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To be cited as:

Pendezza, J. (2015), Coupling Universal Energy Access with Financial Sustainability: the Case of Luganga SHPP, paper presented at POWER-GEN Africa 2015 Conference, Cape Town, South Africa, 15th-17th July 2015.

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1. Abstract

2. The Situation of Rural Electrification in Tanzania

3. Universal Energy Access: the Unique Role of Renewable Mini-grid

4. The Financial Sustainability of Renewable Mini-grid

a. Realization of socio-economic survey of the area supposed to be reached by the foreseen mini-grid

b. Realization of a Tool Kit to promote productive use to improve economic and financial sustainability

5. The Case of Luganga SHPP

a. The Implementing Partners and the Donor

b. The Activities and Outputs of the Feasibility Study of Luganga SHPP

6. Conclusions

Contents

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1. AbstractModern energy access is an essential precondition for economic development. It is essential for poverty reduction, improvement of human health, women’s empowerment, education. With access to reliable and affordable energy services, local entrepreneurs and companies of any size can generate local jobs, income and, thereby, promote local development, in particular in rural and peri- urban areas. The major barriers toward improving rural electricity connectiv-ity in Africa include: absence of national grid in large part of the country, high cost of delivering electricity to rural areas, high upfront investment costs; scat-tered settlements in the rural areas leading to long and costly distribution lines. Other challenges are harsh terrains and inaccessibility due to underde-veloped infrastructure leading to high cost of rural electrification projects; high operating costs of grids in rural areas due to low population density.

For these reasons, several experts suggest that the extension of the main grid is not the most econom-ical viable solution to grant energy access to rural communities. In most of the case, and especially in Tanzania, the best option is the realization of renew-able source powered mini-grid (both grid-connected and off-grid). This option, if carefully analyzed, allows to reach more and more rural clients and at the same time to increase the share of renewable energy pro-duction.

Experience, however, has shown that it is not enough to simply create a new mini-grid and hope for local economic activities to pick up just by themselves. Countless electrification projects have suffered from a low demand response from the commercial sec-tor that ended up affecting plans and expectations. This usually determines two significant consequenc-es: First, the hoped-for impact of electrification pro-grammes on the development of local communities often struggles to materialize. Secondly, the electri-fication schemes suffer from a lack of new custom-

ers able to pay for their electricity connection and use the new availability of electricity for productive purposes. Such developments have undermined the entire economic viability, and thus sustainability, of many electrification programs in developing coun-tries.1 This paper explores the concrete steps to be put in place in order to increase the financial sustain-ability of a mini-grid, in order to couple universal ac-cess to modern energy services with sound financial sustainability of the systems providing electricity. To show that, it will take in account a feasibility study that CEFA is doing the Luganga site, Tanzania.

1 EUEI PDF, GIZ (2011). Productive Use of Energy – PRODU-SE. A Manual for Electrification Practitioners.

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2. The Situation of Rural Electri-fication in Tanzania

Tanzania’s power supply consists of the national in-terconnected system and several mini-grids serving areas located far from the national grid. At the pres-ent, the energy balance in Tanzania is dominated by traditional use of biomass in the form of charcoal and firewood. About 70 percent of the Tanzanian popula-tion lives in rural areas and depends on agriculture activities. The Agricultural sector contributes about 50 percent of the national GDP. At the present 24 percent of the Tanzanian population are connected with electricity. Only about 11 percent of the rural population is connected with electricity services. The government plans to increase the connectivity level to 30 percent by 2016; 50 percent by 2025 and at least 75 percent by 2033.

For many years electricity generation was depending on hydro. However, the generation mix has signifi-cantly changed following discovery and commercial-ization of natural gas. The total installed electricity generation capacity is 1,591 MW (April, 2014). It is composed of hydro 562 MW (or 36 percent), natural gas 527 MW (or 33 percent) and liquid fuel 495 MW (or 31 percent). Independent and Emergency Power Producers (IPPs) own and operate power plants with a total installed capacity of about 417 MW. Tanzania also imports electricity from Uganda 8 MW, Zambia 5 MW, and Kenya 0.85MW.The country suffers from low coverage of the electric grid and an increasing short-age of electric power production capacity in relation to demand, which roughly grows with the economic growth. The reliability of the electric grid power is low, with frequent brownouts and blackouts. In 2011 there was an estimated private individual installed capacity (small generators) of 300-400MW not con-nected to TANESCO producing at about €0.26/kWh using diesel.2

2 Final Report on Joint Energy Sector Review for 2010/11, MEM, September 2011

3. Universal Energy Access: the Unique Role of Renewable Mini-grid

As a first step to improving access, most governments in the region (including the Government of Tanzania) have developed national electrification strategies. Virtually every one of these strategies recommends a two-track approach to providing greater access to grid-based electrification.

On the centralized track, electrification is undertaken by national governmental entities such as the state-owned national utility, a rural electrification agency (REA), or the Ministry of Energy, acting alone or to-gether. Electrification occurs primarily through ex-tensions of the national grid. By contrast, on the de-centralized track, electrification is generally carried out through non-governmental entities such as co-operatives, community user groups, faith-based en-tities, NGOs, or private entrepreneurs. These entities will usually realize and operate isolated mini-grids that provide power to one or more local communi-ties and produce distribute electricity to customers such as households, businesses, public institutions, and, in some instances, the national utility.

This paper focuses on the decentralized track, with particular emphasis on how to encourage the cre-ation of commercially viable small power producers (SPPs) and mini-grids in rural areas. In fact, although there is general agreement on the need for a two-track approach, most national electrification strate-gies contain few, if any, practical details on how the two tracks should be implemented.

A definition: SPPs are independently operated elec-tricity providers that sell electricity to retail custom-ers on a mini-grid or to the national utility on the main grid or on an isolated mini-grid, or to both. SPPs are usually defined by their size (for example, less than 10 megawatts [MW]), the fuel they use (for ex-ample, diesel and biomass), or their technology (for

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example, solar photovoltaic). In some countries SPPs are referred to as distributed generators, mini-grids, or community-level mini-utilities.

It is important to understand the various kinds of SPPs. A general categorization put them into four principal cases, as shown in table 1, according to who their customers are and whether or not they are connected to the main grid. SPPs can also operate as combinations of these cases. For example, a SPP may sell at wholesale to the national utility on the main grid (Case 4) but at the same time also sell at retail to households and businesses on new mini-grids that are electrically connected to the main grid but oper-ate as separate distribution businesses (Case 3).3

Table 1. Four Basic Types of Small Power Producers (SPPS)

Location of generation

Connected to isolated mini-grid

Connected to main grid

Nature of cus-tomers

Selling retail (directly to final custom-ers)

Case 1: Isolated SPP selling directly to retail cus-tomers

Case 3: SPP con-nected to main grid selling directly to retail customers

Selling whole-sale (to utility)

Case 2: Isolated SPP selling wholesale to utility

Case 4: SPP con-nected to main grid selling wholesale to utility

To achieve universal energy access by 2030, the In-ternational Energy Agency (2011) indicates that 55% of additional electricity generated will need to be in mini- and off-grid solutions. This is a strong mes-sage to governments and the international commu-nity that they must urgently increase investments in decentralized energy. Thus we at CEFA advocate countries producing investment prospectuses as part of the SE4ALL initiative to focus heavily on planning for and encouraging investments in decentralized

3 Tenenbaum B, Greacen C, Siyambalapitiya T, Knuckles J. (2014)From the bottom up: how small power producers and mini-grids can deliver electrification and renewable energy in Africa. Directions in development. Washington, DC: World Bank.

modern energy services access. 4 In most of cases, government investments and public budgets have proved to be insufficient to expand access to mod-ern electricity services in rural areas in a sustainable manner. Mobilizing financial resources to expand lo-cal energy services delivery in Tanzania is therefore an imperative. CEFA proposed Non-Profit/For-Prof-it Partnerships (NPFPP) as one of the best solutions for supplementing and overcoming budgetary con-straints for widening access to energy services, es-pecially to local communities. These partnerships can in fact allocate project-risks between the public/non-profit and private sector. Profit motivations are blended with social concerns and empowerment of targeted communities. This type of partnership in re-cent years has often been advocated by some of the major international donors, and today has almost the contours of obligation.5

However, until now, unfortunately, there are very few examples of the private sector funding energy access to poor people projects. Banks see the various decen-tralized energy sectors as being in their early stage and because of the unusual customer base, bankers and investors up to now have been largely unwilling to provide capital for energy poverty interventions. Moreover, in case of selling to the national grid, the main client (e.g. TANESCO in Tanzania) suffers of late payment records.6 This situation means there is a clear and urgent need for increasing the commercial viability of the decentralized energy sector through actions taken directly by the developer.

4 UNDP (2011) Decentralized Energy Access and the Millen-nium Development Goals: An Analysis of the Development Benefits of Micro-Hydropower in Rural Nepal.5 Pendezza, J. (2014), ‘Non-Profit/For-Profit Partnerships in SHPP: CEFA’s Experiences and Perspectives in Tanzania’, paper presented at POWER-GEN Africa 2014 Conference, Cape Town, South Africa, 17-19 March 2014.6 Practical Action (2014) Poor People’s Energy Outlook 2014, Rugby: Practical Action Publishing.

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4. The Financial Sustainability of Renewable Mini-grid

Experience, in fact, has shown that it is not enough to simply create a new mini-grid and hope for local economic activities to just pick up by themselves. Countless electrification projects have suffered from a demand response that standed behind plans and expectations. With two significant consequences: First, the hoped for local development impacts of the electrification programs did not materialize. Second-ly, the electrification schemes suffered from a lack of new customers being able to pay for their electricity connection and use the new availability of electrici-ty for productive purposes. Such developments have undermined the entire economic viability, and thus sustainability, of many rural electrification projects in developing countries.7 We will focus on the second aspect, because low electricity consumption rates represent one of the main obstacles to financial sus-tainability for projects of this kind.

For this reason, we propose that at least two steps are to be taken in consideration well before the re-alization of rural electrification project. These steps have to be taken already at the early stage of concep-tualization and definitely in the phase of feasibility study.

1. The realization of a socio-economic survey of the area supposed to be reached by the fore-seen mini-grid.

2. The design of a Tool Kit meant to foster pro-ductive uses of electricity in order to improve economic and financial sustainability.

7 EUEI PDF, GIZ (2011). Productive Use of Energy – PRODU-SE. A Manual for Electrification Practitioners.

a. Realization of a socio-economic survey of the areas supposed to be reached by mini-grids.

It is important, since project conceptualization, to make consumers aware of off-farm employment and business opportunities made possible thanks to rural electrification. Another key element, rarely addressed in developing countries, although fun-damental for creating the conditions necessary for achieving the positive change we are all seeking for, is consumer finance(from connecting to grids, to wiring, to financing appliances and equipment). Availability of resources and affordability of energy services are amongst the most important pre-requi-sites for building-up consumer demand. Savings and credit cooperative societies (SACCOS), micro-finance entities, even commercial banks active in rural areas, other innovative finance (such as hire-purchase), can all play a key in successfully fostering growth of rural electricity demand.8

Mike Bess, an Independent Clean Energy and Climate Change Specialist with more than 30 years of experi-ence, has developed over the past 25 years, simple, easy, but very indicative approach for measuring and analyzing consumer demand, which is of absolute ne-cessity in developing both technical and commercial, financing models for mini-grids. These simple “Rap-id Rural Appraisal” methodology, which involve high school or post-secondary enumerators, guided by two technical people, one a system engineer/tech-nologist and the other by a social-economist, could be useful to implement a detailed load demand sur-vey. It will find all the people who are using diesel within a 20-30km radius, look at their demand, and then, look at household demand. This will give you the “anchor customers” to start out.

Simultaneously, consumer demand must be under-stood, and the whole issue of “building out demand”

8 Mike Bess (2015), Private e-mail correspondence with the author.

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must be addressed. This comprehends from how to charge consumers, to how to offer services to sup-port the building out, increase demand among con-sumers for “productive uses”.

Always in accordance with the Mike Bess’ proposal, the following shall be carried out by the above men-tioned team:

1.1 Identify as many likely projects or project ar-eas as possible from the sampling framework;

1.2 Rank each projects or project areas on the basis of estimated highest cost of service de-livery and lowest, with notes on geographic location, type of project, likely impact (types of customers, estimated number of custom-ers, replicability);

1.3 Select from 1.2 one site with highest esti-mated cost of service delivery, one with the estimated lowest and one that represents an estimated medium cost range.

1.4 Obtain all possible information on the sites

and the locations, including any studies, pre-feasibility studies, feasibility studies, de-mographics, and other data and information as possible. For example, Tanzania Bureau of Statistics, district statistics, Tanzania Federa-tion of Cooperative data, SIDO data, among others.

1.5 Contact all relevant bodies prior to the visit in order to have best participation and shortest turn around on each visit.

1.6 Set out a visit schedule for each site.

1.7 Inform local authorities and key stakeholders of visits once the dates are finalised;

1.8 Make visits, and in each location, undertake the following three information and data collection exercises: a) Site, system and load mapping with associated information; b) So-cio-Economic assessments including focus groups/key informant interviews, energy supply sales price information, and individual

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surveys.

1.9 Data will be collected and then collated as the work is undertaken. In the case of the site, system and load mapping, a hand held GPS will be utilised, and an on-the-spot schemat-ic (map, where possible) will be drawn with each demand center identified and load es-timated. In the case of the demand data and information collected, data will be entered on the prepared data spreadsheet.

1.10 A pre-feasibility report, with basic business plan information (in business plan format) will be prepared after sites have been visited, with major observations and any recommen-dations that come out of the work.

b. Design of Tool Kit to foster productive uses of electricity to improve econom-ic and financial sustainability

Concrete and dedicated activities should, wherever possible, complement energy access programmes so that they result in the productive use of the newly available energy services and, thus, foster income generating activities and local job creation9. Pro-ductive use of electricity can be a significant driver of economic expansion and social advancement. In fact, the use of modern forms of energy can support the creation and upgrading of value chains, facili-tate diversification of economic structures, increase the resilience of local communities and reduce vul-nerability to multiple stresses and external shocks. Consequently, many energy access programmes in developing countries refer explicitly to productive use of electricity as one of their intended outcomes. Experience has shown, however, that in the absence of targeted activities promoting productive use, the level and timing of uptake of productive uses often lags far behind expectations. There is growing con-

9 EUEI PDF, GIZ (2011). Productive Use of Energy – PRODU-SE. A Manual for Electrification Practitioners.

sensus among energy practitioners that active sup-port is needed for productive use of electricity to ensure that providing access to electricity produces significant results. Efforts to design and implement practical, effective programmes aimed at promoting productive use of electricity in developing countries still face challenges. Productive use of electricity lies at the interface between energy and economic de-velopment, which is why there is a lack of expertise among practitioners in both fields.

In simple terms, productive uses of electricity are those that increase income or productivity. In rural contexts in developing countries, typical productive uses can be found in agro-processing (e.g. grain mill-ing), various manufacturing industries such as car-pentry, tailoring, welding and looming, and in the service sector, e.g. in bars and restaurants that use electricity for lighting, sound systems and refriger-ation, as well as for charging mobile phones. Elec-tricity is also often used productively for agricultural activities on various scales in rural areas, including subsistence farming, e.g. for irrigation (probably the most predominant productive use of electricity in ru-ral settings) and electric fencing (see Cabraal et al, 2005).10 Considering that the ultimate goal of rural electrification is economic and social development, support for productive usage is generally justified as a direct measure for enhancing the development outcomes of rural electricity access. Moreover, pro-moting productive uses can help to improve the economic and financial sustainability of rural electri-fication programmes and projects, coupling this ob-jective with universal energy access for all.

10 R. Anil Cabraal, Douglas F. Barnes, Sachin G. Agarwal (2005): Productive Uses Of Energy For Rural Development. Annual Review of Environmental Resources, 30: 117-44

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i. Promoting productive use to enhance eco-nomic and social development outcomes of rural electricity access

In the past, many electrification projects focused on providing energy access and/or services, either with the intention of fostering social development or with the assumption that enhancing access to electricity would inevitably boost economic development. In fact, experience has shown that expanding electricity access is a necessary (or at least conducive), but rare-ly a conclusively sufficient precondition for enabling income growth and employment generation. In the absence of well-targeted support measures, produc-tive uses of electricity often catch on much slower or to a much lesser extent than initially expected. Tech-nical and financial assistance may encourage private actors to take advantage of electricity access for pro-duction processes and services. Measures geared to promote productive uses can therefore help translate electricity access into positive economic and social development outcomes in the form of increased in-comes and employment, reduced workload (which, for example, can free time for other entrepreneurial activities), availability of higher quality products, and

lower consumer prices because products can be sup-plied locally.

ii. Promoting productive use to improve eco-nomic and financial sustainability of rural electrification programmes and projects

Demand for electricity in rural regions of developing countries typically tends to be very low due to low population densities and low energy consumption per household. This, in combination with often dis-persed settlement structures, makes investment in both power generation and distribution unprofitable in many rural areas. The higher the demand density (and the capacity to pay) for electricity, the easier it is to achieve financial viability of rural electricity ser-vice provision. Rural grid extension plans therefore often focus on growth centres where local govern-ment infrastructures such as police stations, agricul-tural extension and health services are concentrat-ed. One important additional option for boosting the likelihood of rural electrification programmes, despite limitations in public budgets, is to increase demand for electricity by promoting productive and commercial uses. This reasoning, however, is valid

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only under the assumption that commercial users can translate electricity use into higher firm profits by either reducing production costs or augmenting revenues through increased output, higher quality, or new products and services.

In order to promote the productive use of electricity, rural electrification projects should be accompanied by complementary services that advocate reason-able take-up and usage of electricity. 11Such com-plementary services mainly comprise sensitization campaigns to raise awareness for both advantages and disadvantages of electricity among households, enterprises and social institutions. With respect to commercial electricity users, complementary ser-vices additionally cover business development ser-vices and micro-finance services.

According to the literature available (see J. Peters, M. Harsdorff, F. Ziegler, 2009)12, the absence of new investments related to the productive use of elec-tricity by new customers is partly due to lack of fi-

11 S. Sarr, J.P. Thomas (2005): The role of renewable energy in the development of productive activities in rural West Africa: the case of Senegal. Final Report. Renewable Energy Technology Working Group, Global Network on Energy for Sustainable Development12 J. Peters, M. Harsdorff, F. Ziegler (2009): Rural electri-fication: Accelerating impacts with complementary services. Energy for Sustainable Development, 13: 38-41

nancial possibilities and limited access to credit. Furthermore, some entrepreneurs declared to be more inclined to work with traditional non-electrical machines and tools. Knowledge about how to apply electrical devices is very weak. The role of comple-mentary services is self-evident in this case. One just has to imagine that an entrepreneur who never used electricity and related machines has neither the imagination of a modern production process nor the experience and knowledge in designing the business plan and lending with a bank. Vocational training and information campaigns are indispensable. Moreover, micro-financial institutions (MFI) have to be mobi-lized and if necessary advised with respect to appro-priate financing instruments.

CEFA is well aware of these necessities. In fact, all its rural electrification interventions (or better to say, its integrated rural development initiatives) have fore-seen also the establishment of vocational centers and the realization of extensive field seminars cam-paigns. For example, in the first of its interventions in Matembwe, in the Njombe Region, CEFA supported the realization and management of a vocational cen-ter, an animal feed factory and a poultry farm for the production of high quality chicks. In its second one, in Bomalang’ombe, CEFA fostered the creation of a

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small factory producing jam and sausages, a carpen-try workshop, as well as supporting a local MFI. In its third intervention, CEFA established another car-pentry workshop, a sunflower oil processing factory, a garage, a tailoring workshop and a SACCOS.

Another cause of low productive use of electricity cit-ed by rural entrepreneurs is the difficulty to access to wider markets that hinders them from expanding their businesses. For certain entrepreneurs, markets within their villages of origin are too restricted due to residents’ limited purchasing power. In addition, goods that are easy to produce at home are not prof-itable if produced commercially. The most profitable entrepreneurs are those that supply their goods and services beyond village frontiers. Thus, the frequent-ly cited perception of access to markets as the main obstacle for villages to develop economic dynamics seems to be confirmed in the target region.13 The question of whether and how complementary ser-

13 Kirubi C. (2006) How important is modern energy for micro-enterprises? Evidence from rural Kenya. Berkeley: University of California

vices could tackle this problem is not that obvious. While vocational training can try to address a part of the problem, the lack of purchasing power is cer-tainly insoluble in the short term. Yet, an appropriate use of electricity at household level could increase financial possibilities significantly. Nevertheless, an attempt could be made to extend the market horizon of local entrepreneurs by granting them access to in-formation concerning prices and demands in neigh-boring regions, as well as transportation possibilities.

5. The Case of Luganga SHPP CEFA now want to apply these theoretical informa-tion in practice, thus, within the framework of a new feasibility study. CEFA will verify the feasibility of the realization of a new small hydropower plant (SHPP) in Luganga – Iringa, Tanzania.

The proposed project consists in the realization of a bankable feasibility study concerning the devel-

SME  EXCELLENCE  AWARDS  

“Project financed by the Ministry for Foreign Affairs of Finland, the Austrian Development Agency and the UK Department for International Development”

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opment of a 6.8 MW run-of-river SHPP in Luganga. More specifically, the project intends to: verify the technical feasibility and environmental sustainability of the proposed SHPP; determine the financial viabil-ity of the initiative; and outline a socio-economic de-velopment plan for the area reached by the foreseen mini-grid. Technical feasibility and environmental im-pact assessment will be carried out by two consult-ing companies, to be selected through a tendering procedure. The socio-economic development plan, instead, will be realized by CEFA and SME Excellence Awards, CEFA’s local partner.

a. The Implementing Partners and the Donor

CEFA Onlus (European Committee for Training and Agriculture) was founded in Bologna - Italy, in 1972, under the initiative of a group of agricultural coop-eratives related to the Christian Workers Movement. Strongly committed towards international solidarity and voluntary service, CEFA began realizing its first international interventions in Tanzania; to then rap-idly expand its operations in other developing coun-ties in Africa, Latin America and Eastern Europe. CE-FA’s main areas of intervention are: integrated rural

development and urban poverty alleviation. Within both areas, CEFA’s main objective is to support and accompany local communities in establishing sus-tainable and durable development processes. The means are various and include: infrastructural sup-port, economic empowerment, agricultural devel-opment and provision of social services. In Tanzania CEFA is particularly active in the Southern Highlands (south-west of the country), where it has realized nu-merous integrated rural development projects. Rural electrification has always represented an import-ant component of CEFA’s action within the country. During the last 30 years CEFA has realized 3 mini-hy-dropower plants, which currently serve 5 villages, for a total of 1,070 households, private enterprises and public service providers connected to the SHPPs’ mini-grids.

Matembwe, in the District of Njombe, is where CEFA realized its first hydro power plant in Tanzania. The project was commissioned in 1984. At present the power plant and the distribution network are owned and managed by the Matembwe Village Company – MVC Ltd, a local entity established by CEFA together with the other partners of the original project (Cath-olic Dioceses of Njombe, District of Njombe and Vil-

Matembwe, Njombe

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lage of Matembwe). With a output of 120 kW, the plant serves 700 connections.

Bomalang’ombe, in the District of Kilolo, is where CEFA built its second hydro power plant. The avail-ability of electric power determined a rapid develop-ment of the village of Bomanlg’ombe, that in these years has seen its population grow from 5.000 to more than 12.500 inhabitants. At present the pow-er plant and the distribution network are owned and managed by the Bomalang’ombe Village Company – BVC Ltd, a local entity established by CEFA together with the other partners of the original project (Cath-olic Dioceses of Iringa, District of Kilolo and Village of Bomalang’ombe). With a output of 250 kW, the plant serves 400 connections.

Ikondo, in the District of Njombe, is where CEFA real-ized its third hydro power plant. Unlike the previous two sites, Ikondo is a run-of-river plant, which uses the water provided by the river Kyepa. With a out-put of 80 kW, the plant serves 200 connections. The project intended to help start-off the development of the village of Ikondo, a very isolated settlement in the District of Njombe. At present the power plant and the distribution network are still owned and managed by CEFA. CEFA’s current electrification proj-ect is an upgrade of the previous project in Ikondo. The project, co-funded by the European Union un-der the 10th EDF, started in September 2011 and will permit at the end of the 2015 to upgrade the output of the power plant up to 480 kW and to increase the

Bomalang’ombe, Iringa

Ikondo I and II, Njombe

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actual distribution grid reaching 4 new villages and connecting to the Matembwe grid and to TANESCO’s national grid in order to sell the excess of production. At the end of the project the power plant and the dis-tribution network will be owned and managed by the Matembwe Village Company – MVC Ltd. Moreover, CEFA has recently been awarded by REA a match-ing grant for the realization of a feasibility study for a possible 6 MW SHPP situated in Ninga – Njombe. This feasibility study was finalized in March 2015 and CEFA is currently looking for the financial closure. Fi-nally, in February 2015 CEFA has been awarded by EEP a grant for the realization of a feasibility study, the one the paper is focus on.

SME Excellence Awards

SME Excellence Awards is a Tanzanian entity special-ized in SME development in Rural and semi Urban areas. SME Excellence awards searches for suitable partner organizations supporting rural development in enterprise and culture development in Tanzania. With a country wide network of Business Develop-ment Service providers, the SME Excellence awards finds innovative solutions to assist local communities achieve enterprise growth and excellence via inter-ventions in various enterprise development sectors.

Scope of recent work undertaken in energy based economic development:

• Enterprise development in the Rufiji River Basin - for women bound to household chores and faced ab-ject poverty due to the backward culture and norms of the people living in these areas.

• Enterprise culture project – Sumbawanga - SOLAR power and Wind power solutions promoted amongst backward communities and provided training on managing solar power related businesses including servicing and maintenance.

• Promote constituency and resources to potential investors – Manyara - 26 potential investors oriented

and local matching partners established in rural en-ergy production and use amongst women and youth.

• Impact assessment of rural areas introduced with renewable and Solar based energies in Kilimanjaro region.

Energy and Environment Partnership (EEP)

The Energy and Environment Partnership (EEP) is a Programme which promotes renewable energy (RE), energy efficiency (EE), and clean technology in-vestments. The programme started 2002 in Central America before its implementation in South-East Asia and Africa. The EEP Programme in Southern and East Africa is jointly funded by the Ministry of Foreign Affairs of Finland (lead donor), The Austrian Devel-opment Agency (ADA) and the UK’s Department for International Development (DFID). EEP implementa-tion in southern and eastern Africa started in March 2010. Total funding for the first phase (2010-2013) was 25 million Euros and second phase (2013-2017) 35 million Euros.

The EEP Phase II management and implementation is coordinated by the KPMG (Finland) EEP Coordination Office (KPMG ECO) based in Pretoria, South Africa. In the participating countries National Coordinators are appointed from the Ministries of Energy to partici-pate in Programme coordination at the country level, providing also insights of new energy innovations in a region. Representatives from the donors, the South-ern Africa Development Community (SADC) and the East African Community (EAC) are members of the Supervisory Board, which has the overall oversight of the Programme.

The EEP Programme supports projects which aim

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to provide sustainable energy services to the poor and combate the climate change. The basic idea was to adopt a bottom-up approach, providing par-tial (or co-) financing to project proposals prepared and presented by stakeholders directly engaged in the development of various local renewable energy sources and reduction of dependence on imported fossil fuels. Special emphasis was laid on avoiding un-necessary administrative burden and on flexible and rapid actions by making use of modern information and telecommunications technologies. To qualify for EEP support projects should also demonstrate high innovation in delivering energy services, facilitating technology transfer, encouraging cooperation and local stakeholders’ participation in projects. EEP pro-vides seed financing to cover part of the project costs which are necessary to start and develop a business (such as pilot and demonstration activities) or which can create something in value so that it is worthy of investment (such as pre-feasibility and bankable fea-sibility studies). Funding at this stage helps the busi-nesses to sustain themselves for a period of develop-ment until they reach a state when they are able to secure investment to continue funding themselves.

The final beneficiaries of the EEP Progamme include households, communities, health service centers, schools, small and medium enterprises (SMEs) and industries that have access to improved energy ser-vices from EEP supported projects. Over the past four years EEP S&EA has funded over one hundred projects which all aim to provide sustainable ener-gy services to the poor and fight against the climate change.

b. The Activities and Outputs of the Feasibil-ity Study of Luganga SHPP

The intervention area of the proposed project is the Nzihi Ward, in the Kalenga Division, which is part of the Iringa Rural District. Luganga, however, the actual site of the proposed SHPP, is situated in the neigh-

bouring Pawaga Ward. The District has a total ex-tension of 20,413.98 km² and can be divided in two different agroecological zones: midlands and low-lands. Although the identified site is situated at an altitude that would locate it in the lowlands (Intake 990 m.a.s.l. – Powerhouse 953 m.a.s.l.), all the other agro-ecological characteristics are typical of the Dis-trict’s midlands. These present an undulating topog-raphy, with scattered mountain hills and plateaus. Rains follow a unimodal pattern, falling between the months of October or November and December and a dry season from January to February or March and a second lower peak that occurs in February or March, with the rains then tailing off in April or some-times May. The area experiences moderate rainfalls, ranging from 600 to 1,000 mm annually, with average temperatures between 15 and 20 Cº.

The Iringa Rural District is part of the Rufiji River Ba-sin. The proposed SHPP will be diverting the water necessary for powering its turbines from the Little Ruaha River, an affluent of the Greater Ruaha. The in-take presents a 680 km² wide catchment basin, while the river shows interesting flow rates throughout the whole year, although further more precise measure-ments are required.

As mentioned earlier, the solution identified for grant-ing the inhabitants of Nzihi Ward access to affordable renewable energy services consists in the realization of a mini-grid powered by a run-of-river SHPP. The advantages deriving from this kind of technology are several-fold. Run-of-river SHPPs are considered more environmentally-friendly than conventional ones, since they don’t require reservoirs for functioning. As a result, people living near the river don’t need to be relocated and natural habitats and productive farm-lands are not wiped out. From an economic point of view, on a medium-long term period SHPPs result more convenient than other technologies (i.e. solar and gensets), since their opex and maintenance costs are lower, which results in significantly lower energy production costs.

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Finally, if located properly and powered by a constant source of water, SHPPs are considerably more reli-able than other renewable energy solutions (i.e. so-lar and wind) and able to run more power-consuming machineries, therefore allowing the establishment of industrial activities.

A pre-feasibility study, conducted by an engineering consulting company specialized in the realization of SHPPs, has highlighted the possibility of developing a 6.8MW SHPP, powered by two Francis turbines meant to operate in parallel. Always according to the pre-feasibility study, the Lunganga SHPP has the po-tential for securing an annual production of at least 43,350 MWh. A quantity able to guarantee the provi-sion of reliable energy services to at least 11 villages of the area, plus to feed in the national distribution grid the surplus of energy generated by the Lugan-ga SHPP and not consumed locally. Site visits and meetings with cluster groups representing the local communities of the area have allowed estimate that in a first development phase there is the potential for realizing approximately 2,011 connections. More specifically, 1859 households, 102 private enterpris-es, and 50 public service providers.

The proposed intervention area has currently no ac-cess to modern energy services. Local households and businesses have to rely on kerosene, batter-ies and small gensets for lighting, charging phones, powering small appliances and machineries. A sur-vey conducted by CEFA in another rural area, with social and economic conditions comparable to those found in Nzihi Ward, have revealed how a household spends in average between 22,000 and 25,000 Tsh a month on energy services. Supposing to apply to households the feed-in tariff applied by TANESCO to IPPs supplying electricity to the national distribution grid (175 Tsh/kWh); and supposing an average dai-ly household consumption of 1.7 kWh, it is possible to estimate an average monthly electricity bill of ap-proximately 9,000 Tsh per household.

This would allow a household to save between 13,000

and 16,000 Tsh a month on energy services, making the connection to the Luganga mini-grid extremely convenient.

One of the peculiar activities of this feasibility study is the realization of socio-economic survey of the area supposed to be reached by the foreseen mini-grid. This activity will be carried out by CEFA and SME Excellence Awards, CEFA’s local partner for the im-plementation of the proposed project. A team of re-searchers will study the demographic and socio-eco-nomic characteristics of the project’s intervention area, through both primary and secondary sources of information. The means used for conducting the survey will include: focus group discussions and sin-gle-person case studies, forum theatre, key informant meetings conducted using semi-structured inter-views and the “Rapid Rural Appraisal” methodology developed by Mike Bess. Besides acting as a baseline study, the survey will help identify the social and eco-nomic potential of the area. This will help maximize the proposed project’s positive impact on household and ward economies, business activities, education, schools, employment opportunities, health services, etc. The survey, indeed, will be propaedeutic to the drafting of a Tool Kit to foster productive uses of electricity to improve economic and financial sus-tainability, meant to foster the productive use of electricity, once the SHPP and the distribution grid will be realized.

Despite the clear convenience of connecting to the proposed mini-grid, the developers could face some difficulties is convincing potential users to do so, given the fact that electricity is still an unfamiliar element for most of the inhabitants of the Ward. In order to overcome this obstacle, CEFA will foresee the realiza-tion of trainings and seminars meant to highlight the advantages of connecting to the Luganga mini-grid. These will include: better and safer lightning during night hours, the possibility of powering small appli-ances (i.e. radios, mobile phone chargers, etc), the chance of starting income-generating activities. For the realization of this awareness raising campaign,

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CEFA will adopt a participatory approach, which will include also the use of forum theatre. This methodol-ogy, already adopted by CEFA within the framework of other development projects, has proven to be par-ticularly effective in fostering within local communi-ties a sense of ownership towards the outcomes of the interventions carried out. This is fundamental in order to secure local community’s support, especial-ly when realizing the mini-grid. Finally, a further ele-ment that could discourage potential users from join-ing the Luganga mini-grid could be the connection

costs, estimated at an average 500,000 Tsh per user. In order to neutralise this risk, the connection fees to each household and industry shall be carried by the project initially and then paid back by the com-munity through micro financiers. CEFA will foresee to seek the collaboration of local credit institutions (i.e. Saving and Credit Cooperatives – SACCOs), in order to develop together credit instruments specifically conceived for facilitating the repayment of mini-grid connections.

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6. ConclusionsIn most of the case the best option to increase to modern energy access to rural communities in Africa is the realization of renewable source powered mini-grid (both grid-connected and off-grid). Experience has shown that it is not enough to simply create a new mini-grid and hope for local economic activi-ties to pick up just by themselves. Countless electri-fication projects have suffered from a low demand response from the commercial sector that ended up affecting plans and expectations. Such problems have undermined the entire economic viability, and thus sustainability, of many electrification programs in developing countries. CEFA and its partner, thor-

ough the above mentioned feasibility study will hope to confirm the interested potential of the identified site This could lead to a bankable project that final-ly would grant to the local communities of the area the possibility of benefiting of a unique opportuni-ty of gaining access to modern energy services. The innovative aspect of this feasibility study is that will incorporate a detailed realization of socio-econom-ic survey of the area supposed to be reached by the foreseen mini-grid in order to know the potential load demand of the area. Finally, this survey will be propaedeutic to the drafting of Tool Kit to foster pro-ductive uses of electricity to improve economic and financial sustainability of the entire system.