Tanzania’s power sector is operated by state-owned utility TANESCO, which has a monopoly on transmission and distribution and dominates generation. Large hydro makes up over one-third of the country’s 1.5GW of total generating capacity, but in recent years low reservoir levels reduced its availability and increased reliance on diesel generation. Several independent power producers participate in the market, both for large-scale gas generation and under a region-leading small power producer program.
A key objective of the Tanzanian government is to replace and expand the emergency capacity with natural gas plants and renewable energy. Under the Electricity Supply Industry Reform Strategy and Roadmap, published in late 2014, it targets 10.7GW of overall capacity by 2025, two-thirds of it from gas and coal. The roadmap only foresees modest renewables capacity by 2025: 100MW of solar and 200MW each of geothermal and wind. The country has yet to see significant levels of clean energy investment: it attracted just $159m of financing between 2006 and 2014, mainly in the biomass and small hydro sectors.
The roadmap also sets out a power sector reform process designed to see TANESCO fully unbundled by 2025. The reforms are divided into four stages – the immediate, short, medium and long term – with ambitious timelines. By the end of 2017, the generation segment of TANESCO should be split from transmission and distribution, with an independent market operator set up to manage wholesale and retail trading. While achieving the full extent of liberalization within the prescribed timelines is unlikely, the vision for market reform is well established.
The country has put in place a regulatory and legal framework to facilitate and encourage the construction of small power projects by private developers. Capacity is limited to 10MW and power is sold either on- or off-grid via a Standardized Small Power Purchase Agreement (SPPA) at a defined tariff. These regulations are best in class for the region and have encouraged a significant pipeline of small power projects. More than 15 projects are either operating under the scheme or intend to do so, and there is a pipeline of as many as 60 further projects. The framework was superseded by a feed-in tariff in 2015.
The country should soon have its first utility-scale solar plant, a 5MW project by developer NextGen solar that has taken three years to negotiate. Plans for two wind farms at Singida – one being developed by Aldwych International, responsible for Kenya’s flagship Turkana project – continue.
One critical issue holding back investment is non-payment by the utility to independent generators large and small under the terms of their PPAs. TANESCO is making a concerted effort to pay off its debts of over $400m by the end of 2016, in line with the roadmap, though a support package from donors was delayed at the end of 2014 and through Q1 2015 by a corruption scandal. Tanzania has some additional fiscal incentives in place beyond the SPPA. For wind/solar/mini-hydro there is VAT exclusion, no import duty on first shipment of plant equipment, exemption from excise and sales tax, and 100% depreciation in one year.
Tanzania scored 1.22 in Climatescope 2015, placing it 23rd on the list of countries overall. This was very slightly lower than in 2014 but by and large the country’s comparative performance was level. Its best ranking was on Enabling Framework Parameter I.
Tanzania’s placement on Parameter I was unchanged at 17th overall. It performed well on policy and regulation thanks to its robust regulatory framework for distributed energy and energy access policies.
On Clean Energy Investment and Climate Financing Parameter II, the country rose to 29th, reflecting a slight uptick in investment from the previous year.
Tanzania ranked 19th on Low-Carbon Business & Clean Energy Value Chains Parameter III, a decline on the previous year, as the number of financial institutions active in the sector fell.
The country also saw some slippage on Greenhouse Gas Management Activities Parameter IV, to 33rd, but remained comparatively strong in the carbon offsets category.
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