Establishment of REA/REF and Available Financing Opportunities for Rural Energy Projects Paper Presented on:

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1 RURAL ENERGY AGENCY (REA) Establishment of REA/REF and Available Financing Opportunities for Rural Energy Projects Paper Presented on: Workshop on Sustainable Access to Sustainable Energy Uhuru Hostel, Moshi, 27 th to 1 st October 2010 by Eng. Bengiel H. Msofe Director Technical Services, REA [email protected]/[email protected]

2 Outline 1. Establishment of REA and REF 2. REA/REF Governance arrangement 3. Roles and Functions of REA 4. Sources of Fund 5. Eligible projects and developers 6. Financing Opportunities 7. TEDAP - Credit line 8. Financing Challenges 9. End

3 Percentage of households with access to grid electricity (HBS 2000/2001) Kagera 2% Mara 10% Mwanza 5% Shinyanga 3% Arusha 11% Kilimanjaro 18% Kigoma 6% Rukwa 4% Tabora 4% Mbeya 9% Singida 5% Iringa 6% Dodoma 6% Morogoro 10% Tanga 7% Pwani 6% Dar es Salaam 59% Lindi 5% Percent Ruvuma 5% Mtwara 5% Workshop on LRTC 2010 Competition, AICC, Arusha

4 The National Grid (Source: TANESCO ) Workshop on LRTC 2010 Competition, AICC, Arusha

5 1.0: Establishment of Rural Energy Agency (REA) Rural energy is diverse and characterized by various actors and interests. A sustainable institutional framework that can cope with the diversity, manage and co-ordinate various efforts, is a key factor for successful development of rural energy. So far, appropriate focus for handling rural energy services is lacking. There is a need to establish an institutional framework that can mobilise, coordinate and facilitate private and public initiatives in rural and renewable energy (Source: Energy Policy 2003; pg 27) The Rural Energy Agency (REA) was established as an institutional framework to mobilize, coordinate and facilitate private and public initiatives in rural Mainland Tanzania. REA/REF started operations in October, 2007.

6 REA/REF Cont. REA/REF were established under the Rural Energy Act No.8 of 2005; REA/REF are governed by Rural Energy Board(REB) The REB is appointed by the Minister and the terms of the Board is three years The Board appoints a Trust Agent who is responsible for disbursement of grant payments from the Fund and ensuring that any pre-condition set by the Board for making a grant payment are met by the developer. Besides disbursing of grant payments, the Trust Agent also verify and monitor projects activities being done by developers.

7 2.0: REA/REF Governance Arrangements Minister of MoF REB governs REF Board reports to both Ministers Rural Energy Fund REB apponts Trust Agent to manage REF payments Trust Agent Rural Energy Board Minister of MEM Staff of Rural Energy Agency Works with project developers Project Developers & Partners Minister appoints Board from stakeholder reps Stakeholders REA is secretariat to REB

8 Rural Energy Agency as Facilitator PROJECT CHAMPIONS & COLLABORATORS INVESTORS & FINANCIAL ASSISTANCE RURAL ENERGY AGENCY/ FUND TECHNICAL EXPERTISE & TRAINING VIABLE RURAL ENERGY INVESTMENTS, PROJECTS AND VENTURES

9 3.0: Roles and Functions of REA Main roles and functions include:- Promotes, coordinates and facilitates private and public sector initiatives and entrepreneurship in rural energy supply; Ensure continued electrification of rural commercial centers and households; Promotes accessibility and affordability to modern energy services by low income groups; Continued research, development and application of appropriate rural energy solutions;

10 Roles and Functions cont. Provides finance through the REF Primarily as co-financing of those priority projects identified by the REA REF provides subsidies to project developers that meet the eligibility criteria Monitoring and evaluating progress of projects Learning from experience Activities to improve chances for future success and improved impacts

11 4.0: Sources of Funds Sources of funds include according to Section 19(3) of the Act include:- Government annual budgetary allocation Contributions from international financial organisations, multilateral and bilateral agencies and other development partners; Levies of up to 5% on the commercial generation of electricity from the national grid; Levies of up to 5% on the generation of electricity in specified isolated systems Fees in respect of programmes, publications, seminars, consultancy services and other services provided by the Agency.

12 5.0: Eligible projects and developers Eligible projects include:- Grid connected mini-grids; Isolated/green-field mini/micro-grids; Solar Photo-Voltaic (PV) Systems; Off-grid energy investments including hybrid systems, Other non electric energy sources (biomass, biogas, and improved stoves). According to Section 22(3) of the Act, the Fund cannot be used for financing operation costs or debts services costs of any project or developer.

13 Eligible projects Cont. Any private enterprise, Non-Governmental Organizations, Community Co-operative Individual operating in Tanzania, registered as a legal entity, and having the capacity to enter into a binding contract under the laws of the United Republic of Tanzania, with sufficient technical, financial management and procurement capacity to implement the proposed project.

14 6.0: Financing Opportunities One of the Financing Opportunities is through Tanzania Energy Development Access Project (TEDAP) -off grid component which provides two types of subsidies to project developers: Performance grant Matching grant These grants are provided to buy down developers investment costs. Currently, EU in collaboration with MoFEA and REA have advertized a Call for Proposals on which the dead line for submission is 30th September, 2010 Other financing opportunities include through Environment and Energy Programme (EEP), 2 nd Call for Proposal expected to be in October 2010 In April, 2010 there was a competition on LRTC 2010 on which 10 winners each won about US$ 100,000 (A competition financed by World Bank and URT through REA. The projects are under implementation for 12 months after signing Contract. The other opportunities is through co-financing being given through REF. For example, currently REF is supporting rural electrification projects being implemented by TANESCO in 16 Lots and worth about TZS 100 Billion. The projects will be completed in July 2011.

15 Financing Opportunities Cont. For Performance Grant, US$ 500 for each new connection in rural energy projects under mini-grids, and green-field areas is given ;maximum amount up to 80% of total investment cost For commercial PV, average of US$ 2 per Watt-peak for solar PV installations Matching Grant provides technical assistance to public Institutions Project Developers), Financial institutions and the stakeholders Forms of assistance provided include training and Consultancy services 15

16 Some of the Financing requirements Number of Projects: 22 advanced projects (over 60 in development) 11 projects 42 MW - supply into main grid under Standardized PPA/T 5 projects 17 MW supply into existing isolated grids under Standardized PPA/T 6 projects green field isolated grids Project Promoters: 9 well established private sector promoters 6 projects advertised for private sector participants 5 cooperatives / community based project promoters Technology: 16 small hydro projects 6 biomass projects Portfolio Costing: Total portfolio cost: US$154,7 million Smallest project: US$0.2 million Largest project: US$31.0 million Median: US$7.0 million

17 7.0: TEDAP-Credit line Due to the above huge financial requirements, the Government has requested the World Bank to support development of long-term finance for renewable energy / infrastructure projects Initial request of $25 million to demonstrate commercial viability of renewable energy projects Build capacity of Tanzanian rural and renewable energy project developers (private sector, cooperatives ) Build capacity of Tanzanian banking sector to identify and appraise rural and renewable energy projects Help to develop long term market financing instruments

18 Credit line cont. Need of Equity from project developers Bank of Tanzania to oversee that Participating Financial Institutions (PFI) adhered to banking regulations Tanzania Investment Bank to disburse the Credit to PFIs Project developers to apply the credit to PFIs through Rural Energy Agency PFIs to ensure that risks management is considered accordingly Project Developer s can also access subsidies through TEDAP performance arrangement The Credit line has been effect wef 1 st September, 2010

19 8.0: Challenges Increased electricity demand which require massive investments in generation, transmission and distribution; Inadequate funds allocation and availability while the grants requests are ever increasing Inadequate private sector participation in investment; Limited long-term financing especially for small / isolated rural energy projects; High interest rates loans from commercial banks;

20 Challenges cont. Need to review Land ownership and water rights for renewable energy projects especially mini-hydro plants Lack of experience of key project promoters with skills on project management Lack or inadequate equity by project promoters/developers Limited financial capacity of buyers/consumers Lack of/inadequate Development Finance Institutions (DFI s) in Tanzania

21 Rural Energy Agency Contacts: All correspondences to be addressed to:- Director General, Rural Energy Agency, 2 nd Floor, Mawasiliano Towers, Sam Nujoma Road, Ubungo Area, Po. Box 7990, DAR ES SALAAM Tel: Fax: Website: [email protected]

22 THANK YOU