By Jeff Mbanga
The tariff that investors are allowed to charge for the sale of grid-connected solar power in Uganda has dropped to its lowest level since the first plant was commissioned nearly 10 years ago, the government’s regulatory body announced on Thursday, this week.
The new tariff structure now effectively makes solar electricity the cheapest form of energy connected to Uganda’s national grid, overtaking bagasse and hydro.
“The new Tariff Rate to be applied by persons generating and selling electricity to the National Grid from Solar PV Renewable Energy Systems in Uganda, shall be 5.1 US cents/kWh,” the Electricity Regulatory Authority noted in a public notice.
The regulator added that “the previous Feed-in Tariff rate of 7.1 US cents/kWh and the Linear Tariff Structure for Solar PV Renewable Energy Systems is hereby deleted.”
With the tariff for grid-connected solar power dropping to 5.1 US cents/kWh, Uganda’s electricity supply industry has witnessed the steepest price decline in any form of energy ever.
A reduction in the cost of technology for solar projects is one of the reasons as to why Uganda has dragged down the tariff, according to our sources. Grid-connected solar is now cheaper than bagasse (6.2 US cents/kWh) and hydro (7.9 US cents/kWh).
Although the tariff for solar is now the cheapest, it will take many years before this source of energy dominates Uganda’s electricity grid. Hydro remains the favourite to maintain its top spot as Uganda’s main source of electricity, with its current installed capacity of 1,710MW.
One of the major reasons as to why grid-connected solar power remains low is because Uganda continues to demand for base-load electricity, the kind that can power large factories and light up the ever-increasing industrial parks.
This is where hydro, and its better economies of scale, comes in, where Uganda has put large plants such as the Karuma at 600MW.
Solar power projects, on the other hand, can barely come up with 20MW – an amount that is too little to even power one mid-sized steel company. The largest solar projects in Uganda today each produce 20MW – the Nkonge solar project and the other in Kabulasoke in Gomba district.
The Xsabo Nkonge 38,0000 solar panels plant with a capacity of 22.7 MWp feeding into the national grid
Currently, Uganda has 88.3MW of installed solar electricity, compared to Kenya’s 210MW. Solar’s installed capacity in Uganda, which is generated by seven companies, accounts for just 4% of the total electricity, the second lowest after heavy fuel oil-generated power.
Nevertheless, the latest drop in the electricity tariff for grid-connected solar electricity will likely be celebrated by domestic consumers, many of whom say they have to dig deep into their pockets to pay for power.
For investors, the decline in the tariff could likely dampen their mood, although, quite frankly, few can argue they didn’t see this coming.
Only 10 years ago, investors in Uganda were enjoying a cool 16.38 US cents/kWh.
That tariff was too high that the European Union as the leader of a group of European funders, under a programme called GETFiT, had to chip in with a subsidy of 5.38 US cents/kWh, while government met the other 11 US cents/kWh. [The GETFiT programme has since wound up.]
At the time, Uganda was experiencing a large energy deficit as demand outstripped supply, even after the 250MW Bujagali hydropower plant – the largest at the time – had been commissioned three years earlier.
Limited power supply led to high power tariffs, whose costs would later be passed on to consumers. High electricity bills eat into consumer’s disposable income, thereby weakening their spending power, and ultimately hurting the economy.
In a bid to widen the pool of energy sources and drag down prices, the government of Uganda called for bids from investors willing to put up grid-connected solar power plants around 2014.
Many investors pushed for a price hovering around 18 US cents/kWh, some even higher, before the figure was agreed at 16.38 US cents/kWh.
Many investors explained that the high costs of technology for solar electricity and the limited availability of capital were some of the reasons as to why they pushed for high power tariffs to be able to recoup their investments.
When Uganda agreed to the 16.38 US cents/kWh tariff cap, the floodgates for investor applications swung wide open.
Access Power became the first company to commission its 10MW Soroti Solar Power Project in late 2016. Many more companies would submit their applications to the ERA, so much so that at one point the regulator was simply overwhelmed.
In April 2018, the ERA issued a notice stopping any unsolicited bids for grid-connected solar projects until it had completed a comprehensive grid stability study, which would determine how much solar can be accommodated on the grid. The study, ERA also envisaged, would form the basis for further licensing of grid-connected solar projects.
The ban has since been lifted, with some solar power projects currently being constructed. Although, it is clear investor appetite for new solar projects will not be as high after the announcement of the new tariff structure.
