GET FiT to power Africa – a Ugandan case study

GET FiT Uganda

Since early 2013 a team within Trinity International LLP has been engaged by the German development bank, KfW, to act for the Government of Uganda (“GOU”), Uganda Electricity Transmission Company Limited (“UETCL”), the Ugandan Electricity Regulatory Authority (“ERA”) and a donor group led by KfW in relation to the Global Energy Transfer Feed-in-Tariff (“GET FiT”) programme in Uganda.

Benefits of small renewable energy projects

GET FiT’s goal is to support the development of small (typically 1MW to 20MW) renewable power projects.  These projects offer a host of benefits beyond merely being renewable and providing a large cumulative capacity.  For example, they provide a granular portfolio of distributed power generation assets; staggered electricity supply growth, which can be more manageable for the utility compared to large projects adding generation capacity in large increments; opportunities for newer and smaller developers, including local developers, to gain experience; low environmental and social impact, and so on.

Challenges faced by small renewable energy projects

The development time and costs incurred in relation to smaller projects, in particular in relation to contract negotiations and satisfying lender requirements, can be very similar to those incurred on much larger projects.  In turn this can render the development of smaller projects uneconomic for developers, and an unwarranted burden on the finite resources of host Government stakeholders.

GET FiT development goal 

Against that background, GET FiT’s defining feature is arguably its focus on its principal development goal of ensuring that a portfolio of small renewable projects (with a material cumulative capacity) attains commercial operation and thereafter delivers renewable energy.

Does a suitable project portfolio exist?

This focus starts with the question of whether a suitable portfolio of projects exists, or could exist with GET FiT support?  In Uganda not only was this the case, but in fact, smaller projects were viewed as a critical step in electricity supply growth pending completion of various larger projects, which are expected to have much longer development lead times.

What is required to attain the development goal?

The next question is, what is required to steer a portfolio of projects through to commercial operation and thereafter the delivery of renewable energy?  In Uganda’s case the answer was principally two-fold:

• standardise power purchase agreements and other related project agreements (notably a government implementation agreement, a grant agreement from the donor and lenders’ direct agreements) for smaller renewable projects, with technology-specific variations for hydro, solar, bagasse and (other) biomass projects; and
• grant funding for qualifying projects.

Document standardisation process

In Uganda the project document standardisation process started by taking documents from some earlier projects in Uganda, which had not been subject to ‘usual’ rigorous project finance standards, then working with Government stakeholders in relation to what would be required from them on project-financed projects, and thereafter taking the resulting documentation through what turned out to be a very lengthy stakeholder consultation process including input from DFI lenders (including FMO) and other law firms.  This commenced with documentation for hydropower, in relation to which Trinity processed several hundred individual stakeholder comments before finalising the standard forms.

Bankable grant agreement

In relation to grants to GET FiT – supported projects, somewhat uniquely the GET FiT Uganda grants are tied to the attainment of the donors’ development goals: 50% of the grant is paid on attaining the commercial operation date, and thereafter 10% is paid per year for five years assuming that energy delivery targets are met.  This presented some unique challenges: in particular, creating a bankable grant agreement and associated lenders’ direct agreement, which in turn required the documentation balancing the need for lenders to acknowledge the expected grant income in the financial model against donors’ desire to refuse to fund and/or to seek reimbursement if certain adverse circumstances arise such as bribery.

Pragmatic approach

One important (although secondary) development goal is to leave UETCL and GOU with a legacy of standardised documentation across a portfolio of small renewable power projects. This is not just to reduce the negotiation time and costs at the outset, but importantly to assist UETCL and GOU in ongoing contract management throughout the life of the projects.  In practice, however, if a ‘take it or leave it’ approach is taken and developers and/or their lenders choose to ‘leave it’, the principal development goal of getting projects across the line is lost.  In this light, another feature of GET FiT is its pragmatism, and in practice there has been quite a difficult element of balancing the desire for standardisation against a degree of willingness to listen to the concerns of individual developers and lenders on specific projects.

Benefits of pragmatism

A clear upside of this pragmatism is to ensure that results are achieved.  For example, a sugar producer adding a second electricity generation unit presented the challenge of a supplier with two generation units, both of which could be used for own-use and/or export to the grid, in both cases with export possible to either or both of two delivery points, and subject to two existing PPAs which were to remain in place.  With GET FiT/KfW support, Trinity prepared a third bespoke PPA which also addressed the allocation of delivered power across the (now) three PPAs.

Solar PV round

While Trinity was not directly involved on the Government/donor side of the GET FiT Uganda solar PV round, we are very proud that our clients Access Energy and Eren Renewable Energy were together awarded a 10MWp project under GET FiT at Soroti in Uganda’s Eastern Region.  This project is currently under construction and will be the largest solar PV plant in the East African Community when complete.

Results

The success of GET FiT Uganda is proven by results.  The programme currently supports fourteen hydro projects, two solar PV projects and one bagasse project, and is on track to support a cumulative capacity of 150MW – 170MW, or in the region of 20% of Uganda’s existing installed capacity.

Looking forward

Trinity is also working with KfW in relation to GET FiT Zambia, which is expected to commence with a solar PV round (again focusing on smaller, distributed projects) to complement IFC’s Scaling Solar program. We also look forward to future GET FiT programs in other Sub-Saharan Africa countries which are currently under devel