberg, the investment reluctance was reflected by the country dropping to 5th place in 2017, now by-passed by Rwanda, Senegal and Kenya. More importantly, the overall investment climate score dropped by nearly 30 per cent.
The fall in the Bloomberg rating can largely be attributed to the reduction in new RE investments following GET FiT, which is a direct consequence of the anticipated short-medium term power surplus. Importantly, the fall is not caused by any decrease in regulatory performance or policy. The regulatory framework for RE investments in Uganda is improving by the day, with ERA working to further streamline and standardize key regulatory aspects of RE development and overall sector performance as we speak. In the long term power sector development, this is far more important than fluctuations in the demand vs. supply balance. One could also argue that developing a power sector is a stepwise process. The inevitable chicken-and-egg nature of electricity supply and demand makes it challenging, particularly in a context with political uncertainty, to maintain a continuous and perfect balance. Whereas power generation is characterised by large up-front investment and provides instant capacity increase once commissioned, growth in electricity demand is more incremental in nature. In a small power system like Uganda this imbalance is particularly visible. For example, the Karuma hydropower project will likely represent more than a 50 percent increase in installed capacity if commissioned as planned in 2020.
What will be the legacy of GET FiT in Uganda?
Looking beyond these short- to medium term fluctuations in the overall electricity supply and demand balance, GET FiT represents a considerable boost in the maturity of Uganda’s power sector. The impacts of constructing 17 small renewable energy generation plants in a 5-7 year period go far beyond the mere power capacity added to the grid. The overall competence lift within government institutions and other stakeholders is considerable. While some results can be measured (such as number of jobs created), it is fair to assume that there are also several benefits which cannot be measured quantitatively.
Uganda has, through GET FiT, established and tested a solid institutional framework for development of grid connected RE generation for the future. Whether the Uganda demand growth requires new RE generation investments in the short- or medium term, future investors and developers will benefit greatly from the established institutional framework and standardisation of procedures and documents. Sponsors will also benefit from dealing in a more experienced and competent sector with substantially stronger institutions than before GET FiT was implemented.
One should also keep in mind that the GET FiT projects are built to last at least in the order of 30 years. The significant de-centralised power production capacity that they provide will be a key feature of the Ugandan power mix for decades to come. The GET FiT portfolio will thus significantly improve national supply security with reduced dependency on Lake Victoria and the Nile. It will also contribute to strengthening of the overall power system performance through reduced transmission losses and improved grid stability. The effects of these technical improvements are outlined in more detail in our Academic Corner
1 So far, according to UETCL, all energy delivered by the commissioned GET FiT projects have directly contributed to displacing thermal energy production. The latter is confirmed also by feedback from operations at GET FiT power plants; the UETCL dispatch centre generally take all the power they can get. This is due to a general supply shortage in Uganda occurring over the past few years; although the installed capacity on the Ugandan system may be higher than peak demand, the overall plant availability is generally significantly lower. GET FiT power plants have thus far countered the gap between plant availability and demand, a gap that otherwise would have to be met with thermal power. This situation is expected to be maintained until commissioning of additional GET FiT plants, and the new, large hydropower plants.