Non-Profit/For-Profit Partnerships in SHPP: CEFA’s Experiences and Perspectives in Tanzania

Rev. 3.4 – 03/24/2014 Corresponding e-mail: [email protected]

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NON-PROFIT /FOR-PROFIT PARTNERSHIPS IN

SHPP: CEFA' S EXPERIENCES AND

PERSPECTIVES IN TANZANIA

Jacopo Pendezza CEFA Tanzania

PO Box 59, Njombe Tanzania

Disclaimer:

This document was prepared by CEFA Onlus, Bologna, Italy on the basis of in-depth studies and

analyzes and has recently received the ‘Best Paper Award – Renewable Track’ prize at POWER-GEN

Africa 2014 Conference, Cape Town, South Africa, 17-19 March 2014.

The document cannot be, in whole or in part, distributed, directly or indirectly, to any third person in

any country without the prior permission of CEFA Onlus. Every person who comes into possession of

this document, prior of any use, may notify CEFA, which will assess the eligibility on utilization.

To be cited as:

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.


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1. Abstract

Expanding renewable energy access for rural communities in Africa is a challenging task. In most of the

cases, government investments and donor funds have proved insufficient to expand access to modern

energy in rural areas in a sustainable manner. However, energy production and distribution in rural

areas in Tanzania is now a national priority and a promising business opportunity, because national

policy and legal framework provide a good environment for investments and subsides from co-

financing feasibility studies to project realization. Still, there is a great need for mobilizing financial

resources to expand energy access for rural communities. A partnership between non-profit and for-

profit actors is here proposed in order to rapidly expand energy access and meet national

programmatic targets for electrification and energy production. Essentially, Non-Profit/For-Profit

Partnerships (NPFPP) occupy a fruitful “middle ground” between commercial private sector projects,

focused primarily on profit; and public/non-profit sector projects, focused primarily on enhancing

access. In a nutshell, effective NPFPP couple profit with energy access. This article explores the

concrete possibility of a NPFPP between CEFA, an Italian NGO specialized in rural electrification, and a

private partner for the realization of a Small Hydro Power project in Ninga, Tanzania.

2. Rural Energy sector in Tanzania

Tanzania’s power supply consists of the national interconnected system and several mini-grids serving

areas located far from the national grid. National electrification rate is 18.4%, set to arise 75% by 2035,

but rural electrification coverage is sensibly low, with less than 7% of the rural population (2.2 million)

having access to electricity.

The country’s installed electricity generation capacity is 1,564 MW (as of March 2013), of which

1,438.24 MW is available in the main grid, with the balance of 125.9 MW accounted for by Small

Power Producers (SPPs), mini grids, and imports. About 62% of grid generation capacity is from

thermal (32% from natural gas and 29% from oil), whilst 35% is from large hydropower, with the

remainder from small renewable-energy power and imports. The country suffers from severe droughts

over the last decade, low coverage of the electric grid and an increasing shortage 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. There was an

estimated private individual installed capacity (small generators) in 2011 of 300-400MW not

connected to TANESCO producing at about €0.26/kWh using diesel.1 The update Power System Master

Plan (PSMP, update 2012) estimates now a 565 MW installed capacity from private gensets.

The rural electrification sector is defined by law and well regulated under the Ministry of Energy and

Minerals (MEM). The Rural Electrification Agency (REA), the Energy and Water Utilities Regulatory

Authority (EWURA) and Tanzania Energy Supply Company (TANESCO) are thus the 3 key actors under

MEM in Tanzania dealing with rural electrification, renewable energy and market development.

1

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


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The Electricity Act (2008) describes the power generation, distribution, tariffs, and a specific section on

RE plans & strategies, organization and actors such as REA and EWURA. There is a Rural Electrification

Fund (REF) managed by REB board (MEM & MoF trough REA) and fed by the government, World Bank,

SIDA, NORAD and by a 3% levy. Detailed guide exists to prepare and submit applications. In addition

there is a Power Sector Master Plan (PSMP) which has been revised in 2012 and a Rural Electrification

Investment Prospectus.

A Rural Energy Master Plan was produced in 2005 and is under revision wherein the update started

with 4 regions under IREP project. The objective for electricity access is 30% by 2015 and 50% by 2020,

from 18.4% in 2012. As of 2013, there is only 7% electricity access in rural areas. The first objective is

to electrify all district centers and to reach 16% by 2015 in rural areas.2

Figure 1: Tanzania Existing Network and Proposed Extensions (SREP 2013)

EWURA is also regulating the private sector’s participation through the tariffs and Standardized Power

Purchase Agreement (PPA) for private actors as IPPs (independent power producers), SPPs (small

power producers <10MW), SMPPs (very small power producers < 100kW), DNO (Distribution Network

Operators), SPD (small power distributor).

A state-owned utility called TANESCO is in charge of urban electrification while REA is in charge of peri-

urban and rural electrification. REA has implemented more than 140 grid extensions. TANESCO still has

the monopoly for distribution. For the past several years, TANESCO has experienced serious

management issues which have led to a difficult financial situation (high demand, too low tariffs).

Network quality is very poor despite high-level standards. The benefits from reform engaged by the

government and international donors to restructure TANESCO and to invest in the production and

2

The Power System Master Plan, MEM, May 2013


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transmission infrastructures will take years from now.3 The end-user retail tariff is uniform on

TANESCO network (60 to 273 TZS/kWh for domestic categories, €0.03 and €0.12 respectively).4 The

average retail tariff is estimated at 174.89 TZS/kWh, €0.08/kWh.5 A 3% tax is levied on the tariff for

REA and EWURA. As for the off-grid, tariff is determined by the kind of technology used and

investment cost.

The new institutional framework is favorable to Independent Power Producer and to renewable

energies with feed in tariffs (FIT) determined by EWURA for on-grid and off-grid injection. IPP regime is

set with standard procedures, PPA and annual licenses (>1MW).6 The MEM has adopted in 2007

Standardized Power Purchase Agreements (SPPA) and Standardized Power Purchase Tariffs (SPPT) for

interconnecting and selling power (< 10MW) to the main grid and to mini-grids (cf. below Tables 1 and

2). The tariffs are negotiated through SPPA under SPP guidelines and Standardized Tariff Methodology

and reviewed annually by the Working Group WGSPD hosted by EWURA to accommodate

uncontrollable operational costs. The following tables shows the evolution of FIT in Tanzania during

the past three years:

Table 1: FIT for Main Grid (174.89 TZS = 0.08 EUR)7

Description 2011

Tariff

TZS/kWh

2012

Tariff

TZS/kWh

2013

Tariff

TZS/kWh

Standardized Small Power Purchase

Tariff

121.13 152.54 174.89

Seasonally adjusted Dry season 145.36 183.05 209.87

Standardized SPP

Tariff Payable inn

Rain season 109.02 137.29 157.40

Table 2: FIT Tariff for Mini-Grid (490.13 TZS = 0.22 EUR)

Description 2011

Tariff

TZS/kWh

2012

Tariff

TZS/kWh

2013

Tariff

TZS/kWh

Standardized Small Power Purchase

Tariff

380.22 480.50 490.13

If the Independent Power Producer (IPP) sells hydro-power to TANESCO’s main grid, there are two

feed-in tariffs depending on the season (rain/dry). The feed-in tariff is calculated by EWURA as the

average of the avoided costs of supply and the incremental cost of mini-grids. For 2013, the feed-in

tariff for main grid was set at an average of TZS 174.89/kWh (€0.08/kWh) and for mini-grids was set at

3

Scaling-up Renewable Energy Programme (SREP), Investment Plan for Tanzania. 4

For this study we assume the following change rate: EUR 1= TZS 2,200. 5

The official tariff structure (fixed and variable parts per categories) doesn’t really help for tariff comparison and

analysis. The actual average tariff should be calculated as the ratio between the total yearly income from

electricity sales and the total energy consumed by customers. The average tariff of TANESCO is estimated to be

around €0.08/kWh. 6

Low Carbon Mini Grids, “Identifying the gaps; building the evidence base” Volume 1 (Chapters 1 and 2) Support

Study for DFID Final Report November 2013, IED. 7

Data from EWURA website.


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TZS 490.13/kWh (€0.22/kWh). If the IPP sells to other customers than TANESCO, it can propose tariffs,

which must be approved by EWURA. Standardized documents for power purchase agreements (SPPA)

are available for SPPs with small power systems (<1MW). There are currently 12 registered and

operating SPPs: 1 operating an isolated MG, 11 selling to the grid/TANESCO.

Current government incentives include tax exemption (VAT & import duties) for main solar

components (panels, batteries, inverters and regulators). No tax exemptions are provided for other

renewable technologies (wind, hydro, biomass), unless the project is under international donor-funded

programme, e.g. 10th

EDF from European Commission.

The green mini-grid experience in Tanzania is still very limited. TANESCO is running 21 diesel-based off-

grid stations supplying isolated mini-grids for small towns (installed capacities ranging from 400kW to

12MW and 8 stations have peak loads below 1MW). TANESCO’s priority is to connect those isolated

grids to the main grid.

For off-grid areas where over 80% of the population does not have access to electricity, there is a huge

potential for small-scale renewable technologies. Renewable energies have a key role in the

government’s strategy to electrify rural areas.8

3. The Potential of Small Hydropower in Tanzania

Hydropower is the most popular and the oldest renewable energy source used to produce electricity

for rural grids. Abundant and old experiences exist in several developing countries. Typical capacity

range from few kW (micro-hydro) to few MW (small-hydro), depending on various factors as

hydrology, load demand, geographical constraints. The infrastructure and civil works can be rather

complex and costly depending on the water collection system (pond, weir, channel, forebay, and

penstock). The powerhouse is pretty standard hosting one or more turbines, alternators and control

system. The technology is quite simple and well mature, allowing local repairing, etc. There are several

examples of local manufacturing or assembling companies in Africa dealing with cross-flow or pelton

turbines for rural applications. Investment costs for micro or mini hydro plant are generally claimed to

be low but they are often higher than expected, as they are extremely variable and site-specific.

Moreover the long preparation (studies, ESIA, permits) and lead times are other hurdles.

The assessed potential of small hydropower resources up to 10 MW in Tanzania is 480 MW. The

installed grid-connected, small-hydro projects contribute only about 15 MW. Most of the developed

small-hydro projects are owned by private entities and are not connected to the national electricity

grid. Five sites in the 300–8,000 kW range are owned by TANESCO. More than 16 are owned by faith-

based groups, 29 with a 15–800 kW range in capacity and an aggregate capacity of 2 MW. Of the 11

projects for which Small Power Purchase Agreements (SPPAs) have been signed, four are mini-hydro

projects, with a combined capacity of 20.5 MW, whilst the others are biomass powered. Examples

include Mwenga, a 4 MW hydro plant that supplies power to nearby rural villages, with the excess sold

to TANESCO; AHEPO, a 1 MW privately-owned small hydro project in Mbinga, currently under

8

Renewable sector in Tanzania, UKTI, 2012, www.uktradeinvest.gov.uk


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construction, that will supply power to TANESCO’s isolated grid and directly to communities. In

addition, TANESCO has signed Letters of Intent for six small hydro projects with a combined capacity of

29.9 MW. Several small hydro projects are also being developed as isolated mini grids.

Moreover, different instruments and projects are put in place by the government and donors to

support the hydro-power sector. Currently, the MEM is conducting small-hydro feasibility studies in

eight regions: Morogoro, Iringa, Njombe, Mbeya, Ruvuma, Rukwa, Katavi, and Kagera. The British NGO

GVEP International, in partnership with the REA, is supporting the development of six hydro mini grids,

with a total capacity of 7.4–8.8 MW. The REA has awarded some 20 TEDAP matching grants to private-

sector developers for small hydro pre-feasibility studies. In addition, the Energy Sector Management

Assistance Programme (ESMAP) has approved funding for renewable-energy resource mapping,

starting with small hydropower, including two-year hydrology measurements. The United Nations

Industrial Development Organization (UNIDO) is co-funding the development of six mini grids based on

mini/micro hydropower, whilst the EU is financing four Hydro Power projects (including one developed

by CEFA).9

Hydro plants can be commercially attractive if the output of the least-cost design can be sold. However

this output often exceeds the local demand that could be supplied by a mini-grid. In such cases, the

connection to main grid is therefore required.

4. CEFA and Rural Electrification in Tanzania: 25 years of commitment

CEFA (European Committee for Training and Agriculture) is an Italian NGO that promotes initiatives of

development, cooperation and international volunteer service. Founded in 1972 by a group of

agricultural cooperatives based in Bologna, CEFA supports projects aiming to promote integrated self-

development in rural regions of the Mediterranean, East Africa and Central/South America. Active in

Tanzania since 1976, CEFA promotes interventions in the fields of:

• Rural electrification

• Water supply

• Agriculture

• Agro-processing

In 2007 CEFA decided to start implementing projects in Dar es Salaam addressing urban poverty,

counting on the experience acquired by the organization in urban contexts in Albania, Morocco and

Kenya.

CEFA’s commitment to rural electrification in Tanzania lasts since 25 years. In this period the

organization has realized three mini hydro-electric power plants, providing electricity to hundreds of

people living in the rural areas of the Iringa and Njombe Regions. Careful planning procedures for

technical capacity, good institutional arrangements, managerial capacity and economic considerations,

as well as multi-stakeholder involvement from the planning phase onwards, have resulted in the

9

Scaling-up Renewable Energy Programme (SREP) Investment Plan for Tanzania.


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sustainable operation of the three hydro power plants.10

Such commitment in the sector continues

still today, with a current upgrade project in Ikondo, allowing more and more families to benefit of the

opportunities offered by having electricity in their villages. Here follows a brief description of what has

been realized until now by CEFA in this field.

Matembwe:

Matembwe, in the Njombe District, is where CEFA realized its first hydro power plant in Tanzania,

thanks to funds granted by the Italian Ministry of Foreign Affairs, Belgian Ministry of Foreign Affairs

and the European Union. The construction of the dam began in 1981, while the power plant was

completed 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 (Catholic Dioceses of Njombe, District of Njombe and Village of

Matembwe).

Summary details

Type of facility Reservoir micro hydro plant Commissioning year 1984 Funded by Italian Ministry of Foreign Affairs; Belgian

Ministry of Foreign Affairs; European Union; CEFA

Ownership Matembwe Village Company – MVC Ltd (CEFA, Catholic Dioceses of Njombe, District of Njombe and Village of Matembwe)

Output power 120 kW Villages served Matembwe and Image Distribution network 19 km of MV Households connected 556 Public institutions and economic activities connected

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Aqueducts powered 4 Connection with TANESCO Yes (in 2015).

10

Jonker Klunne, W. & Michael, E.G., Increasing sustainability of rural community electricity schemes—case

study of small hydropower in Tanzania, International Journal of Low-Carbon Technologies 2010, 5, 144–147


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Bomalang’ombe:

Bomalang’ombe, in the District of Kilolo, is where CEFA built its second hydro power plant, on the

model already experimented in Matembwe. The project, co-funded by the Italian Ministry of Foreign

Affairs and the European Union, intended to favour the development of the village of Bomanlg’ombe

by providing it with electricity. The construction of the dam started in 1996, while the power plant was

completed in 2001. The availability of electric power, together with the rehabilitation of the road for

Kilolo, determined a rapid development 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 power 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 (Catholic

Dioceses of Iringa, District of Kilolo and Village of Bomalang’ombe).

Summary details

Type of facility Reservoir mini hydro plant Commissioning year 2001 Funded by Italian Ministry of Foreign Affairs; European

Union; CEFA Ownership Bomalang’ombe Village Company – BVC Ltd

(CEFA, Catholic Dioceses of Iringa, District of Kilolo and Village of Bomalang’ombe)

Output power 250 kW Villages served Bomalang’ombe and Lyamko Distribution network 17.3 km of MV Households connected 252 Public institutions and economic activities connected

76

Aqueducts powered 3 Connection with TANESCO No


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Ikondo:

Ikondo, in the District of Njombe, is where CEFA realized 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.

The project, co-funded by the Italian Ministry of Foreign Affairs and the European Union, intended to

help start-off the development of the village of Ikondo, a very isolated settlement in the District of

Njombe. The construction of the plant started in 1999 and was completed in 2004. At present the

power plant and the distribution network are still owned and managed by CEFA.

Summary details

Type of facility Run-of-the-river micro hydro plant Commissioning year 2004 Funded by Italian Ministry of Foreign Affairs;

European Union; CEFA Ownership CEFA (to be handover to MVC Ltd) Output power 83 kW Villages served Ikondo Distribution network 8 km of MV Households connected 130 Public institutions and

economic activities

connected

46

Aqueducts powered 1 Connection with TANESCO Yes (in 2015)


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Ikondo II

The current electrification project of CEFA is an upgrade of the previous project in Ikondo. The project,

co-funded by European Union under the 10th

EDF, started in September 2011 and will allow in 2015 to

upgrade the output of the power plant up to 430 kW and to increase the actual distribution grid

reaching 4 new villages and connecting to the Matembwe grid and to TANESCO grid in order to sell the

excess of production. At the end of the project the power plant and the distribution network will be

owned and managed by the Matembwe Village Company – MVC Ltd.

Summary details

Type of facility Run-of-the-river micro hydro plant Commissioning year 2015 Funded by European Union; CEFA Ownership CEFA (to be handover to MVC Ltd) Output power 430 kW Villages served Ikondo, Nyave, Ukalawa, Isoliwaya,

Kanikele Distribution network 47 km of MV (in 2015) Households connected 280 (in 2015) Public institutions and

economic activities

connected

75 (in 2015)

Aqueducts powered 1 Connection with TANESCO Yes (in 2015)

5. Looking for a bigger impact: the NPFPP model

The concrete experience of 25 years in Tanzania CEFA coincides with the scientific literature: the

availability of safe, reliable and affordable energy is a prerequisite for sustainable development both at

micro-level and at national level.11

The provision of energy services through renewable energy (in our

11

A. Pueyo; C. Dent; F. Gonzalez; S. DeMartino, The Evidence of Benefits for Poor People of Increased

Renewable Electricity Capacity: Literature Review, Institute of Development Studies UK, 2013.


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case, Hydropower) is capital intensive and requires significant upfront costs compared to conventional

energy technology. In most of cases, government investments and public budgets have proved

insufficient to expand access to electricity and modern energy in rural areas in a sustainable manner.

Mobilizing financial resources to expand local energy services delivery in Tanzania is therefore an

imperative.

In a scenario that has seen decreasing more and more funds for development cooperation, and at the

same time increase the demands from donors in terms of the impact of actions supported (e.g. the

extension of the areas of intervention and number of beneficiaries involved), a new approach is

necessary regarding the action of Non-Profit actors like CEFA in developing countries.

Non-Profit/For-Profit Partnerships (NPFPP) are one of the best mechanisms to supplement and

overcome budgetary constraints for widening access to energy services, especially to the local

communities, as they can 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 recent years has often been advocated by some of the major international

donors, and today has almost the contours of obligation.

An interesting approach towards forming partnerships between CEFA and the private sector to provide

energy services to the communities with emphasis on viable, long-term sustainability is shown in

Figure 2. The NPFPP schema operates on the twin foundations of sharing risks and rewards. Risk

sharing is reflected by the resources invested by the private and non-profit sector in the partnership.

There could be several NPFPP options depending upon the mix of risks and roles assigned to each of

the partners.

Figure 2. The NPFPP model

The partner which invests more is the one which takes the highest risk or is the least ‘risk averse’.

Apportioning of rewards is generally in proportion to risk taken. Additionally, rewards are also

reflected in the availability of tangible incentives for the different players in NPFPP: fulfill corporate


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social responsibility and cost recovery/profit for the private actor; achievement of its mandate of

delivering basic services to local communities for the non-profit actor; availability and access to basic

services for the target communities. This incentive system is the key to sustainability of any NPFPP

venture.12

The long experience of CEFA and the scientific literature13

suggest that the inclusion of multiple

stakeholders in program design, implementation, and evaluation can enhance the efficacy of

renewable energy deployment. The involvement of women’s groups, multilateral donors, rural

cooperatives, local government, local micro financial institutions, nongovernmental organizations and

other members of civil society, and even consumers can increase both the performance and legitimacy

of partnerships. They improve performance since input from multiple stakeholders can accelerate

feedback; they improve legitimacy since programs with a broader base of support, and community

involvement, are less likely to be opposed or protested. The partnership benefits from addition to the

pool of resources of the public and private sector, and the resources (social, human, financial, political

and psychological capital) of the communities themselves. Not only does the delivery of energy

services become more efficient, there are additional benefits that may follow like empowerment of

the communities, social rehabilitation of those suffering from disease, changing the way the private

sector fulfills its corporate social responsibility and enhancement of social development for the

communities involved. This is an important task to be carried out by CEFA in the NPFPP scheme.

6. What next: the concrete example of the Ninga SHPP

At CEFA we are now aware that only with a qualitative jump we can achieve such an impact to be

incisive for a large population that needs energy access. It was therefore decided to take advantage of

the opportunities and instruments that are in place now in Tanzania to design a new project, which’s

12

A. Mukherjee, Engaging Communities in Public-Private Partnerships in the Delivery of Basic Services to the

Poor: Inter-country Models and Perspectives, United Nations Economic and Social Commission for Asia and the

Pacific, Bangkok, 2005. 13

B.K. Sovacool, Expanding renewable energy access with pro-poor public private partnerships in the developing

world, Energy Strategy Reviews 1 (2013) 181-192.


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size and impact significantly differ from the previous ones. The site for the next intervention is in the

Njombe District, Njombe Region (former Iringa), Rufiji River Basin. The interested river is the South

Ruaha, affluent of the Mnyera river and part of the Kilombero River tributary basin.

Technology: Run of river hydropower plant.

Installed capacity: 4,000 kW

Gross head: 73 m

Design Flow: 6.91 m3/s

Impact

The number of connections in the first phase (Year 2017) will be 1,680 households, 169 commercial,

99 Public Services and TANESCO with a maximum electric power generation of 21,750 MWh to meet

the energy load of identified customers and surplus bulk sales to TANESCO.

Costs

Investment for initial phase of 4 MW – € 7.3 million (Tshs 16,060,000 million), and estimated O&M for

Power generation & Distribution of € 183,000.00 (Tshs 402.6 million) per annum.

Unit (production) costs are approximately 2.69 €c/kWh (59.10 Tshs/kWh) over a 10 year time horizon.

Electric Line and Connection to the Grid

The served villages will be Ninga, Lima, Isitu, Ikuna, Lole, Upami and Ilengitu. Ninga SHPP will be part of

a system of rural electrification schemes implemented by CEFA since years. The connection to the

national grid will favour sustainability of the whole system while allowing an extension of the rural

areas served.

Summary details (Foreseen)

Type of facility Run-of-the-river small hydro plant Commissioning year 2017 Proposed financial model Developer equity; credit lines; grants

from International donors, REA, etc and

commercial loans Ownership To be handover to local entity Output power 4,000 kW Villages served Ninga, Lima, Isitu, Ikuna, Lole, Upami

and Ilengitu Distribution network 18 km of MV Households connected 1680 Public institutions and

economic activities connected 268

Connection with TANESCO Yes

Cost Evaluation

The cost evaluation is conducted per gross categories of works, namely: Civil Works, Site mobilization,

Access road, Powerhouse and outlet, Intake, Penstock - supply and lying, Electric line and connection

to the grid, Electromechanical equipment. The cost of the works is evaluated on the base of a very

recent experience made by CEFA in Ikondo. The cost is evaluated under the assumption that project

works and services are contracted to professionals and contractors whether local or international.


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Furthermore the summary of costs shown in Table 3 is prepared following the required scheme of a

Europe Aid grant, in particular contingencies and overhead are set at the required percent value and

an item ‘other costs and services’ has been included to take in account possible required ‘visibility

actions’, publications, financial services, etc. Part of the project cost, namely the connections to final

users (including LV lines) may be supported by a performance grant from REA and the feasibility study

may be supported by a matching grant from REA. In December 2013 CEFA made a request for this

support and the beginning of the feasibility study is foreseen in April 2014.

Table 3 Ninga SHPP - Estimated project cost

Financial Assessment

The following assumptions have been made:

Sale of excess energy - Price per kWh.

The implementation period may take 2 years or more. Under the assumptions that the HPP enters in

operation in 2017, the price per kWh payable by TANESCO is evaluated on the base of the actual

EWURA fixed price (174 TZS/kWh), increased by an annual percent equal to 1%. Consequently the

projection price to 2017 would be 182 TZS/kWh. For further evaluation we estimate an increase of 2%

per year.

Distribution to Villages – Price per kWh

In order to make its rural electrification interventions sustainable CEFA has always foreseen that users

connected to its distribution grids pay for the electricity consumed. Tariffs are determined keeping in

consideration both the power plant’s necessity of being sustainable and the local communities’

average level of income. Specific tariffs have been established for different consumer groups.

Currently users in different grid managed by CEFA are divided in: private households, economic

Description Cost [€] A) Civil Works1) Site mobilization 275,000.002) Access roads 690,000.003) Powerhouse and outlet 380,000.004) Intake 850,000.005) Penstock - supply and lying including cables to the intake 620,000.00

Total Civil Works 2,815,000.00 B) Electric line 33KV and connection to the grid 540,000.00

560,000.00 C) Electromechanical equipment 2,050,000.00TOTAL WORKS A + B + C 5,965,000.00Consultancy services (detailed design and supervision) 480,000.00Other costs and services 35,000.00Subtotal 1 - works and services 6,480,000.00Contingencies % of subtotal 1 5.0% 324,000.00Total direct costs 6,804,000.00Overhead % of total direct costs 7.0% 476,280.00TOTAL PROJECT COST 7,280,280.00Total rounded to 7,300,000.00

B1) Connections to final users including LV lines (net of matching


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enterprises and public service providers. Tariffs are reviewed periodically in order to compensate

inflation and possible increases in running costs.

Table 4 CEFA’s hydropower plant consumers’ tariffs by year [TZS/kWh]

Consumer groups 2008 2009 2010 2011 2012 2013

Private households 52 70 70 70 70 100

Economic enterprises 91 120 120 120 120 175

Public service providers 36 50 50 50 50 70

According CEFA’s experience, payments are collected on a monthly basis. CEFA’s payment collection

officer first of all goes to each user in order to read the consumption data reported on every user’s

meter. The collected data are then processed by a software that determines for each user the actual

monthly consumption and the resulting bill, which is calculated according to the consumer group the

user is registered in. The tariff scheme foresees for all the consumer groups a minimum monthly

payment of 3,000 TZS, even when users’ consumptions are particularly low. Electricity tariffs appear to

not be a problem for the households and private enterprises already connected to the grid. In fact,

since the beginning of operations, bill payment rates have been always 100%. This is mainly due to the

fact that the tariffs set throughout the years have always been particularly favorable and cheaper than

the ones applied by TANESCO.

In order to carry out a sound evaluation we assume that the prices of table 4 will be increased of 20%

at the commissioning date and that further on they undergo a rate of increase of 2% per year.

The mix of users for this project has been evaluated as follows:

Households 85%

Commercial 10%

Public Services 5%

On this basis an average tariff can be calculated.

In the following Table the proposed tariffs to the owned local grid and the price of the energy sold to

TANESCO are shown.

Table 5: Proposed tariffs and projections

For future collection of payments, taking in account the high number of connections, CEFA will likely

turn to a pre-paid system.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Consumers CEFA 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031Private households 120.00 122.40 124.85 127.34 129.89 132.49 135.14 137.84 140.60 143.41 146.28 149.20 152.19 155.23 158.34

Economic enterprises 210.00 214.20 218.48 222.85 227.31 231.86 236.49 241.22 246.05 250.97 255.99 261.11 266.33 271.66 277.09

Public service providers 84.00 85.68 87.39 89.14 90.92 92.74 94.60 96.49 98.42 100.39102.40 104.44 106.53 108.66 110.84

Average CEFA 127.20 129.74 132.34 134.99 137.69 140.44 143.25 146.11 149.04 152.02 155.06 158.16 161.32 164.55 167.84

Weighting CEFA 0.12 0.13 0.13 0.14 0.15 0.15 0.16 0.17 0.18 0.19 0.20 0.20 0.22 0.23 0.24

TANESCO 178.00 181.56 185.19 188.90 192.67 196.53 200.46 204.47 208.56 212.73 216.98 221.32 225.75 230.26 234.87

Average weighted Tariff 171.91 175.04 178.21 181.42 184.66 187.95 191.27 194.63 198.02 201.44 204.90 208.38 211.88 215.41 218.97


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Economic analysis

The purpose is to determine whether or not the project can be economically viable. In case of non-

viability, a grant component has to be determined in order to make the project viable. A typical

financial model can be: 20% developer equity, a credit line (70/80% of the investment) from REA, loans

from commercial banks, grants from International donors (such as REA, European Commission, GVEP,

UNIDO, etc) and Performance grant from REA for the connections. The assumed criterion is a required

payback period (taking in account a certain discount rate for the own resources) of maximum 7 years

and/or an IRR of at least 15% at the 15th

year. As shown in next Table 6 the investment seems to be

very attractive, even without any grant component.

Table 6: Economic evaluation

7. Conclusions

Expanding renewable energy access for rural communities in Africa is a challenging task. In most of the

cases, government investments and donor funds have proved to be insufficient to expand access to

modern energy services in rural areas in a sustainable manner.

Nevertheless, Rural Electrification is now a priority for the Government of Tanzania and for several

International donors (WB, UE, UNIDO, etc.) and for this reason some instruments to make this type of

projects financially viable were put in place. By taking advantage of these opportunities, the new

project of CEFA, the Ninga SHPP, will provide reliable and affordable electricity to about 2,000

Disc. rate on investment 8.00% Depreciation 365,000 €/year 20 yearsGrant 0 Annual generation 21,750 MWh

Price of Energy 0.0795 €/KWh 174.89 TZS/kWh

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

YrEnergy

Sold MWh

Unit Price

€

Sales Revenues

O & M Working

RatioCash Flow

€PBT

Total Cost including

Depreciation

O&M unit cost per kWh

Cost of Kwh

NPV(Col. 7)

IRR (Col. 7)

YearCumulative Cash Flow

€ cent € cent Pay Back6.3 yrs

-2 75 months 2014

-1 -7,300,000 -7,300,000 2015 -7,300,000 1 21,750 0.0795 1,729,026 183,320 0.11 1,545,706 1,180,706 548,320 842.85 2.52 -5,434,065 2016 -5,754,294

2 21,750 0.0827 1,798,187 186,986 0.10 1,611,201 1,246,201 551,986 859.71 2.54 -4,155,042 -41.25% 2017 -4,143,093

3 21,750 0.0860 1,870,115 190,726 0.10 1,679,389 1,314,389 555,726 876.90 2.56 -2,920,642 -17.86% 2018 -2,463,705

4 21,750 0.0894 1,944,919 194,541 0.10 1,750,379 1,385,379 559,541 894.44 2.57 -1,729,363 -3.91% 2019 -713,326

5 21,750 0.0930 2,022,716 198,431 0.10 1,824,285 1,459,285 563,431 912.33 2.59 -579,755 4.78% 2020 1,110,959

6 21,750 0.0967 2,103,625 202,400 0.10 1,901,225 1,536,225 567,400 930.58 2.61 529,592 10.45% 2021 3,012,183

7 21,750 0.1006 2,187,770 206,448 0.09 1,981,322 1,616,322 571,448 949.19 2.63 1,600,038 14.30%2022 4,993,505

8 21,750 0.1046 2,275,280 210,577 0.09 2,064,703 1,699,703 575,577 968.17 2.65 2,632,904 17.01%2023 7,058,208

9 21,750 0.1088 2,366,292 214,789 0.09 2,151,503 1,786,503 579,789 987.53 2.67 3,629,466 18.96%2024 9,209,711

10 21,750 0.1131 2,460,943 219,084 0.09 2,241,859 1,876,859 584,084 1,007.28 2.69 4,590,961 20.39%2025 11,451,570

11 21,750 0.1177 2,559,381 223,466 0.09 2,335,915 1,970,915 588,466 1,027.43 2.71 5,518,585 21.47%2026 13,787,485

12 21,750 0.1224 2,661,756 227,935 0.09 2,433,821 2,068,821 592,935 1,047.98 2.73 6,413,496 22.29%2027 16,221,306

13 21,750 0.1273 2,768,227 232,494 0.08 2,535,732 2,170,732 597,494 1,068.94 2.75 7,276,814 22.92%2028 18,757,039

14 21,750 0.1324 2,878,956 237,144 0.08 2,641,812 2,276,812 602,144 1,090.32 2.77 8,109,623 23.41%2029 21,398,850

15 21,750 0.1377 2,994,114 241,887 0.08 2,752,227 2,387,227 606,887 1,112.12 2.79 8,912,972 23.79%2030 24,151,077

Ninga HPP - Unleveraged Profitability


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households and small enterprises in 7 villages in the Njombe Region. Also the project will sell the

surplus to TANESCO, increasing the national availability of power and at the same time assuring the

financial sustainability of the system. A partnership between non-profit and for-profit actors was here

proposed in order to rapidly mobilize financial resources, expand energy access, enhance

empowerment of the local communities and meet national programmatic targets for electrification

and energy production.

To realize this ambitious project, CEFA has decided to adopt the above mentioned innovative

approach, both financially and operationally, believing that a partnership with a private actor is an

opportunity for increasing the action’s impact on the beneficiaries granting the future sustainability of

the project. At CEFA we are also convinced that the private partner can benefit from this relationship,

taking advantage of our deep knowledge of the country and the long experience of dealing with all

stakeholders involved.

Non-Profit/For-Profit Partnerships in SHPP: CEFA’s Experiences and Perspectives in Tanzania

Government & Nonprofit

Transcript of Non-Profit/For-Profit Partnerships in SHPP: CEFA’s Experiences and Perspectives in Tanzania