Powering Uganda to 52,000MW: The challenges and prospects

The strides made in Uganda’s electricity subsector over the last two decades are commendable, witnessing a surge in electricity generation capacity from 317 MW in 2002 to 1,378 MW in 2022 and a corresponding expansion of on-grid access from 5 percent to 19 percent. Despite these achievements, Uganda still faces daunting challenges, particularly with an installed generation capacity per capita of 40 MW per million people—one of the lowest in Sub-Saharan Africa. 

Additionally, the long gestation period for developing power plants, ranging from 5 to 10 years, emphasizes the urgent need for sustained investment in electricity generation and supply. Failing to address this may lead to a shortfall in electricity supply meeting demand by 2030.

The Electricity Regulatory Authority’s (ERA) 2021/22 Annual Report indicates a growth trend in demand, with electricity dispatch increasing by 30 percent, and end-user consumption by 28 percent, over the preceding five years. To meet the projected growing demand, the Government of Uganda (GoU) has outlined Vision 2040 targets in that regard. These include increasing electricity generation capacity to 52,481 MW, enhancing on-grid access to 80 percent, and increasing electricity consumption to 3,668 kWh per capita. Achieving these targets requires substantial investments, estimated at $245 billion for new generation capacity, as outlined in the Energy Policy 2023.

Examining the funding landscape for the electricity subsector investments reveals a reliance on the 3 T’s: Taxes, Transfers (including development partners and the private sector), and Tariffs. However, challenges exist within this framework. For instance, GoU funding through taxes is considered unsustainable due to fiscal constraints, competing needs, and a debt-to-GDP ratio close to 50 percent. Transfers from development partners, on the other hand, face reductions due to competing demands and restructuring of assistance programs. 

Meanwhile, an analysis of the tariffs indicates that, particularly for the state-owned companies (SOCs)—UEGCL, UETCL and UEDCL—the electricity end-user tariffs do not cover full cost recovery, so as to keep tariffs low. In fact, the NDP target is to reduce the tariff of all consumer categories to US$ cent 5/kWh by 2024/25 and ERA’s 2022/23 target was to reduce the weighted average end-user tariff by 4 percent from Shs460 in 2021/22. 

However, well-intentioned as it may be, artificially lowering end-user tariffs through the GoU policy to set generation tariffs at no more than US$ cent 5/kWh—below the cost recovery level for most generation technologies—has lowered the appetite for private-sector participation in the electricity subsector. 
This policy has already constrained UEGCL’s ability to efficiently operate and maintain its existing assets and also meaningfully contribute to the much-needed investment in new generation capacity.

To highlight the financial predicament of the SOCs, the Auditor General expressed concern about UEGCL’s low return on assets, which indicates a suboptimal utilisation of the company’s assets to generate revenue. For instance, with an average tariff of US$ cent 1.51/kWh—significantly below the weighted average generation price of US$ cent 5.49/kWh—UEGCL’s Nalubaale-Kiira Power Station (NKPS) is subsidising the tariff, at the expense of generating revenues for asset renewal and investment in new generation capacity. For context, if NKPS was allowed a tariff of US$ cent 8/kWh, like most Independent Power Producers (IPPs), it would generate about USD 97 million per year in additional revenue, enough to build another Isimba Power Plant in just 6 years.

To solve similar financial challenges, the Government of Kenya (GoK) supported KenGen (UEGCL’s equivalent in Kenya) in attaining a full cost-recovery tariff, leading to its financial viability and sustainability. Consequently, KenGen can operate commercially and attract private-sector funds. Moreover, in 2006,  GoK sold 30 percent of its stake in KenGen following a successful Initial Public Offering (IPO), raising over $100 million. KenGen has since continued to increase its shareholder value through profitability, and in June 2023, the company paid KES 1.4 billion (over $10 million) in dividends to GoK.

In the end, powering Uganda to 52,481 MW is an ambitious target, but it is achievable. This calls for innovative funding approaches and adopting some of the lessons learnt from Kenya, which will ultimately necessitate tariff and subsidy policy reforms in the electricity sub-sector.

Dr. Eng. Harrison E. Mutikanga, Chief Executive Officer Uganda Electricity Generation Company Ltd.