April 21, 2014 Dar es Salaam, Tanzania

Richard Hosier World Bank

To provide an update on efforts to move the RERE project toward implementation ◦ As RERE builds upon the foundation of TEDAP, provide

update on TEDAP off-grid component

Apprise EDP’s group about challenges, both intellectual and operational to moving this forward—to share ideas and to get feedback

To share ideas & obtain guidance with respect to both: ◦ Building upon the Prospectus moving forward ◦ Solving the intellectual & operational challenges being in

remote, off-grid rural electrification

Approved as part of Tanzania SREP Investment Plan by SREP Investment Committee in September 2013

Objectives: 1. To build an efficient and responsive development infrastructure for RE-

based rural electrification 2. To demonstrate its effectiveness by supporting a time-slice of private-

sector investments in off-grid electricity enterprises

To utilize three approaches to electrification in off-grid areas: 1. Mini grids of several hundred kilowatts and up to 10 MW serving a

group of villages, as well as larger customers 2. Micro grids powered by a small, centralised PV array and battery bank,

biomass gasifier, biogas, or other renewable technology 3. Sustainable Solar Market Packages (SSMPs) supplying electricity services

to essential public-service and community facilities (e.g. schools and health clinics), plus sale to private customers using stand-alone solar PV systems

Financial Proposal: SREP $25m; IDA $50m: Other DP’s $46m; Private Sector $58 m; TOTAL: ~$180m

Processing Timing: ◦ To SREP Committee for Decision-meeting review May 2014 (not met) ◦ To WB Board after July 2014 (will be met)

TEDAP began in 2008: Development Objectives 1. On-Grid: To improve the quality and efficiency of the electricity

service provision in the three main growth centers of DSM, Arusha, Kilimanjaro and

2. Off-Grid: To establish a sustainable basis for energy access expansion [and renewable energy development in Tanzania.]*

Total Value> $50m, including ◦ GEF grant ◦ IDA initial financing ◦ IDA additional financing (Credit Line) ◦ Co-financing contributions

SIDA support Russian (ESME TF) Support Carbon Finance Support

*added with Additional Financing in 2010, which also changed the name of the component to Small Power Project Component

Selected indicators

Target Progress to date

% of Target

Standardized Power Purchase Agreements Signed (MW)

20 50.3 252%

Number of Participating Financial Institutions’ loans approved for rural/RE subprojects

4 3 75%

Total installed RE capacity (MW) 25 25.4 102%

Pipeline of new rural household connections 50,000 80,673 161%

Direct beneficiaries, of which number of women (52%)

114,000, of whom 57,000 are women

177,039, of whom 92,060 are women

155%

Number of community (public facilities) connections

1,200 702 59%

Number of (subproject) transactions completed by REA

10 40 400%

First Question: SPP Sector appears to have been jump-started

◦ Allowing for growth pains and lumpy nature of investments, SPP sector has taken off

◦ To date, 25.4 MW are in operation ◦ Another 25 MW of SPPA’s have been signed with developers by

TANESCO; 40 MW of SPPA LoIs also signed ◦ As many as 32 SPP projects under development/preparation ◦ At present, 3 project totaling 27 MW are near to financial closure When they move ahead, they will exhaust existing SPP Credit Line Risk is that break in support to sector will undermine growth Luckily, some EDP’s have expressed interest in providing further CL

support necessary to ensure continuity of support ◦ Uganda Analogue: Uganda, at end of ERT I (2008), 16 MW were financially closed, but not

generating Under ERT II, total SPPs has reached >80 MW

◦ We believe that there exists further depth in the SPP market

Second Question: Answer is SSMP ◦ MEM is implementing as legacy ◦ Contractor has under-performed, not met

obligations, misrepresented products, and not made any effort for private sales

Is this a contractor problem or a systematic problem with SSMP approach? ◦ No clear answer yet but ◦ SSMP seems to be a compromise approach that

serve neither public (clinic, schools) or private (households, businesses) well

◦ Whole may equal less than sum of parts….

1) Evaluation of SSMP to consider what has happened—recently initiated

◦ Examination of SSMP experience in Tanzania compared to other countries (Philippines, Zambia, Honduras, Nicaragua)

Are both public & private markets served well?

Is there a missing element? (micro-finance?)

How does technological advance such as LED’s (Lighting Africa) shape present and future support to PV?

Is SSMP worth continuing or should it be abandoned leading to separate public vs private approaches?

Nature of SPP sector and role of grant instruments to accelerate growth of sector ◦ Matching Grants for Feasibility Studies ◦ Performance Grants for Connection subsidies ◦ Green Generation Performance Grants to front-end load

carbon payments at financial closing ◦ Credit Line support to increase liquidity and therefore

willingness of local private banks to extend loans for SPP’s from 5 to 15 years

Need to assess depth, breadth of SPP sector in TZ ◦ Initial pipeline built around small hydro ◦ Some biomass projects were shovel-ready, regulations

pushed them over the top ◦ How can experience with SPPs inform future work with mini

and micro grids?

BUT, TEDAP includes no explicit support to mini or micro-grids—rather focus is on SPPs—for SPPs, it is a bottom-up approach focusing on low-hanging fruit initiated by private sector

◦ Link to m-grids (mini or micro) requires an understanding of nature of SPP sector

◦ Growth has included 3 types of SPPs 1. SPPs generating for sale to TANESCO only (main or

isolated grid--small IPPs) (example: EA Power, Ngombeni) and perhaps own use (Tanwat or TPC)

2. SPP/SPDs generating for sale to TANESCO as anchor customer and connecting to households in immediate vicinity (eg., Mwenga, Tulila)

3. SPP/SPDs generating for sale to only households/businesses in immediate vicinity (Mawengi)

Experience to date provides some insight into mini or micro grids

◦ Do have experience with one isolated mini-grid selling only to customers and not to TANESCO

◦ Have more experience with mixed mini-grids, selling both to TANESCO as off-taker and to customers

Experience to date includes only small hydro and biomass projects ◦ Both are resource-based…can take place only where resources

are plentiful, at sites on rivers or at biomass processing facilities

◦ This does not correspond to model of mini-grid which is focused on population centers of a given size

◦ Shift from resource-focused SPPs maybe with SPD qualities to population-focused SPPs using a more “footloose” technology mix

Q: What are the 3 delivery mechanisms under RERE? 1. Mini-grids

2. Micro-grids

3. SSMP

Q: So, what is the basis for building upon TEDAP? At Core, building out from the success of the SPP sector

Continuing to support SPPs through financial closure, including Credit Line

Maybe tweaking support to give some advantage to those which are more population-based and less-resource based

Begin to expand for more “footloose” technologies (solar, wind, etc.)

Q: What about SSMP or stand-alone solar? ◦ Current SSMP challenges have drawn attention from positive

case for public PV provision Case for continued support to institutional PV electrification is strong (clinics,

schools)

Number of different configurations depending specific needs (different sizes, levels of clinic) and technology use (lantern library, ICT connection)

◦ Enormous challenge is to find appropriate business model or approach for private sales of PV Performance grants for met business plan targets

Supporting only Lighting Africa certified plug ‘n play

Want to move household PV’s for being a “project” to a “product”

Without micro-financing link, consumer ability to pay is limited

Without trade finance & working capital, growing small, locally-based supply networks is extremely difficult

Any public subsidy could be justified on grounds of getting products up-country to jump-start market

How to stimulate growth in this particular market segment?

Distinction between two are not clear ◦ How to distinguish?

◦ UNF Micro-Grid report not terribly helpful (capacity < 500 kW)

Characteristic Mini-Grid Micro-Grid

Capacity MW (>1MW) kW (< 500 kW)

Nature of Grid Network

Built to standard; “Public Good”, assumable asset

Not necessarily built to standard; may not be assumable asset

Number of connections

Thousands Hundreds

Good being sold

kWh, AC only Tier or “bundle”, AC or DC

Micro-grid

Mini-grid

Willingness to Pay & Consumer Surplus in Electrification

Only existing mini-grids are those owned by TANESCO: Can SREP support the survivors (not incorporated immediately into grid?) ◦ Very costly to operate

◦ Relatively little info

◦ From EWURA’s files, cost of service > $0.487/kWh

◦ Opportunity to examine potential hybridization with PV & batteries (which is more useful?)

◦ Any work done with isolated mini-grids must include focus on energy efficiency improvement and load mgt

Micro-grids in TZ still at pilot stage—can count on one hand

Mini-grids: TANESCO units might be packaged for concession agreements

to large industrial player (Caterpillar, Cummins, GE, etc.)

Or TANESCO, with support, could improve thru useful lifetimes until grid-connected

Any mini-grid work must include EE & Load Mgt

New mini-grids, if population centers identified, could be bid out en masse In region X, identify 20 population centers > 500 hh, need to bid out

for M-grid to serve

Might include public payment for grid (public good); support for pre-payment meters; and public leverage for hybrid generation

Approach makes sense for a grid that is assumable when main grid reaches

Need to know honest length of time until grid reaches

BOT or BOO concession

Micro-grids that have “assumable” asset of network can be treated as mini-grids

Micro-grids with “non-assumable” networks (not built to standards) will require different approach ◦ Perhaps “bottom-up” driven by opportunistic

selection of locations by private sector

◦ Possibly bid out concessions by district or region requiring village coverage with W<population < Y

◦ Still need for population threshold & location

Not necessarily a “Master Plan” (avoid dusty volume production)—action focus

Need to start being concrete, focusing on regions/districts not universal (resource constraints)

Need to use GIS (Prospectus), particularly if we are to design bids targeting specific electrification instruments and needs

Build off of experience with SPPs to develop mini-grids/micro-grids are more population focus

If we are really pushing for scale, need to ◦ Plan realistically for what can be done using all tools ◦ Avoid “magical thinking” ◦ M-grids bring no new analytical or economic tools ◦ Cannot wave a wand and have them appear to supply power

to those without at costs competitive to grid prices

Build from SPP success in resource-focused to population-based SSPs and SPP-m-grids

Utilize range of mini, micro, stand-alone PV, pico-PV and SPPs to increase access

EWURA remains strong asset from regulatory perspective

REA has taken on off-grid responsibilities and executed TEDAP well

First-cut RERE proposal will take serious intellectual and operational work

Need to solve business & delivery model questions…interest & resources to solve in TZ

Thanks for your attention and guidance

Look forward to working with you and keeping you informed

Richard Hosier

World Bank

<rhosier@worldbank.org>