non-profit/for-profit partnerships in shpp: cefa’s experiences and perspectives in tanzania

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NON-PROFIT/FOR-PROFIT PARTNERSHIPS IN SHPP: CEFA’S

EXPERIENCES AND PERSPECTIVES IN TANZANIA

NON-PROFIT/FOR-PROFIT PARTNERSHIPS IN SHPP:

CEFA'S EXPERIENCES AND PERSPECTIVES IN TANZANIA

2014

Authors: Jacopo Pendezza CEFA Tanzania

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Disclaimer:This document was prepared by CEFA Onlus, Bologna, Italy on the basis of in-depth studies and analyzes and has recently received the ‘Best Paper Award – Renewable Track’ prize at POWER-GEN Africa 2014 Conference, Cape Town, South Africa, 17-19 March 2014.The document cannot be, in whole or in part, distributed, directly or indirectly, to any third person in any country without the prior permission of CEFA Onlus. Every person who comes into possession of this document, prior of any use, may notify CEFA, which will assess the eligibility on utilization.

To be cited as:Pendezza, J. (2014), ‘Non-Profit/For-Profit Partnerships in SHPP: CEFA’s Experiences and Perspectives in Tanzania, paper presented at POWER-GEN Africa 2014 Conference, Cape Town, South Africa, 17-19 March 2014.

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CONTENTS:

Abstract 5

Rural Energy sector in Tanzania 5

The Potential of Small Hydropower in Tanzania 8

CEFA and Rural Electrification in Tanzania: 25 years of commitment 9

Looking for a bigger impact: the NPFPP model 13

What next: the concrete example of the Ninga SHPP 14

Conclusions 19

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AbstractExpanding renewable energy access for rural communities in Africa is a challenging task. In most of the cases, government investments and donor funds have proved insufficient to expand access to modern energy in rural areas in a sustainable manner. However, en-ergy production and distribution in rural areas in Tanzania is now a national priority and a promising business opportunity, because national policy and legal framework provide a good environment for investments and subsides from co-financing feasibility studies to project realization. Still, there is a great need for mobilizing financial resources to expand energy access for rural communities. A partnership between non-profit and for-profit actors is here proposed in order to rapidly expand energy access and meet national programmatic targets for electrification and energy production. Essentially, Non-Profit/For-Profit Partnerships (NPFPP) occupy a fruitful “middle ground” between commercial private sector projects, focused primarily on profit; and public/non-profit sector proj-ects, focused primarily on enhancing access. In a nutshell, effective NPFPP couple profit with energy access. This article explores the concrete possibility of a NPFPP between CEFA, an Italian NGO specialized in rural electrification, and a private partner for the realization of a Small Hydro Power project in Ninga, Tanzania.

Rural Energy sector in TanzaniaTanzania’s power supply consists of the national interconnected system and several mini-grids serving areas located far from the national grid. National electrification rate is 18.4%, set to arise 75% by 2035, but rural electrification coverage is sensibly low, with less than 7% of the rural population (2.2 million) having access to electricity.

The country’s installed electricity generation capacity is 1,564 MW (as of March 2013), of which 1,438.24 MW is available in the main grid, with the balance of 125.9 MW ac-counted for by Small Power Producers (SPPs), mini grids, and imports. About 62% of grid generation capacity is from thermal (32% from natural gas and 29% from oil), whilst 35% is from large hydropower, with the remainder from small renewable-energy power and imports. The country suffers from severe droughts over the last decade, low coverage of the electric grid and an increasing shortage of electric power production capacity in relation to demand, which roughly grows with the economic growth. The reliability of the electric grid power is low, with frequent brownouts and blackouts. There was an esti-mated private individual installed capacity (small generators) in 2011 of 300-400MW not connected to TANESCO producing at about €0.26/kWh using diesel.1 The update Power System Master Plan (PSMP, update 2012) estimates now a 565 MW installed capacity from private gensets.

The rural electrification sector is defined by law and well regulated under the Ministry of Energy and Minerals (MEM). The Rural Electrification Agency (REA), the Energy and Wa-ter Utilities Regulatory Authority (EWURA) and Tanzania Energy Supply Company (TANE-SCO) are thus the 3 key actors under MEM in Tanzania dealing with rural electrification, renewable energy and market development.

The Electricity Act (2008) describes the power generation, distribution, tariffs, and a spe-cific section on RE plans & strategies, organization and actors such as REA and EWURA. There is a Rural Electrification Fund (REF) managed by REB board (MEM & MoF trough REA) and fed by the government, World Bank, SIDA, NORAD and by a 3% levy. Detailed guide exists to prepare and submit applications. In addition there is a Power Sector Mas-ter Plan (PSMP) which has been revised in 2012 and a Rural Electrification Investment Prospectus.

1 Final Report on Joint Energy Sector Review for 2010/11, MEM, September 2011

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A Rural Energy Master Plan was produced in 2005 and is under revision wherein the up-date started with 4 regions under IREP project. The objective for electricity access is 30% by 2015 and 50% by 2020, from 18.4% in 2012. As of 2013, there is only 7% electricity access in rural areas. The first objective is to electrify all district centers and to reach 16% by 2015 in rural areas.2

Figure 1: Tanzania Existing Network and Proposed Extensions (SREP 2013)

EWURA is also regulating the private sector’s participation through the tariffs and Stan-dardized Power Purchase Agreement (PPA) for private actors as IPPs (independent pow-er producers), SPPs (small power producers <10MW), SMPPs (very small power produc-ers < 100kW), DNO (Distribution Network Operators), SPD (small power distributor).

A state-owned utility called TANESCO is in charge of urban electrification while REA is in charge of peri-urban and rural electrification. REA has implemented more than 140 grid extensions. TANESCO still has the monopoly for distribution. For the past several years, TANESCO has experienced serious management issues which have led to a difficult fi-nancial situation (high demand, too low tariffs). Network quality is very poor despite high-level standards. The benefits from reform engaged by the government and interna-tional donors to restructure TANESCO and to invest in the production and transmission infrastructures will take years from now.3 The end-user retail tariff is uniform on TANES-CO network (60 to 273 TZS/kWh for domestic categories, €0.03 and €0.12 respectively).4 The average retail tariff is estimated at 174.89 TZS/kWh, €0.08/kWh.5 A 3% tax is levied on the tariff for REA and EWURA. As for the off-grid, tariff is determined by the kind of technology used and investment cost.

The new institutional framework is favorable to Independent Power Producer and to re-newable energies with feed in tariffs (FIT) determined by EWURA for on-grid and off-grid injection. IPP regime is set with standard procedures, PPA and annual licenses (>1MW).6

2 The Power System Master Plan, MEM, May 20133 Scaling-up Renewable Energy Programme (SREP), Investment Plan for Tanzania.4 For this study we assume the following change rate: EUR 1= TZS 2,200.5 The official tariff structure (fixed and variable parts per categories) doesn’t really help for tariff comparison and analysis. The actual average tariff should be calculated as the ratio between the total yearly income from electricity sales and the total energy consumed by customers. The average tariff of TANESCO is estimated to be around €0.08/kWh.6 Low Carbon Mini Grids, “Identifying the gaps; building the evidence base” Volume 1 (Chapters 1 and 2) Support Study for DFID Final Report November 2013, IED.

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The MEM has adopted in 2007 Standardized Power Purchase Agreements (SPPA) and Standardized Power Purchase Tariffs (SPPT) for interconnecting and selling power (< 10MW) to the main grid and to mini-grids (cf. below Tables 1 and 2). The tariffs are ne-gotiated through SPPA under SPP guidelines and Standardized Tariff Methodology and reviewed annually by the Working Group WGSPD hosted by EWURA to accommodate uncontrollable operational costs. The following tables shows the evolution of FIT in Tan-zania during the past three years:

Table 1: FIT for Main Grid (174.89 TZS = 0.08 EUR)7

Description 2011

Tariff

TZS/kWh

2012

Tariff

TZS/kWh

2013

Tariff

TZS/kWhStandardized Small Power Purchase Tariff

121.13 152.54 174.89

Seasonally adjusted Dry season 145.36 183.05 209.87Standardized SPP Tariff Payable inn

Rain season 109.02 137.29 157.40

Table 2: FIT Tariff for Mini-Grid (490.13 TZS = 0.22 EUR)

Description 2011

Tariff

TZS/kWh

2012

Tariff

TZS/kWh

2013

Tariff

TZS/kWhStandardized Small Power Purchase Tariff

380.22 480.50 490.13

If the Independent Power Producer (IPP) sells hydro-power to TANESCO’s main grid, there are two feed-in tariffs depending on the season (rain/dry). The feed-in tariff is calculated by EWURA as the average of the avoided costs of supply and the incremental cost of mini-grids. For 2013, the feed-in tariff for main grid was set at an average of TZS 174.89/kWh (€0.08/kWh) and for mini-grids was set at TZS 490.13/kWh (€0.22/kWh). If the IPP sells to other customers than TANESCO, it can propose tariffs, which must be ap-proved by EWURA. Standardized documents for power purchase agreements (SPPA) are available for SPPs with small power systems (<1MW). There are currently 12 registered and operating SPPs: 1 operating an isolated MG, 11 selling to the grid/TANESCO.

Current government incentives include tax exemption (VAT & import duties) for main solar components (panels, batteries, inverters and regulators). No tax exemptions are provided for other renewable technologies (wind, hydro, biomass), unless the project is under international donor-funded programme, e.g. 10th EDF from European Commis-sion.

The green mini-grid experience in Tanzania is still very limited. TANESCO is running 21 diesel-based off-grid stations supplying isolated mini-grids for small towns (installed ca-pacities ranging from 400kW to 12MW and 8 stations have peak loads below 1MW). TANESCO’s priority is to connect those isolated grids to the main grid.

For off-grid areas where over 80% of the population does not have access to electricity, there is a huge potential for small-scale renewable technologies. Renewable energies

have a key role in the government’s strategy to electrify rural areas.8

7 Data from EWURA website.8 Renewable sector in Tanzania, UKTI, 2012, www.uktradeinvest.gov.uk

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The Potential of Small Hydropower in TanzaniaHydropower is the most popular and the oldest renewable energy source used to pro-duce electricity for rural grids. Abundant and old experiences exist in several developing countries. Typical capacity range from few kW (micro-hydro) to few MW (small-hydro), depending on various factors as hydrology, load demand, geographical constraints. The infrastructure and civil works can be rather complex and costly depending on the wa-ter collection system (pond, weir, channel, forebay, and penstock). The powerhouse is pretty standard hosting one or more turbines, alternators and control system. The technology is quite simple and well mature, allowing local repairing, etc. There are sev-eral examples of local manufacturing or assembling companies in Africa dealing with cross-flow or pelton turbines for rural applications. Investment costs for micro or mini hydro plant are generally claimed to be low but they are often higher than expected, as they are extremely variable and site-specific. Moreover the long preparation (studies, ESIA, permits) and lead times are other hurdles.

The assessed potential of small hydropower resources up to 10 MW in Tanzania is 480 MW. The installed grid-connected, small-hydro projects contribute only about 15 MW. Most of the developed small-hydro projects are owned by private entities and are not connected to the national electricity grid. Five sites in the 300–8,000 kW range are owned by TANESCO. More than 16 are owned by faith-based groups, 29 with a 15–800 kW range in capacity and an aggregate capacity of 2 MW. Of the 11 projects for which Small Power Purchase Agreements (SPPAs) have been signed, four are mini-hydro proj-ects, with a combined capacity of 20.5 MW, whilst the others are biomass powered. Examples include Mwenga, a 4 MW hydro plant that supplies power to nearby rural villages, with the excess sold to TANESCO; AHEPO, a 1 MW privately-owned small hydro project in Mbinga, currently under construction, that will supply power to TANESCO’s isolated grid and directly to communities. In addition, TANESCO has signed Letters of Intent for six small hydro projects with a combined capacity of 29.9 MW. Several small hydro projects are also being developed as isolated mini grids.

Moreover, different instruments and projects are put in place by the government and donors to support the hydro-power sector. Currently, the MEM is conducting small-hy-dro feasibility studies in eight regions: Morogoro, Iringa, Njombe, Mbeya, Ruvuma, Rukwa, Katavi, and Kagera. The British NGO GVEP International, in partnership with the REA, is supporting the development of six hydro mini grids, with a total capacity of 7.4–8.8 MW. The REA has awarded some 20 TEDAP matching grants to private-sector developers for small hydro pre-feasibility studies. In addition, the Energy Sector Man-agement Assistance Programme (ESMAP) has approved funding for renewable-ener-gy resource mapping, starting with small hydropower, including two-year hydrology measurements. The United Nations Industrial Development Organization (UNIDO) is co-funding the development of six mini grids based on mini/micro hydropower, whilst the EU is financing four Hydro Power projects (including one developed by CEFA).9

Hydro plants can be commercially attractive if the output of the least-cost design can be sold. However this output often exceeds the local demand that could be supplied by a mini-grid. In such cases, the connection to main grid is therefore required.

9 Scaling-up Renewable Energy Programme (SREP) Investment Plan for Tanzania.

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CEFA and Rural Electrification in Tanzania: 25 years of commitmentCEFA (European Committee for Training and Agriculture) is an Italian NGO that promotes initiatives of development, cooperation and international volunteer service. Founded in 1972 by a group of agricultural cooperatives based in Bologna, CEFA supports projects aiming to promote integrated self-development in rural regions of the Mediterranean, East Africa and Central/South America. Active in Tanzania since 1976, CEFA promotes interventions in the fields of:

• Rural electrification

• Water supply

• Agriculture

• Agro-processing

In 2007 CEFA decided to start implementing projects in Dar es Salaam addressing urban poverty, counting on the experience acquired by the organization in urban contexts in Albania, Morocco and Kenya.

CEFA’s commitment to rural electrification in Tanzania lasts since 25 years. In this period the organization has realized three mini hydro-electric power plants, providing electricity to hundreds of people living in the rural areas of the Iringa and Njombe Regions. Careful planning procedures for technical capacity, good institutional arrangements, managerial capacity and economic considerations, as well as multi-stakeholder involvement from the planning phase onwards, have resulted in the sustainable operation of the three hy-dro power plants.10 Such commitment in the sector continues still today, with a current upgrade project in Ikondo, allowing more and more families to benefit of the opportuni-ties offered by having electricity in their villages. Here follows a brief description of what has been realized until now by CEFA in this field.

Matembwe:

Matembwe, in the Njombe District, is where CEFA realized its first hydro power plant in Tanzania, thanks to funds granted by the Italian Ministry of Foreign Affairs, Belgian Ministry of Foreign Affairs and the European Union. The construction of the dam began

10 Jonker Klunne, W. & Michael, E.G., Increasing sustainability of rural community electricity schemes—case study of small hydropower in Tanzania, International Journal of Low-Carbon Te-chnologies 2010, 5, 144–147

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in 1981, while the power plant was completed in 1984. At present the power plant and the distribution network are owned and managed by the Matembwe Village Company – MVC Ltd, a local entity established by CEFA together with the other partners of the orig-inal project (Catholic Dioceses of Njombe, District of Njombe and Village of Matembwe).

Summary details

Type of facility Reservoir micro hydro plant

Commissioning year 1984

Funded by Italian Ministry of Foreign Affairs; Belgian Ministry of Foreign Affairs; European Union; CEFA

Ownership Matembwe Village Company – MVC Ltd (CEFA, Cath-olic Dioceses of Njombe, District of Njombe and Village of Matembwe)

Output power 120 kW

Villages served Matembwe and Image

Distribution network 19 km of MV

Households connected 556

Public institutions and eco-nomic activities connected

64

Aqueducts powered 4

Connection with TANESCO Yes (in 2015).

Bomalang’ombe:

Bomalang’ombe, in the District of Kilolo, is where CEFA built its second hydro power plant, on the model already experimented in Matembwe. The project, co-funded by the Italian Ministry of Foreign Affairs and the European Union, intended to favour the development of the village of Bomanlg’ombe by providing it with electricity. The construction of the dam started in 1996, while the power plant was completed in 2001. The availability of electric power, together with the rehabilitation of the road for Kilolo, determined a rapid development of the village of Bomanlg’ombe, that in these years has seen its population grow from 5.000 to more than 12.500 inhabitants. At present the power plant and the distribution network are owned and managed by the Bomalang’ombe Village Company – BVC Ltd, a local entity established by CEFA together with the other partners of the orig-inal project (Catholic Dioceses of Iringa, District of Kilolo and Village of Bomalang’ombe).

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Summary detailsType of facility Reservoir mini hydro plant


Funded by Italian Ministry of Foreign Affairs; European Union; CEFA

Ownership Bomalang’ombe Village Company – BVC Ltd (CEFA, Catholic Dioceses of Iringa, District of Kilolo and Village of Bomalang’ombe)

Output power 250 kW

Villages served Bomalang’ombe and Lyamko

Distribution network 17.3 km of MV



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Aqueducts powered 3

Connection with TANESCO No

Ikondo:

Ikondo, in the District of Njombe, is where CEFA realized its third hydro power plant. Un-like the previous two sites, Ikondo is a run-of-river plant, which uses the water provided by the river Kyepa. The project, co-funded by the Italian Ministry of Foreign Affairs and the European Union, intended to help start-off the development of the village of Ikondo, a very isolated settlement in the District of Njombe. The construction of the plant start-ed in 1999 and was completed in 2004. At present the power plant and the distribution network are still owned and managed by CEFA.

Summary detailsType of facility Run-of-the-river micro hydro plant


Funded by Italian Ministry of Foreign Affairs; Europe-an Union; CEFA

Ownership CEFA (to be handover to MVC Ltd)

Output power 83 kW

Villages served Ikondo

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46

Aqueducts powered 1

Connection with TANESCO Yes (in 2015)

Ikondo II

The current electrification project of CEFA is an upgrade of the previous project in Ikon-do. The project, co-funded by European Union under the 10th EDF, started in September 2011 and will allow in 2015 to upgrade the output of the power plant up to 430 kW and to increase the actual distribution grid reaching 4 new villages and connecting to the Matembwe grid and to TANESCO grid in order to sell the excess of production. At the end of the project the power plant and the distribution network will be owned and managed by the Matembwe Village Company – MVC Ltd.

Summary detailsType of facility Run-of-the-river micro hydro plant


Funded by European Union; CEFA

Ownership CEFA (to be handover to MVC Ltd)

Output power 430 kW

Villages served Ikondo, Nyave, Ukalawa, Isoliwaya, Kanikele

Distribution network 47 km of MV (in 2015)

Households connected 280 (in 2015)


75 (in 2015)

Aqueducts powered 1

Connection with TANESCO Yes (in 2015)

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Looking for a bigger impact: the NPFPP modelThe concrete experience of 25 years in Tanzania CEFA coincides with the scientific litera-ture: the availability of safe, reliable and affordable energy is a prerequisite for sustain-able development both at micro-level and at national level.11 The provision of energy services through renewable energy (in our case, Hydropower) is capital intensive and requires significant upfront costs compared to conventional energy technology. In most of cases, government investments and public budgets have proved insufficient to expand access to electricity and modern energy in rural areas in a sustainable manner. Mobilizing financial resources to expand local energy services delivery in Tanzania is therefore an imperative.

In a scenario that has seen decreasing more and more funds for development coopera-tion, and at the same time increase the demands from donors in terms of the impact of actions supported (e.g. the extension of the areas of intervention and number of bene-ficiaries involved), a new approach is necessary regarding the action of Non-Profit actors like CEFA in developing countries.

Non-Profit/For-Profit Partnerships (NPFPP) are one of the best mechanisms to supple-ment and overcome budgetary constraints for widening access to energy services, es-pecially to the local communities, as they can allocate project-risks between the public/non-profit and private sector. Profit motivations are blended with social concerns and empowerment of targeted communities. This type of partnership in recent years has often been advocated by some of the major international donors, and today has almost the contours of obligation.

An interesting approach towards forming partnerships between CEFA and the private sector to provide energy services to the communities with emphasis on viable, long-term sustainability is shown in Figure 2. The NPFPP schema operates on the twin foundations of sharing risks and rewards. Risk sharing is reflected by the resources invested by the private and non-profit sector in the partnership. There could be several NPFPP options depending upon the mix of risks and roles assigned to each of the partners.

Figure 2. The NPFPP model

The partner which invests more is the one which takes the highest risk or is the least ‘risk averse’. Apportioning of rewards is generally in proportion to risk taken. Additionally, re-

11 A. Pueyo; C. Dent; F. Gonzalez; S. DeMartino, The Evidence of Benefits for Poor People of Incre-ased Renewable Electricity Capacity: Literature Review, Institute of Development Studies UK, 2013.

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wards are also reflected in the availability of tangible incentives for the different players in NPFPP: fulfill corporate social responsibility and cost recovery/profit for the private actor; achievement of its mandate of delivering basic services to local communities for the non-profit actor; availability and access to basic services for the target communities. This incentive system is the key to sustainability of any NPFPP venture.12

The long experience of CEFA and the scientific literature13 suggest that the inclusion of multiple stakeholders in program design, implementation, and evaluation can enhance the efficacy of renewable energy deployment. The involvement of women’s groups, mul-tilateral donors, rural cooperatives, local government, local micro financial institutions, nongovernmental organizations and other members of civil society, and even consumers can increase both the performance and legitimacy of partnerships. They improve per-formance since input from multiple stakeholders can accelerate feedback; they improve legitimacy since programs with a broader base of support, and community involvement, are less likely to be opposed or protested. The partnership benefits from addition to the pool of resources of the public and private sector, and the resources (social, human, financial, political and psychological capital) of the communities themselves. Not only does the delivery of energy services become more efficient, there are additional bene-fits that may follow like empowerment of the communities, social rehabilitation of those suffering from disease, changing the way the private sector fulfills its corporate social responsibility and enhancement of social development for the communities involved. This is an important task to be carried out by CEFA in the NPFPP scheme.

What next: the concrete example of the Ninga SHPP

At CEFA we are now aware that only with a qualitative jump we can achieve such an impact to be incisive for a large population that needs energy access. It was therefore decided to take advantage of the opportunities and instruments that are in place now in Tanzania to design a new project, which’s size and impact significantly differ from the previous ones. The site for the next intervention is in the Njombe District, Njombe Re-gion (former Iringa), Rufiji River Basin. The interested river is the South Ruaha, affluent of the Mnyera river and part of the Kilombero River tributary basin.

Technology: Run of river hydropower plant.12 A. Mukherjee, Engaging Communities in Public-Private Partnerships in the Delivery of Basic Services to the Poor: Inter-country Models and Perspectives, United Nations Economic and Social Commission for Asia and the Pacific, Bangkok, 2005.13 B.K. Sovacool, Expanding renewable energy access with pro-poor public private partnerships in the developing world, Energy Strategy Reviews 1 (2013) 181-192.

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Installed capacity: 4,000 kW

Gross head: 73 m

Design Flow: 6.91 m3/s

Impact

The number of connections in the first phase (Year 2017) will be 1,680 households, 169 commercial, 99 Public Services and TANESCO with a maximum electric power generation of 21,750 MWh to meet the energy load of identified customers and surplus bulk sales to TANESCO.

Costs

Investment for initial phase of 4 MW – € 7.3 million (Tshs 16,060,000 million), and es-timated O&M for Power generation & Distribution of € 183,000.00 (Tshs 402.6 million) per annum.

Unit (production) costs are approximately 2.69 €c/kWh (59.10 Tshs/kWh) over a 10 year time horizon.

Electric Line and Connection to the Grid

The served villages will be Ninga, Lima, Isitu, Ikuna, Lole, Upami and Ilengitu. Ninga SHPP will be part of a system of rural electrification schemes implemented by CEFA since years. The connection to the national grid will favour sustainability of the whole system while allowing an extension of the rural areas served.

Summary details (Foreseen)Type of facility Run-of-the-river small hydro plant


Proposed financial model Developer equity; credit lines; grants from Inter-national donors, REA, etc and commercial loans

Ownership To be handover to local entity

Output power 4,000 kW

Villages served Ninga, Lima, Isitu, Ikuna, Lole, Upami and Ilen-gitu



Public institutions and econom-ic activities connected

268

Connection with TANESCO Yes

Cost Evaluation

The cost evaluation is conducted per gross categories of works, namely: Civil Works, Site mobilization, Access road, Powerhouse and outlet, Intake, Penstock - supply and lying, Electric line and connection to the grid, Electromechanical equipment. The cost of the works is evaluated on the base of a very recent experience made by CEFA in Ikondo. The cost is evaluated under the assumption that project works and services are contracted to professionals and contractors whether local or international. Furthermore the summary of costs shown in Table 3 is prepared following the required scheme of a Europe Aid grant, in particular contingencies and overhead are set at the required percent value and an item ‘other costs and services’ has been included to take in account possible required ‘visibility actions’, publications, financial services, etc. Part of the project cost, namely

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the connections to final users (including LV lines) may be supported by a performance grant from REA and the feasibility study may be supported by a matching grant from REA. In December 2013 CEFA made a request for this support and the beginning of the feasibility study is foreseen in April 2014.

Table 3 Ninga SHPP - Estimated project cost

Financial Assessment

The following assumptions have been made:

Sale of excess energy - Price per kWh.

The implementation period may take 2 years or more. Under the assumptions that the HPP enters in operation in 2017, the price per kWh payable by TANESCO is evaluated on the base of the actual EWURA fixed price (174 TZS/kWh), increased by an annual per-cent equal to 1%. Consequently the projection price to 2017 would be 182 TZS/kWh. For further evaluation we estimate an increase of 2% per year.

Distribution to Villages – Price per kWh

In order to make its rural electrification interventions sustainable CEFA has always fore-seen that users connected to its distribution grids pay for the electricity consumed. Tariffs are determined keeping in consideration both the power plant’s necessity of being sustainable and the local communities’ average level of income. Specific tariffs have been established for different consumer groups. Currently users in different grid managed by CEFA are divided in: private households, economic enterprises and public service providers. Tariffs are reviewed periodically in order to compensate inflation and possible increases in running costs.

Table 4 CEFA’s hydropower plant consumers’ tariffs by year [TZS/kWh]

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Consumer groups 2008 2009 2010 2011 2012 2013

Private households 52 70 70 70 70 100Economic enterprises 91 120 120 120 120 175Public service providers 36 50 50 50 50 70

According CEFA’s experience, payments are collected on a monthly basis. CEFA’s pay-ment collection officer first of all goes to each user in order to read the consumption data reported on every user’s meter. The collected data are then processed by a soft-ware that determines for each user the actual monthly consumption and the result-ing bill, which is calculated according to the consumer group the user is registered in. The tariff scheme foresees for all the consumer groups a minimum monthly payment of 3,000 TZS, even when users’ consumptions are particularly low. Electricity tariffs appear to not be a problem for the households and private enterprises already connected to the grid. In fact, since the beginning of operations, bill payment rates have been always 100%. This is mainly due to the fact that the tariffs set throughout the years have always been particularly favorable and cheaper than the ones applied by TANESCO.

In order to carry out a sound evaluation we assume that the prices of table 4 will be increased of 20% at the commissioning date and that further on they undergo a rate of increase of 2% per year.

The mix of users for this project has been evaluated as follows:

Households 85%

Commercial 10%

Public Services 5%

On this basis an average tariff can be calculated.

In the following Table the proposed tariffs to the owned local grid and the price of the energy sold to TANESCO are shown.

Table 5: Proposed tariffs and projections

For future collection of payments, taking in account the high number of connections, CEFA will likely turn to a pre-paid system.

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Economic analysis

The purpose is to determine whether or not the project can be economically viable. In case of non-viability, a grant component has to be determined in order to make the proj-ect viable. A typical financial model can be: 20% developer equity, a credit line (70/80% of the investment) from REA, loans from commercial banks, grants from International donors (such as REA, European Commission, GVEP, UNIDO, etc) and Performance grant from REA for the connections. The assumed criterion is a required payback period (taking in account a certain discount rate for the own resources) of maximum 7 years and/or an IRR of at least 15% at the 15th year. As shown in next Table 6 the investment seems to be very attractive, even without any grant component.

Table 6: Economic evaluation

Disc. rate on investment 8.00% Depreciation 365,000 €/year 20 yearsGrant 0 Annual generation 21,750 MWh

Price of Energy 0.0795 €/KWh 174.89 TZS/kWh

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

YrEnergy

Sold MWh

Unit Price

€

Sales Revenues

O & M Working

RatioCash Flow

€PBT

Total Cost including

Depreciation

O&M unit cost per kWh

Cost of Kwh

NPV(Col. 7)

IRR (Col. 7)

YearCumulative Cash Flow

€ cent € cent Pay Back6.3 yrs

-2 75 months 2014-1 -7,300,000 -7,300,000 2015 -7,300,000 1 21,750 0.0795 1,729,026 183,320 0.11 1,545,706 1,180,706 548,320 842.85 2.52 -5,434,065 2016 -5,754,294 2 21,750 0.0827 1,798,187 186,986 0.10 1,611,201 1,246,201 551,986 859.71 2.54 -4,155,042 -41.25% 2017 -4,143,093 3 21,750 0.0860 1,870,115 190,726 0.10 1,679,389 1,314,389 555,726 876.90 2.56 -2,920,642 -17.86% 2018 -2,463,705 4 21,750 0.0894 1,944,919 194,541 0.10 1,750,379 1,385,379 559,541 894.44 2.57 -1,729,363 -3.91% 2019 -713,326 5 21,750 0.0930 2,022,716 198,431 0.10 1,824,285 1,459,285 563,431 912.33 2.59 -579,755 4.78% 2020 1,110,9596 21,750 0.0967 2,103,625 202,400 0.10 1,901,225 1,536,225 567,400 930.58 2.61 529,592 10.45% 2021 3,012,1837 21,750 0.1006 2,187,770 206,448 0.09 1,981,322 1,616,322 571,448 949.19 2.63 1,600,038 14.30% 2022 4,993,5058 21,750 0.1046 2,275,280 210,577 0.09 2,064,703 1,699,703 575,577 968.17 2.65 2,632,904 17.01% 2023 7,058,2089 21,750 0.1088 2,366,292 214,789 0.09 2,151,503 1,786,503 579,789 987.53 2.67 3,629,466 18.96% 2024 9,209,711

10 21,750 0.1131 2,460,943 219,084 0.09 2,241,859 1,876,859 584,084 1,007.28 2.69 4,590,961 20.39% 2025 11,451,57011 21,750 0.1177 2,559,381 223,466 0.09 2,335,915 1,970,915 588,466 1,027.43 2.71 5,518,585 21.47% 2026 13,787,48512 21,750 0.1224 2,661,756 227,935 0.09 2,433,821 2,068,821 592,935 1,047.98 2.73 6,413,496 22.29% 2027 16,221,30613 21,750 0.1273 2,768,227 232,494 0.08 2,535,732 2,170,732 597,494 1,068.94 2.75 7,276,814 22.92% 2028 18,757,03914 21,750 0.1324 2,878,956 237,144 0.08 2,641,812 2,276,812 602,144 1,090.32 2.77 8,109,623 23.41% 2029 21,398,85015 21,750 0.1377 2,994,114 241,887 0.08 2,752,227 2,387,227 606,887 1,112.12 2.79 8,912,972 23.79% 2030 24,151,077

Ninga HPP - Unleveraged Profitability

19

ConclusionsExpanding renewable energy access for rural communities in Africa is a challenging task. In most of the cases, government investments and donor funds have proved to be insuffi-cient to expand access to modern energy services in rural areas in a sustainable manner.

Nevertheless, Rural Electrification is now a priority for the Government of Tanzania and for several International donors (WB, UE, UNIDO, etc.) and for this reason some instru-ments to make this type of projects financially viable were put in place. By taking ad-vantage of these opportunities, the new project of CEFA, the Ninga SHPP, will provide reliable and affordable electricity to about 2,000 households and small enterprises in 7 villages in the Njombe Region. Also the project will sell the surplus to TANESCO, in-creasing the national availability of power and at the same time assuring the financial sustainability of the system. A partnership between non-profit and for-profit actors was here proposed in order to rapidly mobilize financial resources, expand energy access, en-hance empowerment of the local communities and meet national programmatic targets for electrification and energy production.

To realize this ambitious project, CEFA has decided to adopt the above mentioned in-novative approach, both financially and operationally, believing that a partnership with a private actor is an opportunity for increasing the action’s impact on the beneficiaries granting the future sustainability of the project. At CEFA we are also convinced that the private partner can benefit from this relationship, taking advantage of our deep knowl-edge of the country and the long experience of dealing with all stakeholders involved.

non-profit/for-profit partnerships in shpp: cefa’s experiences and perspectives in tanzania

Economy & Finance