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Market framework

Government electricity participants

Who are the principal government participants in the electricity sector? What roles do they perform in relation to#160;renewable energy?

The principal government participants in the electricity sector in Tanzania and their roles are the following.

Energy and Water Utilities Regulatory Authority (EWURA)

EWURA is the energy sector regulatory authority, vested with powers to issue licences for the electricity supply industry, with a mandate 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.

Ministry of Energy

The Ministry is mandated to provide supervisory oversight of the electricity supply industry, with powers to develop and review government policies in the electricity supply industry and to promote the development of electricity subsectors, including the development of indigenous energy resources.

Rural Energy Agency (REA)

The Rural Energy Act established the Rural Energy Board, Fund and Agency to be responsible for the promotion of improved access to modern energy services in the rural areas of mainland Tanzania and, through a fund within the Agency, to provide grants and subsidies to developers of rural energy projects and for related and consequential matters. REA was established with the purpose of facilitating the provision of modern energy services in rural areas of mainland Tanzania.

Tanzania Electric Supply Company Limited (TANESCO)

TANESCO is a vertically integrated state-owned limited liability company, which has the role of a single buyer and is a key national player in the power sector. It is in process of long-term unbundling to generation, transmission and distribution, with interim separation of departments within TANESCO pending full corporatisation. Regulations are generally and slowly being adapted to promote private sector involvement, with a bias towards competitive bidding of some sort for all projects.

National Environmental Management Council (NEMC)

NEMC, through the minister for environmental matters, is responsible for promoting the use of renewable sources of energy by encouraging research in appropriate renewal sources of energy, creating incentives for the promotion of renewable sources of energy, promoting policies and measures for the conservation of non-renewable sources of energy and taking measures to encourage the planting of tree and woodlots by individual users, institutions and community groups.

Ministry of Finance and Planning (MoFP)

The MoFP spearheads financing and the issuing of grants to renewable energy projects, and is the key stakeholder in renewable energy policy and its legal and regulatory framework.

Private electricity participants

Who are the principal private participants in the electricity sector? What roles do they serve in relation to renewable energy?

The following are the principal private participants in the electricity sector and their roles in relation to renewable energy:

  • Project companies: pioneer the establishment of renewable energy projects and lobby for the improvement of the legal and regulatory framework in the energy sector.
  • Service providers (financiers, lenders and construction and engineering services): facilitate the smooth undertaking of energy projects by offering tailor-made services to energy companies and improve renewable energy undertakings by increasing market competitiveness.
  • Insurance companies, for investors in energy projects.
  • Various non-governmental organisations are active in supporting access to sustainable energy, such as the Tanzania Traditional Energy Development Organization (TaTEDO) and Tanzania Renewable Energy Association (TAREA).

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable#160;energy’ or ‘clean power’ (or their equivalents)#160;in#160;your jurisdiction?

‘Renewable energy’ means energy that comes from natural resources which are renewable. There is no specific definition of ‘clean power’.

Framework

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

Registration requirements

Renewable energy projects below 1MW are exempted from obtaining licences. Projects below 1MW are required to be registered by EWURA to 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, which is done by filling in the application Form 100. 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.

In 2017, SPP rules were drafted to address the lacuna in the SPP Rules 2016, as prior to the SPP Rules 2017, minigrid investors were concerned as to what would happen to their minigrid business when the main grid arrives (ie, they would be left with stranded assets). The Rules addressed the above issue by stating that if a minigrid is built to standards that allow interconnection to the main grid, the minigrid 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.

Exemption from licensing

Some minigrids in rural areas are exempted from the licensing requirements; for example:

  • 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.

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.

Legal and regulatory framework applicable to financing renewable 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.

Stripping attributes

Can environmental attributes be stripped and sold separately?

An SPP developer is required to obtain all the necessary approvals on environmental and social clearance pursuant to relevant laws. An SPP must conduct an environmental impact assessment under NEMC to evaluate the impact of the project on the environment, as well as mitigation of any impact and its management.

As per the standardised power purchase agreement (PPA), any environmental attributes recognised under any international, national or other laws or regulations associated with the ownership or generation of power from the facility (including but not limited to carbon credits or attributes created pursuant to the Kyoto Protocol or any successor laws) are not included in the energy transferred to the buyer and shall remain the property, and under the control, of the seller.

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

TIC offers investors a certificate of incentives and strategic investor status for a project worth no 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; 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.

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?

The National Energy Policy 2015 and Energy Subsidy Policy 2013 focus on renewable energy matters and advocate the need to strengthen renewable energy as a sustainable energy source in Tanzania, and are generally established at the national level and enforced at every level.

Purchasing mechanisms

What mechanisms are available to facilitate the purchase of renewable power by private companies?

All power purchase in Tanzania is regulated by EWURA. It does not apply to the electricity sold directly to eligible customers and under the standardised PPAs, including tariffs for small power projects up to 10MW. Any purchasing licensee who intends to conclude a PPA with any other party shall lodge an application to EWURA. EWURA also sets the purchase tariff paid by end customers.

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.

Drivers of change

What are the biggest drivers of change in the renewable energy markets in your jurisdiction?

The biggest drivers of change are:

  • clear government regulation on renewable energy projects;
  • government policy to electrify villages in rural Tanzania;
  • investment incentives and availability of funds and grants for rural energy projects, evidenced by programmes such as TREEP; and
  • increased emphasis on environmental conservation and a ban on cutting trees and using charcoal as a source of energy in Tanzania.

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) Regula#173;tions 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.

Utility-scale renewable projects

Project types and sizes

Describe the primary types and sizes of existing and planned utility-scale renewable energy projects in your jurisdiction.

Tanzania is reported to have about 109 utility-scale renewable energy projects with a total installed capacity of 157.7MW serving about 184,000 customers. A total of 16 of these plants are connected to the national grid; the remaining 93 operate as isolated minigrids.

The types and sizes are as follows:

  • hydro: 49 projects with an installed capacity of 16,003kW;
  • biomass: 25 projects with a total installed capacity of 29,174kW;
  • solar: 13 projects with a total installed capacity of 234kW; and
  • hybrid: three projects with a total installed capacity of 177kW.

Development issues

What types of issues restrain the development of utility-scale renewable energy projects?

The issues include:

  • inadequate data and power planning tools to integrate renewable options;
  • the lack of a specific policy and regulatory framework for renewable energy;
  • granting of licences and registration takes a very long time to be#160;completed;
  • the lack of enough incentives to develop renewable energy projects;
  • unregulated biomass resource extraction from forests defeats the need for locals to opt for available renewable energy options;
  • the technical gap in undertaking feasibility studies, detailed design and construction of renewable energy power plants;
  • difficulty in securing long-term financing;
  • low and cumbersome equity financing of renewable energy projects; and
  • high taxes on the development of renewable energy projects.

Hydropower

Primary types of project

Describe the primary types of hydropower projects that are prevalent.

In Tanzania, most prevalent hydropower projects are a combination of both run-of-the-river and storage hydropower projects. Most of these are owned by the government through TANESCO, and a few minigrid hydropower projects are owned by churches and local government.

The government in 2017 started development of the 2,100MW Stiegler’s Gorge Hydropower Project.

What legal considerations are relevant for hydroelectric generation in your jurisdiction?

Hydroelectric projects must be registered with EWURA. Among other requirements, hydroelectric generation project applicants need to obtain and submit the following documents to EWURA:

  • water rights;
  • feasibility studies; and
  • an Environmental Impact Assessment Certificate or environmental clearance from NEMC.

Distributed generation

Prevalence

Describe the prevalence of on-site, distributed generation projects.

In Tanzania, on-site, distributed generation projects are prevalent in the mining sector owing to the uncertainty of a continuous and adequate power supply from the utility TANESCO. This problem is compounded by the long distances between the main mines and the sources of energy generation.

Solar also accounts for the many distributed generation projects. However, the amount of electricity generated from these projects is still very minimal and mostly below 1MW.

Types

Describe the primary types of distributed generation projects that are common in your jurisdiction.

Most electricity is generated by gas. The capacity of existing installed power stations in Tanzania increased from 1,450MW in 2016/17 to 1,517.47MW in May 2018, an increase of 4.7 per cent. The increase is due to the completion of six Kinyerezi II power supply generators, which currently produce a total of 168MW. Of the 1,517.47MW, 1,435.56MW is the grid and 81.91MW is connected to the existing external grid. This increase has resulted in an average of 280MW extra electricity, where high electricity consumption has reached an average of 1,051MW per day.

Tanzania has a capacity of 1,521MW, with only 60 per cent of this power available most of the time, as it largely depends on hydroelectric plants (38 per cent of installed capacities).

Some rural households use solar energy, produced by private entities and institutions such as schools, churches, hospitals and individually owned solar panels.

Biomass accounts for 90 per cent of Tanzania’s overall energy demand and supply in the form of agricultural residue, forest residue, charcoal and firewood.

Regulation

Have any legislative or regulatory efforts been undertaken to promote the development of microgrids? What are the most significant legal obstacles to the development of microgrids?

EWURA has introduced regulatory exemptions for VSPPs with an installed capacity of 100kWh or less from obtaining licences, tariff approval and environmental impact assessments, among other development requirements.

Solar products attract zero per cent import duty and VAT.

Other considerations

What additional legal considerations are relevant for distributed generation?

The most significant legal obstacles to the development of micro#173;grids are:

  • an incomplete policy and regulatory framework for renewable energy;
  • the lack of effective legal penalties for harvesting of charcoal as a source of biomass energy;
  • no feed-in tariffs or clear incentives for microgrids; and
  • the lack of clear legal certainty of the position of microgrids over the expansion of the macrogrid in rural areas.

Energy storage

Framework

What storage technologies are used and what legal framework is generally applicable to them?

There are no common energy storage technologies used in Tanzania other than solid-state batteries.

Development

Are there any significant hurdles to the development of energy storage projects?

There are no specific hurdles to storage projects.

Foreign investment

Ownership restrictions

May foreign investors invest in renewable energy projects? Are there restrictions on foreign ownership relevant to renewable energy projects?

Foreign investors may invest in renewable energy projects. There are no restrictions on foreign ownership relevant to renewable energy projects in Tanzania.

Equipment restrictions

What restrictions are in place with respect to the import of foreign manufactured equipment?

There are no specific restrictions on the import of foreign manufactured equipment. However, all equipment is subject to taxes and must meet the accepted standards set by Tanzania Bureau of Standards, such as Pre-Shipment Verification of Conformity. When importing solar equipment, it is necessary to include the word ‘solar’ on all documents such as the packing list, commercial invoice, bill of lading and insurance. Substantially higher taxes are charged on very old equipment.

Projects

General government authorisation

What government authorisations must investors or owners obtain prior to constructing or directly or indirectly transferring or acquiring a renewable energy project?

Land titles to land or lease must be acquired on an area where the project is going to be constructed (the major stakeholders are TIC and the Ministry of Lands, Housing and Human Developments; authorisation may also be required from villages that are involved). This may include obtaining:

  • local permission to establish an SPP on a specific land parcel;
  • permission from the district level; and
  • permission (and the title deed) from the Ministry of Lands or a Derivative Rights Title from TIC.

Water rights must be acquired for any projects that will involve the use of water, such as hydropower projects in rivers and lake basins.

A letter of intent (LOI) for small power projects that intend to sell electricity to a DNO do so pursuant to a PPA. The first step toward concluding a PPA is obtaining the LOI from the DNO. An LOI indicates that the DNO has no objections in principle to interconnecting a power plant of the proposed type, size and power export capacity at the proposed location.

Other authorisations may include:

  • business registration, business licence, taxpayer ID and VAT certificate;
  • a building permit issued by the local government authority.
  • an environmental impact assessment issued by NEMC and social clearances; and
  • EWURA licences to provide regulated services in electricity.

In case of any merger or acquisition of the existing EWURA licensee, clearance from the Fair Competition Commission may be required.

Generally, government authorisations for investors or owners to obtain prior to the construction of renewable energy projects depend on the capacity of energy to be produced in the project.

Offtake arrangements

What type of offtake arrangements are available and typically used for utility-scale renewables projects?

Utility-scale renewable projects shall be developed through executing a letter of intent with a public DNO that confirms the physical ability of the DNO to purchase electricity from the SPP delivered at the interconnection point.

The DNO shall, not later than 30 working days after receipt of a request for a letter of intent or after correction of the application, notify the applicant in writing of its decision either to grant or deny such request, provided that no application shall be unreasonably denied. Power projects shall be procured by the DNO by tendering as provided for in the rules and shall be advertised from time to time.

EWURA has developed standardised PPAs for projects of less than 10MW to be used by SPPs and DNOs in executing agreements. SPP developers are allowed to sell electricity to any other entity, subject to the terms and conditions that the parties may agree upon.

Procurement of offtaker agreements

How are long-term power purchase agreements procured by the offtakers in your jurisdiction? Are they the subject of feed-in tariffs, the subject of multi-project competitive tenders, or are they typically developed through the submission of unsolicited tenders?

PPAs in Tanzania procured by public DNOs are by way of open competitive tenders. A SPP operator shall charge a feed-in tariff or a tariff that has been approved by EWURA. The feed-in tariff for wind and solar SPPs shall only be applicable to the DNO’s isolated minigrids.

A private DNO may procure an SPP using wind or solar technology applying the procedure prescribed under the rules published by EWURA or using their own procedures, provided that such procedures are competitive and approved by EWURA.

Operational authorisation

What government authorisations are required to operate a renewable energy project and sell electricity from renewable energy projects?

Activities that require a licence are generation, transmission, distribution, supply, system operation, cross-border trade in electricity, physical and financial trade in electricity and electrical installation.

Any person intending to conduct any of these activities shall be required to apply to EWURA for a licence, unless that person has been exempted by EWURA or the activity is exempt under section 18(3) or (4). A licensee may, under rules made by EWURA, conclude agreements for the purchase and sale of electricity.

Decommissioning

Are there legal requirements for the decommissioning of renewable energy projects? Must these requirements be funded by a sinking fund or through other credit enhancements during the operational phase of a renewable energy project?

Energy laws do not directly provide requirements for the decommissioning of renewable energy projects. However, EWURA is mandated to oversee health, environment and security in all energy projects and can impose measures to ensure that decommissioning is done by taking into account the environmental and social impact assessments conducted before or after the undertaking of the project.

After the expiry of an energy project, the proponent or operator shall, at his or her own cost, undertake the safe decommissioning, site rehabilitation and ecosystem restoration before the closure of the site project or undertaking.

The Environmental Impact Assessment and Audit Regulations 2005 require all energy projects to conduct an audit during subsistence of the project or on decommissioning.

Transaction structures

Construction financing

What are the primary structures for financing the construction of renewable energy projects in your jurisdiction?

The construction of renewable energy projects in Tanzania is undertaken via private funding and loans by project developers, government grants and financing through the Rural Energy Fund and by donor-funded projects.

The Rural Energy Fund is an autonomous institution established to promote and facilitate access to modern energy services in rural areas by providing grants to qualified developers of energy projects.

The Fund provides grants towards the capital costs of projects implemented by private and public entities, cooperatives and local community organisations, and technical assistance, training and other forms of capacity building to qualified developers by qualified experts related to the planning and preparation of a project prior to an application for a grant and the provision of financial assistance.

Tanzania is currently implementing the TREEP on renewable solar energy projects amounting to US$225 million (see question 4).

Operational financing

What are the primary structures for financing operating renewable energy projects in your jurisdiction?

Similar to construction, the financing of operating renewable energy projects in Tanzania is undertaken via private investments and loans from project developers, government grants and financing through the Rural Energy Fund and by donor-funded projects.

Updates & Trends

Updates & Trends

Updates and trends

A mega hydropower project is being undertaken by the Tanzania government. Stiegler’s Gorge Hydropower project is expected to produce 2,100MW along the Rufiji River in the Selous Game Reserve. The projected construction cost is estimated to reach US$3.6 billion.

In April 2018, the Kinyerezi II power station in Dar es Salaam was inaugurated. This is a combined-cycle technology plant. It uses gas and steam to generate electricity, with the potential to produce 167.82MW from natural gas and 80.4MW from steam. The project is worth US$334 million, 15 per cent of which has been financed by the government of Tanzania and 85 per cent by a soft loan from the Sumitomo Mitsui Banking Corporation and the Japan Bank for International Cooperation.