Officials discuss issues around mini grid regulation on the sidelines of the Energy Conference at Speke Resort in Munyonyo on Thursday.
The government says that there are two major issues at the center and at the heart of mini grid regulation, and that is the tariff and “also the period within which the investors can be allowed to recoup the investment.”
Patrick Tutembe, the Principal Economist in the Ministry of Energy and Mineral Development, says that “one thing that we have to keep our mind on is that even when we are able to compare and benchmark across countries, the social, political, and economic environment within which mini grids differ across countries.”
“And we see that when it comes to Uganda, with the exception of island areas, you find that the areas that we have suitable for mini grid extension, for mini grid development, where we have a relative certainty of low grade extension within the next 5-10 years,” added Tutembe.
He was on Thursday appearing on a panel discussion on issues of “Enhancing the Enabling Environment for Mini-Grid Development in Uganda” at the Speke Resort Hotel in Munyonyo.
He added: They tend to be in far-flung rural areas with probably few economic centers. And that has a very big implication about the two things we’re talking about, the tariff and the concession premium.
According to Tutembe, “One thing that is very clear in regulation in our context is that any investment has to be recovered. Costs of investment have been recovered, including the cost of operation and the cost of capital.”
However, he added that “for that to happen, it means that we must be having adequate demand from these areas for us to be able to have the developers sell energy that can help them recoup their investment.”
So, he said, “The best way we see this investment has to be facilitated.”
“One is that you cannot, whereas we appreciate that the starting point is that people have exorbitant costs of energy, and some of these energy sources are not clean energy. So there is an opportunity for us to develop mini grids. But when you develop a mini grid in such an area, one that we have, for example, that in some areas, there are people who still get connections, and for some reason, they are not purchasing energy. Probably that is a behavior change issue. But even for those who consume the energy, it remains little. Now, when we sat at the table, the question was, is there a mix of subsidies and charges from customers that can actually enable investors to recoup their investment, and it led to a decision of capping the charges from customers at 30 cents. So this also continues to have an implication on the term of the concession because for us to enable investment climate, if the grid was arrived before, before the concession agreement, it means that the government takes one of the most possible options is for the government to actually do compensation of the investor. So it means that if you have the target of 300 megawatts per year and you would want to carry a contingent liability of compensation by government in case the grid arrives, it means that the continuity of government also keeps increasing, and the best way to manage it is to ensure that these timelines are very close to realistic in terms of when the concession can last. So that if the concession has ended, then there is an evaluation of whether the grid is just at the next door and is going to arrive, or this concession can extend. So that discussion of tariffs and concession period makes regulation very necessary and regulation very dynamic. Because it is a discussion that must involve government, a discussion that must involve the private sector, and a discussion that has taken into consideration the social economic abilities of the population that we serve to pay a tariff that is higher than the grid, and also for how long these people can pay. So the interest of those important stakeholders is at the center of regulation, and it is something that keeps the regret away in terms of what is the right balance,” said Tutembe.
Henry Jumba, the Country Coordinator, GET Transform under GIZ, revealed that partners are out to explore public-private partnership (PPP) models that could unlock some of the benefits, particularly private capital.
Now, Jumba said, “We all understand in the room that government resources are constrained.”
“There’s so much competition for different priorities in the country. Mini-grids are not an exception because they are part of the broader electrification plans in the country. You have the grid taking the largest chunk, and then, of course, the mini grids come into the picture. But the idea of the PPP is to de-risk the enabling environment. And here, the risk means that for some of these early-stage markets, for mini grids, for example, you have so many risks whereby the developers, not even the developers, the financials, are not willing to invest in this environment. So what the PPP does is balance the interest, so you have both government and then the private sector playing into the same objective. So on the side of government, perhaps the interest is social equity and ensuring that the energy provided is affordable, but then also there is access. Now on the private sector side, the interest is, how can I recoup my investment and recouping that investment while making some profit on it as well? So that is the idea of a PPP. Looking back at our journey as GIZ in the implementation of, for example, the Pro Mini Grids Project, again, the idea that you can borrow from ADP is that it offers you exclusivity. Now, exclusivity on the side of the developer, because we know that where most of these mini grid sites are, either the grid is near or it’s going to arrive soon,” Jumba noted.
He, however, said that one of the biggest risks in the mini grid business, especially for the developer, is grid arrival.
“And I know my colleague here, Alex, will speak to it. I mean, if I’m going to install a mini grid right now and in the next two years, the grid is arriving. That means my business case is no longer viable. I’m out of business. So it offers you exclusivity because the government guarantees that you’ll be operating a concession for a given period of time as per your license. Then the other benefit is that, with this framework, you actually have bankable, standardized content. May every person do great work in this space. Again, with support from the platform, we are able to partner with ERA to come up with these technical standards. I know perhaps there will be a mention of it, but the idea is they address these other gaps, such as grid arrival, such as the cost of service. Because if you have to implement mini grids with the current national standards, these standards are inherently high, and that means that the cost of providing the service, again, that triples into the tariff, becomes very high. So that means that you need technical standards that are specifically tailored for mini grids. But then also in this framework, the PPP, we find some other benefits, such as physical incentives. I want to share our journey for the Pro Mini Grids, where we’ve found ourselves, through the ministry, having to support the private developer to clear the mini grid components. Because there have been significant delays with customs, for example, players at the border. So basically, if you’re the private sector doing your own thing, you’re going to be stuck because then you need government to come in. So it’s a framework that brings everyone together to see how to address those gaps. But also the biggest; I think this is the biggest. The biggest asset of the PPP is the economies of scale. Because, for example, with the abundant nature of the GIF mini grids project, and I know Get Access is going to do the same, you find that you have clusters. Now, if you’re doing one mini-grid project, of course, the cost is going to be very high because you have operations besides the capital investment and then all these running costs. So if you bundle all of them together, then definitely you’re going to reduce the costs over there. But also the other aspect is increasing the attractiveness of the project, because then you increase the financial viability, you have more demand or more consumption on that note. What do we learn? What we learn is future projects are really going to benefit from this because, as is, and again, we’ve packaged the lessons learned with the ministry. We’ve identified the gaps already; Get Access is working on some of those gaps. But we also continue to engage in discussions with the regulator, with the ministry, to see how best to address some of this,” said Jumba.
The other challenge, according to Jumba, is about the stakeholder approach.
“And it being it’s about stakeholder approach, and it being about stakeholder approach, you have decision-making at different levels. Now, we all know that our frameworks of cooperation for development, and on the same, the ministry will have to go through their processes to approve. For example, exchange GIS will have its own processes of approval. When you go to the developer, they have to do financial closure; they will have to tell you that we have this list of requirements that we did and the timeline, so that’s one of the things that we are seeing here. One coordination, but then also the implementation frameworks of the different stakeholders across the board, so that will have to be taken into account. Thank you,” added Jumba.
Elizabeth Kaijuka Okwenjye, a principal energy officer in the Renewable Energy Department at the Ministry of Energy and Mineral Development, said that the National Electrification Strategy is ambitious, aiming for universal access by 2030. She revealed that the government has been implementing mini-grids since 2020.
“As we stand today, we have approximately 500 sites that are realistic for implementation,” she said.
The 2023 Energy Policy clearly identifies key issues for mini-grids, she added. “You asked about the challenges. There are five that I’m going to focus on, which are from the energy policy. You can access it online.”
Firstly, she said that “it talks about the inadequate regulatory framework.”
“We’ve been working through the Promotion of Mini Grids Project. We’ve developed instruments and mechanisms, including bundled tenders and a concession framework, to provide subsidies to developers and promote private sector investment with government support. We’re working on this with the regulator, and we have isolated grid regulations in place. Another challenge from the energy policy is the lack of anchor loads in areas suitable for mini-grids, making them financially viable. Without anchor loads or productive use of energy and income-generating activities, it’s challenging for developers to generate revenue. There’s also a challenge for developers to get more innovative and look at different revenue streams beyond electricity sales to make it a more viable business model. Then, there’s the preference for grid connection over mini grids. Rural populations often prefer grid connections, perhaps due to higher tariffs. Additionally, there are operation and maintenance challenges. These developers sometimes lack the financial capacity to maintain the mini grids effectively, requiring additional support. We also have the issue of license duration. Developers prefer longer license periods to pay back their investment. However, we must balance this with rural populations’ interests. Now, what are the opportunities like? We have a concession framework in place, built on lessons learned from previous mini-grid projects. We’ve developed instruments like lease agreements, subsidy agreements, and implementation agreements with the government. We also have a debt access project, funded by KfW, which will roll out 150 mini grids. Our bundled tender mechanism promotes competition among developers. We’re evaluating the prequalification for the tender and look forward to opening up the market to bring in more competition,” Elizabeth Kaijuka Okwenjye said.
According to Alex Wanume, the Country Director for NOA Uganda, his organization currently has 31 mini-grids in the country and a pipeline of upcoming projects. “We have been operating in Uganda for seven years, focusing exclusively on mini-grids,” he added. So, he added, “We know where we have come from, how it has been before, the progress that has been made, and where we believe fine-tuning is necessary to achieve these ambitious targets in terms of mini-grid deployment in the country.”
However, Wanume said that when it comes to actual implementation—actual mini-grid development implementation—it’s a different story.
“Currently, it’s a joke amongst us that every stakeholder in the mini-grid development process is important except the mini-grid developer. All our lessons that we try to impart are sometimes adopted, and sometimes they’re not. I’m happy to know that the challenges the ministry has noted, the errors noted, have been what we’ve been saying for the past couple of years, and they’re now being taken notice of. One of the biggest challenges we face is the lack of trust in the private sector. We’re perceived as trying to exploit rural communities with high tariffs and then running away with the money. This perception hinders our ability to operate effectively. As the private sector, we’re handicapped from the start, with limited room for negotiation on tariffs and concession periods. To achieve the target of 2,000 mini-grids by 2030, significant adjustments are necessary. I’m encouraged that our concerns are being acknowledged. Operationally, we’ve found that the construction phase is relatively easy, but sustaining projects over time is challenging. The right people must be selected for operations, and we need a concession period that reflects our long-term commitment. One of the points to consider is the concession period we’re asking for. We’re asking for 20 years because we’re in it for the long haul. One of the challenges mentioned was demand risks. As developers, we navigate low demand and excess capacity. With a 10-year concession, it’s difficult to recover investments if demand is low,” said Wanume.
However, he noted that with a 20-year concession, “we can plan for upscales and reinvestments.” In fact, he added that “one of our projects, where we’ve been licensed for 20 years, we’re now planning to double capacity after three years of operation.”
He called for “common ground and understanding among stakeholders to achieve these targets.”
Jeroen Van Linden, a representative from Beyond the Grid Fund for Africa, says that “we’ve found regulatory instruments often lack clarity, failing to provide a clear investment guide for potential developers.”
To this, he said that “effective regulatory frameworks should outline licensing, concession periods, tariff approval, grid arrival, and compensation mechanisms.”
However, he said that grid encroachment is often addressed superficially.
“A well-worked-out framework would detail options for mini-grid developers when the grid arrives, including abandonment or acting as an Independent Power Producer (IPP). These options require clarification on financial implications, compensation mechanisms, and asset valuation. The devil is in the details, which are often missing, causing insecurity for mini-grid developers. Regulatory frameworks sometimes fail to consider the country’s specific needs and context. Liberia, for instance, initially copied regulatory frameworks from the US without adequate contextualization. Another crucial factor is the regulator’s recognition and capacity. The regulator should be the watchdog for electricity, but in many cases, regulatory frameworks and regulators are new and untested,” said Jeroen Van Linden.
In Mozambique, for example, he said that the regulator lacks recognition from sector players.
“There’s a need to capacitate these regulators through technical assistance, capacity building, and support. Uganda is fortunate to have a well-capable regulator, ERA. During our 2021 tender call, despite incomplete isolated standards, we saw significant interest from mini-grid developers. This response was largely due to ERA’s capacity to handle regulations. Even with regulations in place, guiding the regulator is essential to ensure effective implementation,” Jeroen Van Linden noted.
Global Gateway
Global Gateway is the strategy of the European Union to build resilient connections with the world, which has significant implications for Uganda’s energy landscape. The Global Gateway embodies the EU’s commitment to contribute to bridging the global infrastructure investment gap, which is projected to reach USD 15 trillion by 2040.
This strategy supports smart, clean, and secure investments in both soft and hard infrastructure, upholding the highest environmental and social standards. Jan Sadek, the Ambassador of the European Union to the Republic of Uganda, suggests that by investing in climate-resilient infrastructure, the Global Gateway will accelerate sustainable development, offering solid financial conditions and an ethical approach so that infrastructure projects do not create unsustainable debt, drive inclusive growth, and create quality jobs.
“Our ambitious goal is to mobilize EUR 300 billion by 2027 across the globe, with EUR 150 billion of investments as the target for Sub-Saharan Africa. EUR 3.4 billion of EU funding is dedicated to support the transition to renewable energy and enhance energy efficiency in Sub-Saharan Africa. Through these investments, we aim to deploy at least 50 GW of additional renewable electricity and connect at least 100 million people to electricity across the continent by 2030,” says Jan Sadek.
According to Jan, Uganda and the EU have an aligned vision for a just and clean energy transition.
“As Uganda’s largest development ally, we mobilize financing that seeks to leverage investments, both private and public, that prioritize green and climate transition, sustainable growth, and job creation. Team Europe is at the forefront of key initiatives, catalyzing progress through strategic investments and collaborative efforts, with a focus on rural electrification, renewable energy, and regional energy connectivity,” he said, adding that “this brochure presents the EU-Uganda partnership with regards to the energy sector, highlighting initiatives and flagship programs of Team Europe that seek to support a just and clean energy transition in line with Uganda’s Vision 2040 and National Determined Contribution (NDC), as well as its ambitious Energy Transition Plan launched at the climate COP28 in Dubai in 2023.”
According to Jan, the energy sector in Uganda is a particular good example where “our approach as Team Europe—pooling expertise and resources of EU Member States and EU institutions in a team effort—ensures to maximize the impact of our support.”
“Our actions seek to improve electricity access, particularly in rural communities, and aim to mobilize investments in renewable energy generation projects and regional power interconnector programs. These efforts aim to strengthen energy security in Uganda, facilitate the export of surplus renewable power, and help combat deforestation as a tangible contribution to delivering on Uganda’s coming National Development Plan IV. This will further consolidate Uganda’s role as a global frontrunner in green energy. Through our collective efforts, the EU and Uganda are working jointly towards a lasting legacy of sustainable development and shared prosperity for Uganda and its people.”
