Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

There is no specific definition of ‘clean power’ in Tanzania legislation. ‘Renewable energy’ is defined under Electricity (Development of Small Power Projects) Rules as energy that comes from natural resources that are renewable.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

The energy sector in Tanzania is regulated by EWURA as a regulatory authority vested with powers:

  • to issue licences for the electricity supply industry;
  • to approve and enforce tariffs and fees charged by the licensees;
  • to approve the licensees’ terms and conditions of electricity supply; and
  • to approve initiation of the procurement of new electricity supply installations.

Some of the legal and regulatory frameworks applicable to power sector are:

Licensing requirements.

Renewable energy projects generation activities whose installed capacity at a single site is less than 1MW; and off-grid distribution and supply activities where the maximum demand in the off-grid system is below 1MW are exempted from obtaining licences. Exemption is intended to foster rural electrification. EWURA is empowered to make rules on exempted activities and on getting reports. EWURA regulations require all exempted operators to be registered with EWURA and obtain a Registration Certificate after commissioning of the project. EWURA may provide a provisional registration for a small power producer (SPP) or very small power producer (VSPP) that fulfils the registration requirements at any stage before commissioning of the project by way of a letter. Registration is done by filling in application Form 5.

Projects of 1MW and above are required to obtain a licence. EWURA may issue a provisional licence to allow a developer to conduct preparatory activities, such as carrying out assessments, studies and other activities necessary for the application of a licence.

Application for registration is made in a prescribed form indicating the name and address of the applicant, an entity’s registration documents (legal identification), description of the geographic area to be served, description of infrastructure (generation or distribution), initial size of the generation facility, description of generation technology, environmental clearance from the NEMC and proof of land use rights.

Minigrid power stations that are built to standards that allow interconnection to the main grid may apply to the authorities to operate as:

  • an SPP selling electricity to a distribution network operator (DNO);
  • a small power distributor (SPD) purchasing electricity from a DNO (bulk supply) and reselling some or all of the electricity to the SPD’s retail customers;
  • a combination of an SPP and an SPD;
  • notwithstanding the above options, under rule 36(2), the minigrid operator may either remove some or all of its generation and distribution assets; or
  • the minigrid operator may sell some or all of its distribution assets to the DNO.
Legal and regulatory framework applicable to financingrenewable energy projects

The financing of renewable energy projects is one of the Tanzanian government incentives to promote renewable energy. The Rural Energy Fund, established under the Tanzania Investment Bank (TIB) Development Bank, is a fund manager for a Tanzania Electrification Expansion Programme (TREEP) credit line facility of US$42 million on behalf of the REA. The fund is accessible to participating financial institutions (PFIs) for on-lending to SPPs for power generation and renewable energy companies (VSPPs) for solar distribution and installation. The main purpose of the fund is to support renewable energy sources through the private sector.

The nature of the fund is a refinancing package arrangement to PFIs. The refinancing arrangement is based on the following:

  • for SPPs with a capacity range between 100kW and 10MW, the credit range is US$100,000 to US$10 million. The interest rate is 4.37 per cent for US dollar loans and 9 per cent for Tanzania shilling loans; and
  • for renewable energy companies (VSPPs), the maximum credit is US$2 million, and the interest rate is 2 per cent for both US dollar and Tanzania shilling loans.

SPPs and VSPPs can access the financing of a project only through PFIs under TREEP. Seven banks have been vetted by Bank of Tanzania and are eligible to participate in the TREEP credit line: CRDB Bank, NBC Bank, Azania Bank, EcoBank, Stanbic Bank, NMB Bank and UBA Bank. The TIB is encouraging more banks to express their interest in order to be eligible to participate in TREEP.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

The National Energy Policy 2015 and the Energy Subsidy Policy 2013 have set out strategies to ensure the availability of reliable and affordable energy supplies. These promote efficient energy use in order to support national development goals and focus on renewable energy as a sustainable energy source for rural areas not connected to the main grid, which makes up about 70 per cent of Tanzania population. This includes rural electrification plans and strategies focusing on grid expansion and the development of off-grid electricity supply systems in rural areas including new and renewable energy systems.

The government of Tanzania offers incentives to investors in renewable energy through the Tanzania Investment Centre (TIC), Export Processing Zones (EPZs) and other fiscal laws.

The TIC offers investors a certificate of incentives and strategic investor status for a project worth not less than US$20 million, and the investment enjoys additional fiscal and non-fiscal incentives.

Other incentives are:

  • access to services related to permits, licences and approvals in the TIC one stop facilitation centre;
  • the recognition of private property and protection against any non-commercial risks. Tanzania is an active member of the Multilateral Investment Guarantee Agency and the International Centre for Settlement of Investment Disputes;
  • 10 per cent import duty for semi-processed or semi-finished goods;
  • 25 per cent duty for final goods;
  • solar energy system parts are exempted from East African Community customs and excise duties;
  • VAT exemptions on the supply of solar panels, modules, solar charger controllers, solar inverters, solar lights, vacuum tube solar collectors and solar batteries;
  • the introduction of a pay and refund scheme for excise duty paid on fuel purchased by eligible companies participating in renewable energy projects; and
  • VAT deferment granted on project capital goods such as plant and machinery.

EPZs offers incentives that include 10 years’ exemption from corporate tax and interest, the remission of customs duties, VAT and other taxes on raw materials and goods produced in EPZs, and an exemption from local government taxes and levies on products produced in EPZs.

Through the Rural Energy Fund, the government has put in place a funding mechanism and procedures for the provision of grants and subsidies to developers of rural energy projects.

Photovoltaics (PV) and solar energy system parts are exempt from VAT, customs and excise duties.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Policy and incentives in Tanzania are generally established at the national level and enforced at every level.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

There have not been any recent major developments in the legislation regulating the renewable energy sector in Tanzania. The government is undertaking the preparation of a geothermal strategy, a legal, institutional, regulatory framework and risk guarantee for the development of geothermal resources and other sources of renewable energy.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

Any dispute between participants in the electricity supply industry or between participants and EWURA or any other government authority relating to the application of the Electricity Act may be brought before the Fair Competition Commission for mediation. Appeals may be made to the Fair Competition Tribunal.

The Electricity (Market Re-Organisation and Promotion) Regulations 2016 also govern disputes. Where procedures are not provided for in these regulations, the minister may do whatever is necessary and permitted by relevant laws to enable any responsible entity to effectively and completely adjudicate on any matter before it.