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Eastern Africa is becoming an increasing focus of attention of German businesses. This is confirmed, not least, by the April 2019 visit of Minister-President of Bavaria Markus Söder and a 60-strong business delegation to Ethiopia to inaugurate the first Africa office of the Free State of Bavaria in Addis Ababa, among other things. E|nEws presents profiles of selected counties from the region in a short series. While the first part offered an overview of Ethiopia, this issue will shed light on the latest developments in Tanzania and its electricity market.
With a population of 55 million and relatively high and stable growth rates (annual average of the last decade: 6-7%), Tanzania is generally an attractive market for German businesses. Nonetheless, the country is facing huge social and infrastructural challenges: with an annual GDP per capita of approx. USD 1,100, Tanzania is one of the world’s poorest countries and its electrification rate was only 18% in 2017. The country, however, has huge potential when it comes to renewable energy sources, the use of which could speed up the country’s transition towards a middle-income economy. This potential, however, would have to be first of all recognised by the country’s government and appropriately integrated into its development plans.
With a population of approx. 55 million, Tanzania is the second largest country in Eastern Africa after Ethiopia. In October 2015, John Magufuli was elected the 5th President of the United Republic of Tanzania, and his government aspires to convert Tanzania into a middle-income country by 2025 as part of “Tanzania Development Vision”.3 The official seat of the government is in Dodoma, but the country's political and economic hub is the former capital city of Dar es Salaam. The official language is Swahili, but also English is used as the language of instruction and communication in Tanzania. With the GDP per capita of approx. USD 1,100, Tanzania is still one of the world’s poorest countries.4 Tanzania ranks 137th out of 190 economies in the “Ease of doing business” ranking and 99th out of 180 economies in the “Corruption Perception Index”. In 2017, Tanzania’s electrification rate was only 18%, which has a huge impact on the state of the country's development.5 The energy sector is thus the key to achieving the pursued transformation of the Tanzanian economy.6 In addition, in 2018, Tanzania decided to join COP 21 and thus to limit greenhouse gas emissions.
Tanzania is a very resource-rich country. The country has large reserves of black coal (1.9 billion tons) and gas (1.6 billion m3), the majority of which are still untapped. The situation is similar in renewable energy whose potential is far from exhausted: geothermal energy could add a further 5000 MW to the baseload; wind and solar are not exploited nearly at all yet.7
The installed capacity comprises main- and isolated mini-grid power stations and off-grid power plants. In 2018, the total installed capacity was 1,445 MW. Illustration 1 shows the installed capacity by type of technology.
Illustration 1: Installed capacity by type of technology (2018). (*Off-grid power plants: hydro, fuel oil/diesel, biomass)
The strategy for Tanzania's electricity market is developed and defined by the Ministry of Energy and operationally implemented by the Energy and Water Utilities Regulatory Authority, EWURA. The functions of EWURA include, among others, licensing, tariff review, monitoring performance, and standardisation.8 The task of bringing electrical power to rural areas is assigned to the Rural Energy Agency, REA. As regards electricity generation, transmission and distribution, these key functions are assigned to the state utility TANESCO (Tanzania Electrical Supply Co.). In electricity distribution, Mwenga Hydropower, which has only less than a 1% market share, is another market player besides TANESCO.
In order to achieve its development policy objectives, the government has implemented two capacity expansion plans:
The former provides for the expansion of the grid capacity to 10,800 MW by 2025. The latter was revised in 2012 and aims for a grid capacity of 9,000 MW by 2030.9 Both plans are, however, too ambitious considering the fact that the current grid capacity (2018: 1,445 MW) would have to be increased sevenfold by 2025, or, according to the revised plan, sixfold by 2030.
The planned construction of the Rufiji Hydroelectric Power Station with a capacity of 2,100 MW clearly stands out amid the assumptions of the expansion plans. The power station is located about 220 km southwest of Dar es Salaam and would more than double the current grid capacity. Any excess electricity could be exported to Tanzania’s neighbouring countries.10 The construction project is led by Arab Contractors, is said to cost USD 3.6 billion and will be launched in the 3rd quarter of 2019.11
TANESCO has set itself ambitious goals also in the area of connecting final consumers to the grid. In 2011, the company declared its new objective to win 100,000 new customers per annum. So far, this objective has not been achieved in any year. In addition, the company raised its objective to 250,000 new customers per annum but it is very doubtful whether this will be achieved.12
The focus of both capacity expansion plans is clearly on the development of natural gas areas. The Power System Master Plan also provides for the expansion of hydro power, while the Powering Vision 2025 relies on increasing the number of coal-fired power stations.13 The capacities involving renewable energy sources excluding hydro power, i.e. wind, solar and geothermal, should be expanded as part of the Powering Vision 2025 from the current 11 MW (2018) to overall 500 MW (2025).
Illustration 2 Current vs planned grid capacity in MW according to Powering Vision 2025.
Tenders for projects are generally advertised through TANESCO, such as the 2018 tender for the construction of coal-fired power station with a total capacity of 600 MW. Only few tenders involving renewable energy sources were conducted in the past – the Rufiji Hydroelectric Power Station Project is an exception here.
Private Public Partnership (PPP) models play only a secondary role in the expansion of the energy market. Since 1994, only 6 deals with a total volume of USD 643.5 million were made. In Kenya, which reports a similar level of GDP per capita, PPP contracts worth USD 2.4 billion were concluded in the same period. The majority of them focused on investments in power stations using gas and diesel.15
Table1: IPP power plants by type of fuel and installed capacity.18
Table2: Categorisation of power producers in Tanzania.
For example, a Small Power Producer (SPP) with a power plant of between 100 and 1,000 kW can distribute its electricity to public but not private distribution grid operators. This categorisation is decisive in the light of statutory regulations concerning the acquisition and connection of very small and micro power producers to the distribution grid.
Here are some numbers to briefly demonstrate the potential of wind and solar power: in certain regions, wind speed reaches nearly 10 m/s, which classifies as strong wind.19 The annual sum of average global irradiance on a horizontal surface is over 1,800 kWh/m2 p.a.20 In Germany, this sum is about 1,055 kWh/m2 p.a. on average.21 The potential of geothermal energy is estimated at 5,000 MW. It thus remains to be hoped that the framework conditions for the private sector will continue to be adjusted and improved in order to more intensively use the potential of renewable energy in terms of achieving the development and energy policy objectives.
The political incentive measures in renewable energy mainly include:
Prosumer systems are primarily regulated in the “Small Power Producers Framework for Tanzania (2nd Generation)”.
Overall, it should be taken into account that the current financing mechanism based on a PPP model relies on the fact that private project developers pre-finance their costs with a state purchase guarantee given by TANESCO.22 The weak financial position of TANESCO is another reason why there are currently only few IPPs in Tanzania.
The Rural Energy Agency offers not only loans to finance projects but also capacity expansion programmes in the area of planning and project preparation. Further support can be obtained from Tanzania Investment Centre, such as in matters relating to cooperation with state authorities. Furthermore, Tanzania offers an import duty exemption e.g. for components of PV power plants and wind turbines.23
German project developers and power plant constructors should also consider instruments offered by German or international development banks and international financial institutions (IFIs). For example, Deutsche Investitions- und Entwicklungsgesellschaft (DEG), KfW, European Investment Bank (EIB), World Bank, or African Development Bank (AfDB) offer a broad range of products that should be further analysed depending on the project and individual needs.24
The focus of the very ambitious capacity expansion plans is clearly on fossil fuels. Therefore, it remains to be hoped that the decision-makers will take a realistic and reasonable course towards a compromise with a high share of renewables. This should be accompanied by a more intensive dialogue between ministries, IFIs and project developers to enable a sharper focus on COP 21 obligations and developing appropriate solutions. Pursued should also be a medium- and long-term improvement of market conditions for IPPs and further private investments, not least based on the development and energy policy objectives.
Companies from the renewable energy sector are advised to monitor the further course of action of the Tanzanian government. We also recommend investigating the opportunities arising from the feed-in regime and the tendering model in more detail in order to prepare a gradual entry into the market.
As regards market entry strategies, feasibility studies or financing models, Rödl & Partner offers to assist you with our international project expertise in Eastern Africa, gained for example when advising the African Union on the geothermal energy promotional programme Geothermal Risk Mitigation Facility (GRMF; see www.grmf-eastafrica.org), and with our specialists at the wholly owned location in Nairobi.
In the next issue of E|nEws's series about Eastern Africa we will write about Uganda and Rwanda.
________________________________________________________3 IRENA, 2017, Renewable Readiness Assessment, United Republic of Tanzania, p. 18.4 Germany Trade & Invest, 2018, Wirtschaftsdaten Kompakt, Tansania, p. 1.5 IRENA, 2017, Renewable Readiness Assessment, United Republic of Tanzania, p. 13.6 IRENA, 2017, Renewable Readiness Assessment, United Republic of Tanzania, p. 4.
7 Technologie Zentrum Dresden, 2018, Tanzania Renewables Portfolio: Prospective Investments in Tanzania Electronic Supply Co. Limited (TANESCO), Energy-Forum 2018, p. 8.8 AHK Kenia, 2018, Tansania, Zielmarktanalyse 2018 mit Profilen der Marktakteure, p. 228.9 AHK Kenia, 2018, Tansania, Zielmarktanalyse 2018 mit Profilen der Marktakteure, p. 25.10 Technologie Zentrum Dresden, 2018, Tanzania Renewables Portfolio: Prospective Investments in Tanzania Electronic Supply Co. Limited (TANESCO), Energy-Forum 2018, p. 16.11 The citizen, 2019, All set for start of the $3.6bn Stiegler´s Gorge power project.12 TANESCO, 2013, Power System Master Plan 2012, p. 18-19.13 AHK Kenia, 2018, Tansania, Zielmarktanalyse 2018 mit Profilen der Marktakteure, p. 25.15 World Bank, 2011, Public private partnerships investment in energy (current US$) in Tanzania.16 Energy Charter Sekretariat, 2015, Tanzanian energy sector under the universal principles of the Energy Charter, Sp 17.17 AHK Kenia, 2018, Factsheet Tansania, p. 4.18 University of Cape Town, 2018, A review of private investment in Tanzania’s power generation sector, p. 6.
19 IRENA, 2017, Renewable Readiness Assessment, United Republic of Tanzania, p. 18.20 IRENA, 2017, Renewable Readiness Assessment, United Republic of Tanzania, p. 19.21 Fraunhofer Institute for Solar Energy Systems ISE, 2019, Recent facts about photovoltaics in Germany , p. 43.22 World Future Council, 2017, Policy Roadmap for 100% Renewable Energy and Poverty Eradication in Tanzania.23 IRENA, 2017, Renewable Readiness Assessment, United Republic of Tanzania, p. 13-29.24 Bundesministerium für Wirtschaft und Energie, 2019, Finanzierungs-Factsheet Tansania.
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Matthias Klarl
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