Tanzanias Small Power Producer (SPP) Program IFC Investment Climate Infrastructure Workshop on Small Power Producers Chris Greacen Consultant, World Bank Africa Energy Unit (AFTEG) April The views expressed in this presentation are solely of the author

Good NewsBad News SPP program works… TANESCO is insolvent 2

Outline 3 Definition of SPPs in Tanzania Four Key Elements of Tanzanias SPP Program Examples of projects online Overview of Tanzania SPP regulations Standardized Framework / Table of SPP documents Standardized Tariffs Main grid, mini grid, wholesale and retail sales Calculation process and Levels Required permissions and approvals, procedures for application and process rules 2 nd Generation SPP rules Current situation: successes and challenges PPAs, generators in the pipeline Challenges and possible solutions

SPPs– What are they? 4 Restricted to export of 10 MW Interconnected to main grid or to an existing or new isolated mini-grid 16 existing diesel-fired isolated mini-grids owned and operated by TANESCO If main grid-connected then must be renewable energy or cogeneration renewable means < 25% fossil fuel (hybrid generator)

Four Key Elements of Tanzanias SPP Program SPP Regulatory framework developed by EWURA More complete than anywhere else in Africa. Goal: Light-handed regulation Process as well as prices. (Kenya versus Tanzania) Grants through the REA Connection grants (US $500 per new connection) Grants for studies (business plans and environmental assessments) Availability of financing (loans from local commercial banks supported by a US $25 million WB line of credit) Technical assistance for developers, the REA and the electricity regulator (side-by-side assistance not reports) 5

Location of Generation Connected to Isolated Mini-grid Connected to Main Grid Nature of Customers Selling Retail to End Customer Case 1Case 3 Selling Wholesale to Utility Case 2Case 4 Types of SPPs 6 SPPs can be combinations of these cases (e.g., Cases 3 & 4)

300 kW – remote mini-grid 300 kW – remote mini-grid Target 1400 customers Target 1400 customers Mawengi village, Njombe, Tanzania Mawengi village, Njombe, Tanzania LUMAMA hydropower project 7

300 kW – remote mini-grid 300 kW – remote mini-grid Target 1400 customers Target 1400 customers Mawengi village, Njombe, Tanzania Mawengi village, Njombe, Tanzania LUMAMA hydropower project Mini-gridMain grid RetailCase 1Case 3 Wholesale to utility Case 2Case 4 8

Mwenga 4 MW hydro electricity to 4000 households in 15 villages & sells to the grid 9

Isolated mini-grid Main grid wholesale to utility Case 1Case 3 retailCase 2Case 4 10

TPC, Moshi 17.5 MW – selling 3-4 MW to main grid Cogeneration Sugarcane bagasse 11

TPC, Moshi 17.5 MW – selling 4 MW to main grid Cogeneration Sugarcane bagasse 12 Mini-gridMain grid RetailCase 1Case 3 Wholesale to utility Case 2Case 4

Regulatory and Commercial Framework Documents Main gridIsolated Mini-grid (off-grid) Standardized PPA* Standardized Power Purchase Agreement for Purchase of Grid- Connected Capacity and Associated Electric Energy Between Buyer and a Small Power Project Standardized Power Purchase Agreement for Purchase of Off-Grid Capacity and Associated Electric Energy Between Buyer and a Small Power Project Tariff methodology* (Feed-in Tariffs) Standardized Tariff Methodology for the sale of Electricity to the Main Grid Under the Standardized Small Power Purchase Agreements. Standardized Tariff Methodology for the Sale of Electricity to the Mini-grids Under the Standardized Small Power Purchase Agreements Process Guidelines (roadmap) Guidelines for Developers of Small Power Projects (SPP) ; Includes standardized forms Process rulesRules for Developers of Small Power Projects (SPP) Interconnection Guidelines* Guidelines for Grid Interconnection of Small Power Projects (Parts A, B, C) Interconnection Rules* Rules for Grid Interconnection of Small Power Projects (Not yet provided) Annual Tariff Calculations * (Feed-in-Tariffs) Detailed Tariff Calculations under the SPPA for the Main Grid for each year Detailed Tariff Calculations under the SPPA for the Mini-grids for each year 13 * Applies to cases 2 and 4 only.

Key Features of SPP framework (cases 2 and 4) 14 Small Power Purchase Agreement (SPPA) Buyer must take SPPs output if SPP is connected to the main grid Term – 15 years SPPA type depends on context: (1) selling to an existing isolated mini-grid; (2) selling to main grid Isolated SPPA switches to Main grid SPPA upon interconnection with main grid Standardized Tariff Methodology Avoided Costs of the Utility Local Currency Denomination Reflect Seasonality (Main Grid) Floor and Cap Prices Technology Neutral Future (?): Technology-specific feed-in tariffs

Annual Feed-in-Tariff Levels (Calculated by EWURA for SPP wholesale sales) MAIN GRID TZS/kWh Mid Yr Rate (TZS/$) US$/kWh $0.073$0.079 $0.076$0.096 ISOLATED MINI- GRIDS TZS/kWh US$/kWh $0.253 $0.265$0.238$

Necessary permits, clearances and procedures for application 16 EWURA license to operate Business license, tax registration, etc. Power Purchase Agreement (PPA)* Land title or lease Resource Rights (e.g. water rights from River Basin Water Office) Letter of Intent (LOI) (from buyer) Environmental and Social Clearance (NEMC) Building Permit Sequence is important to avoid competing claims on project sites

EWURAs rules relating to retail sales Legal right to sell electricity at higher-than-national uniform tariff Tariffs may take into account ability to pay of customers For example, charging small residential customers below- market rates and higher tariffs to commercial customers Retail tariff structure proposed by SPP is not limited to standard kWh tariff types Flat tariffs, power-tariffs, etc. are allowed. But to be accepted by the Authority, any tariff must reflect prudently incurred costs and reasonable efficiency. 17

Principal changes proposed in second generation SPP rules 18 Optional Covers preparatory activities for studies, financial arrangements, land acquisition, construction Provisional license Only energy charge (no peak demand charge) if SPPs power import load factor is < 15% Tariffs for backup power Right to convert to a Small Power Distributor (SPD), to sell wholesale to the main grid, or both. When big grid connects to little grid Streamlined and simplified rules for projects under 100 kW For VSPPs no prior approval of retailed tariffs required. Very Small Power Projects (VSPPs)

SPPs In Operation ProjectMWType of Resource Grid typeStatus ACRA - LUMAMA 0.3HydroNew Isolated (Case 4) In Operation / Community based TANWAT2.34Biomass – wood Main (Case 1)Selling 1 MW (2010) TPC Co- Generation 15BagasseMain (Case 1)In operation. Contracted to Sell up to 9 MWe to TANESCO Katani Power Plant 0.3Biomass – Waste New Isolated (Case 4) In Operation – Pilot, not connected to network Mwenga – Mufindi Tea 4HydroCases 1 & 3 In operation 19

SPPs with signed PPAs ProjectMWResourceGrid typeExpected COD Ngombeni Mafia1.4BiomassTANESCO Isolated June 2013 Sao Hill Energy15Biomass –wood (CHP) MainDelayed. COD ??? Symbion – KMRI Tunduru 0.3BiomassTANESCO isolated July 2014 Symbion – KMRI Tunduru 3.3BiomassTANESCO isolated Mar 2014 St. Agnes Chipole – Songea 7.5HydroTANESCO isolated Mar 2014 NextGen Solawazi2.0PVTANESCO isolated Sep 2013 Andoya Hydro Electric Co. 1.0HydroTANESCO Isolated Feb 2015 EA Power – Tukuyu10HydroTANESCO Isolated Feb

Remaining challenges and possible solutions 21 Developing payment guarantee mechanism High risk of not getting paid Early discussions of new rules. Limited to 10 MW

For more information, please contact Chris Greacen: Bernard Tenenbaum: SPP regulations available at: Thank you 22