Government will not build new power plants

Tuesday January 29 2019

Members of the House Committee on Natural

Members of the House Committee on Natural Resources during a trip to the 5.5MW Rwimi hydropower plant, among other small hydropower plants, in Western Uganda last year. PHOTO BY NELSON WESONGA 

By Nelson Wesonga

The government will not sink money in new electricity generation plants in the medium term. Instead, it will funnel funds to the Standard Gauge Railway (SGR).

Private developers are now free to develop the 840-megawatt (MW) Ayago Hydro Power Plant (HPP) and the 394MW Oriang HPP.
“We couldn’t borrow more money for energy when we have the Standard Gauge Railway,” State minister for Energy Simon D’Ujanga said in response to the Daily Monitor’s query.
“It is just a matter of priority. Ayago and Oriang are open to private developers.”

Another explanation, which Mr D’Ujanga discounted, is that the shift in policy is to allow the government come up with initiatives to consume the excess electricity Uganda will be generating between now and 2025.

As of 2018, the country had an installed generation capacity of 941MW. Peak demand was 625MW.

Were all Uganda’s power plants to operate at 100 per cent capacity, though this is unlikely for engineering and hydrological reasons, there would be an excess 316MW.

Meanwhile, currently in different stages of construction and to be commissioned this year are Isimba (183MW), Karuma (600MW) and Achwa (83MW).

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Relatedly, 218MW from other renewable energy sources, 100MW from a new thermal plant and Muzizi (45MW) are expected by 2020.
Regarding consumption, it is projected that in a high case scenario, demand will grow by 11 per cent (69MW) annually between now and 2024.

On the other hand, in a business as usual (base case scenario), it will be growing by eight per cent (50MW) annually.
Given the supply and demand forecasts, excess supply in the high case is projected to increase to 1,111MW by 2024.
“If no aggressive action is taken to unlock demand, the excess supply will increase from 197MW in 2018 to excess supply of 1,111MW in 2024...” read an excerpt of a proposal by the Finance ministry, which this newspaper has seen.

Capacity charges
Many of the Power Purchase Agreements between Uganda Electricity Transmission Company Limited (UETCL) and power generation plants provide for capacity charges, which means the plants’ power will be paid for regardless of whether it is consumed or not.

To address the issue of capacity charges, it was proposed the government ensures there is increased consumption of power.
That will involve extending the grids to areas that are not presently connected and to annually connect 300,000 new customers to the grids as well as reducing the retail tariff for all industrial and commercial users.

The benefits of lower retail tariffs though might be cancelled out the common power outages now – which force entities to turn to diesel generators. Corruption and bad roads, too, increase the cost of doing business.

Power utilities, on their part, will be required to quicken connections and improve the quality of supply.
Still on increasing demand, the proposal is to increase exports of excess electricity to Kenya, Tanzania, South Sudan, Rwanda, Burundi and the Democratic Republic of Congo.

Uganda already exports power to Kenya and Tanzania. In 2017, inflows from such exports were Shs100 billion.

However, she exports negligible quantities to Rwanda – partly because consumption there is much lower, DR Congo – because she has just inked a Memorandum of Understanding with DR Congo and the transmission line between the two countries needs to be upgraded to wheel even higher voltages of power.

Exports to South Sudan are many years ahead because a high voltage transmission network on the other side of the border would have to be put up from scratch.

According to the proposal, $3.2 billion (Shs11.8 trillion), which would have to be got between now and 2025, is needed to foot the total projected cost of improving the grids. Of that, the transmission network will need $2 billion (Shs7.3 trillion), the distribution grid $995 million (Shs3.5 trillion) and rural electrification $191 million (Shs704 billion).
The financing options include debt financing.

The plan is to borrow on concessional terms $2.2 billion (Shs8.1 trillion) to finance investments in transmission and rural electrification while Umeme would be required to invest $995 million in the distribution network in the service territories where it operates.

Note though was made of the Uganda’s national debt, which is currently $10.7 billion (41.5 per cent of her Gross Domestic Product).

According to the proposal, were Uganda to borrow the entire $3.2 billion that would push the current value of debt to Gross Domestic Product (GDP) ratio to 47.9 per cent in 2023, basing on the average annual growth rate of 6.2 per cent per annum.
It said while that would be 2.1 percentage points lower than the 50 per cent East African threshold, adopting it would be risky as any shocks could lead to the threshold being breached.

Financial cost
Without government action to unlock demand to align with supply, challenges of excess generation capacity have an economic and financial cost to Uganda. The financial cost arises from contractual obligations that require payment for the idle generation capacity. Idle generation capacity exposes Uganda to financial and economic risks due to unutilised generation capacity from the licensed power plants.

The issue of deemed energy arises out of delayed completion of evacuation infrastructure and low demand for electricity.

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