A Uganda People’s Defence Forces soldier at one of the charcoal camps at Apaa Junction in Mungula Parish, Itirikwa Sub-county in Adjumani District on April 18, 2023. PHOTO | TOBBIAS JOLLY OWINY
Uganda’s ability to properly harness its renewable energy potential of 92 percent faces significant barriers, with restricted access to financing emerging as a leading hindrance to cleaner energy transition, a new study has revealed.
According to the latest Renewable Energy Financing in Uganda report, limited enforcement of regulations and standards, leading to infiltration of substandard equipment in the market coupled with insufficient investment in changing user mindsets continues to derail the much touted energy transition.
The total cost of implementing the renewable energy policy is estimated at $3.5 billion or Shs12.7 trillion, with the private sector expected to contribute 86 percent through direct investments in renewable energy. Elsewhere, the government is expected to fund 14 percent of the financial requirements.
Despite being well-endowed with resources such as hydropower, solar, wind, and biomass, challenges attracting investments in the renewable energy sector remain an issue of concern. Findings of the report by the Civil Society Budget Advocacy Group (CSBAG) and OXFAM draw attention to a number of public policy failures.
Uganda’s tax policy, for instance, has incentives, including tax exemptions on imports of renewable energy technologies such as solar panels, solar batteries, and energy-efficient appliances. These are aimed at influencing private sector investment in renewable energy. While such measures have helped reduce the cost burden of renewable energy technologies, the report reveals that they have not been sufficient to address the affordability gap for low-income households.
For instance, the upfront cost of renewable energy solutions remains a major barrier, particularly in rural and marginalised communities. In addition, the renewable energy investment climate is often hindered by limited access to finance for small-scale entrepreneurs and households, despite the availability of subsidies and tax exemptions.
Reliance The report also discloses that Uganda continues to rely heavily on international support and concessional loans to meet its renewable energy financing needs at a time when mismatch between targets and actual financial disbursements is becoming a fixture.
To scale up clean energy and technology supply chains, Uganda will need to accelerate the pace of financial disbursements, enhance private sector participation, and overcome barriers in project implementation. The government has consistently fallen short of the investment targets outlined in the Energy and Mineral Development Sector Development Plan and the National Energy Policy. Uganda Energy Transition Plan (MEMD/IEA, 2023) estimates that an annual investment of $1.2 billion is required to achieve the energy transition goals, but actual government contributions averaged only $150 million annually between financial year (FY) 2021/2022 and FY2023/2024. This funding gap has stalled critical infrastructure projects and limited the expansion of access to renewable energy in rural areas.Inconsistencies between financial allocations and the stated goals of the Renewable Energy Policy is the other concern exposed in the report. While the policy emphasises equitable energy access for marginalised and off-grid communities, more than 60 percent of public funding for energy projects is directed toward large-scale hydropower projects, which primarily benefit urban and industrial users.
The report also found out that delays in budget approvals and disbursements under the Public Finance Management Act (PFMA, 2015) disrupt project timelines and inflate costs. The implementation of the Isimba Hydropower Plant which faced a one-year delay due to mismanagement of funds and procedural bottlenecks, resulting in an additional cost of $10m was held out as an example.
Heavy external funding
The report also makes clear that Uganda’s renewable energy sector relies heavily on international funding from donors and development partners such as the World Bank, AfDB, GIZ, and the French Development Agency (AFD). Even though these partnerships have facilitated Global Energy Transfer Feed-in Tariff (GET FiT), a programme looking to fast-track 17 small-scale renewable energy projects in Uganda, they also create vulnerabilities in long-term financial sustainability.
“The dependency on external grants and loans limits the government’s ability to develop self-sufficient financing mechanisms,” the report reads in part.
“For instance, 80 percent of the $90 million allocated for the GET FiT program was funded by international donors, with the Ugandan government contributing less than 10 percent,” it adds.
The matter of high initial costs of renewable energy technologies also comes up for mention in the report. It is described as one of the most significant barriers to renewable energy adoption in Uganda, despite the gradual reduction in prices for technologies such as solar PV systems, many households and businesses still find them unaffordable.
According to the Energy Sector Review 2023, the high upfront capital costs for solar installations, wind turbines, and biogas systems remain a major constraint, particularly in rural and low-income urban areas. This barrier is exacerbated by lack of renewable energy solutions, and the limited availability of affordable financing options, such as loans or subsidies.
Further, GIZ Energy Access Initiative Report indicates that low levels of energy literacy have hindered effective decision-making regarding the adoption of renewable technologies. This is particularly problematic in refugee-hosting districts like Madi-Okollo and Yumbe, where many households rely on traditional energy sources such as firewood and charcoal.
