Uganda Energy Situation

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[[|1.1             Energy situation especially in rural areas]]

[[|1.1.1         Energy demand and supply in the household sector]]

Uganda has total energy consumption of approximately 6 Mio. Tons oil equivalent. The consumption per head is around 0,2 toe, which is one of the lowest in the world. Biomass is still the most important source of energy for the vast majority of the population with a share of 93% of energy consumption coming from firewood, charcoal or crop residues. It provides all the basic needs for cooking and water heating in rural areas and for most urban households. It is also the main source of energy for rural small and medium-sized enterprises and contributes significantly to the rural economy. A further 6% of energy consumption is accounted for by petroleum products, which are mainly used for vehicles and thermal power plants. 1% of the energy consumption is based on electricity. Electrification access in Uganda is very low with 10% at national level but only 5% in rural areas. Approximately 1% of rural households use off-grid electrification technologies (usually diesel generators or solar photovoltaic systems).

Fuel wood is largely used for cooking in rural areas while charcoal provides the cooking needs for the urban population. At the same time, forests are depleted and overused in 30% of the rural areas leading to a severe lack of biomass for daily cooking needs. Currently only 7% of Uganda’s land area is covered with forest. Deforestation continues at a rate of 2,2% per year which leads to fuel wood scarcity in rural areas and price levels of charcoal and fuel wood in urban areas increasing at about 6% per year. In addition illegal cutting of trees increases. About 15-20% of the felling is used to produce charcoal, which is mainly used in urban areas. The production is carried out under primitive conditions with an extremely low efficiency (between 8 to 12% of the original energy). At the same time, households use biomass in a very inefficient way as the three-stone fire is still widely spread. Urban and rural households are facing increasing energy costs or spend more time collecting firewood. Furthermore, the traditional use of firewood is responsible for high indoor air pollution levels, thus causing respiratory diseases that affect women and children in particular.

A total of 95% of rural households not having access to electricity are currently using traditional lighting technologies such as candles or kerosene lamps that give poor quality lighting, emit noxious fumes and present a hazard in terms of fires or burns (in particular for small children). Furthermore, the majority of social institutions (e.g. schools and health centres) in rural areas do not have access to electricity which leads to inferior health and education services in comparison with electrified institutions. Lack of access to electricity also severely constrains the economic development of rural areas of Uganda, preventing the establishment of certain businesses that require electric power or forcing companies to buy diesel or petrol generators that are costly to operate and have negative environmental impacts. Lack of electricity also prevents access to information and communication technologies (e.g. mobile phones, computers, Internet). This contributes to further isolating rural areas from the rest of the country.

[[|1.2             Institutional set up and actors in the energy sector]]

[[|1.2.1         Public institutions]]

There are three main governmental institutions dealing with renewable energies for power generation:

·      The Ministry of Energy and Mineral Development (MEMD) is the lead agency in the energy sector. The Ministry is responsible for policy formulation, promotion, coordination, monitoring and evaluation. MEMD is also responsible for initiating legislation in the energy sector. Part of the MoEMD is the Energy Department ED), which is structured according to sectors. It is only located in Kampala without any decentralized structure. ED comprises four divisions “energy efficiency”, “Innovative and renewable energies”, “electricity” and “provision with oil products”.

·      Rural Electrification Agency (REA) is responsible for developing and promoting rural electrification and rural electrification projects. Rural Electrification Board (REB), as the governing body for REA, controls subsidies for rural electrification and renewable energy projects, and therefore decides on priorities and allocation of funds.

·      Electric Regulation Authority is in charge to issue licences for the generation, transmission, distribution or sales of electricity. ERA has also the mandate to establish a tariff structure and investigate tariff charges and approve the rates of charges.

 

1.2.2                                                                                                       [[|Electricity generation, transmission and distribution]]

'Power 'Generation:  Uganda’s total installed capacity is 380 MW, generated primarily from Owen Falls Dam at Jinja in the South Eastern Uganda.  However, in 2008 only 131 MW could be used as a result of the low levels of Lake Victoria. A new hydro facility is under development at Bujagali, which is expected to become operational in 2011. This installation can generate approximately 180 MW. In the meantime 150 MW thermal capacities have been added in order to bridge the gap till 2011.

All big power generation plants belong to the Ugandan Electricity Generation Company Limited (UEGCL) but are operated and managed by ESKOM, Aggreko and other companies.

Transmission: The Uganda Electricity Transmission Company Ltd. (UETCL) is the bulk supplier and single buyer of power for the national grid in Uganda. It is the purchaser of all independently generated power in the Country and it also imports electricity from neighbour countries. UETCL is also responsible for publishing standardized tariffs for renewable energy generation up to 20 MW capacity based on the avoided cost principle.

Distribution: The biggest company empowered to trade and supply electricity at 33kV and below within the African Great lakes region is Umeme Ltd, leased the assets of the formerly government owned distribution company (Uganda Electricity Distribution Company Ltd). There some mini-grid distribution systems and one offgrid generation and distribution company (West Nile Rural Electrification Company Ltd).

1.2.3                                                                                                       [[|Non governmental service providers for rural areas in the field of energy]]

Projects implementing NGOs:

Energy is generally a side topic for most Ugandan NGOs. However, there are several NGOs with certain experiences in the field of the introduction of improved stoves.

Commercial service provider:

In the field of photovoltaic systems about 15 providers work in Uganda. The Solar companies in general have difficulties to develop markets in rural areas and focus their interest on urban areas.

In the field of stoves there are numerous workshops and craftsmen producing stoves especially for the urban market. Part of these workshops and craftsmen were trained by the EnDev-Uganda programme.

[[|1.3             Policy framework]]

1.3.1                                                                                                       [[|Poverty reduction strategy and Energy policy]]

Energy is an integral part of the Ugandan Government’s Poverty Eradication Action Plan (PEAP) which includes frequent references to the link between energy and poverty alleviation. The Ugandan Government has set the target of providing 10% of rural population with access to electricity until 2012. This target has been specified in the Rural Electrification Strategy and Plan as well as in the PEAP. It is planned to be achieved by grid extension (including through private sector involvement), mini-grids and stand-alone electrification systems. Furthermore, the government has stated its commitment to increase the use of renewable energy from 4% today to 61% in 2017 as outlined in the Renewable Energy Policy (March 2007).

In addition to the technical and financial assistance from Germany Uganda’s energy sector is supported by the World Bank, Norway, ADB and to a lesser extent by Japan, Denmark and the European Community.

The World Bank has provided loans for three major projects in the area of energy supply: the Energy for Rural Transformation for USD 75 million (up to 2012); the Uganda Power Sector Development Project for USD 300 million (up to 2011) and the Private Power Generation Project (Bujagali) for USD 115 million (up to 2017). The main objective of the Private Power Generation project is to provide least-cost power generation capacity that will eliminate power shortages at the time of its commissioning. The Power Sector Development Operation Project is to reduce short-term power shortages and financial imbalances, and facilitate orderly longer-term expansion of electricity service. This also comprises a set of investments and policy measures designed to reduce the supply-demand gap until the Bujagali hydropower plant comes into service in 2011 as well as financial support for the Government to absorb a part of the higher oil prices.

[[|1.4             Key problems hampering access to modern energy services in rural areas]]

1.4.1                                                                                                       [[|Obstacles for grid based rural electrification]]

The Government of Uganda has limited resources for extending the grid to rural areas.  At the moment, the Government’s focus is on solving the power supply crisis that is crippling the national economy. Based on an improved power generation it will concentrate its efforts to extend the grid to major urban and periurban areas.

Tariff rates for customers differ according to the category of client. They reflect the cost of electricity supply to that category. Implementation of this principle eliminates cross-subsidization of any category of customers by other categories. As a result, the tariff for domestic consumers is relatively high with 0,17 € per kWh (426 U. Shs). This tariff is often higher than the tariff for industrial consumers because domestic consumers who take supply at the low voltage impose higher investment and operational costs on the system than industrial consumers who are supplied at the high voltage or medium voltage.

For Umeme it is generally profitable to extend the grid. However, poor households cannot afford the connection fee and the electricity costs. In addition, collection costs are high in areas with dispersed population and low numbers of clients. Prepaid meters are not common in Uganda.

Beside Uneme, private companies invest only in exceptional cases in minigrids. Normally, costs of providing access are too high due to remoteness of the sites, dispersed populations and difficulty of the terrain. Local communities don’t dispose of sufficient proper financial resources to make infrastructure investments in their community.

1.4.2                                                                                                        [[|Obstacles for off grid energy technologies and services]]

There is strong political motivation to improve access to electricity of rural populations, particularly those remote from the grid. However, in the case of SHS both the affordability and the availability were seen as major problems for the dissemination of the solar systems in rural areas. In the case of hydropower, the investment costs are generally not affordable for rural communities and investors. In addition, there is a lack of management skills to operate MHPPs.

Generally, the availability of micro-finance schemes for energy technologies in rural areas is limited. Large parts of the country have almost no access to institutional micro-finance services and must rely largely on moneylenders, suppliers, family and friends for short term seasonal loans. There are no secure liquid savings options available to these households, which would enable them to build assets over time. Existing micro-finance institutions often have a narrow credit product line, limited experience in rural markets and a lack of access to best practice information and technical tools. In addition marketing and maintenance structure for energy technology devices in rural areas are weak. Almost all retailers are established in the big cities with no outlets in rural communities. Thus, clients have to travel to cities to purchase energy devices and for repair orders, which is difficult for most rural families. Establish rural outlets are considered not to be profitable due to the high costs for transportation and mobilization, the dispersed nature of the populations and the low income and low demand of the local population. 1.1 Energy Sector Brief and DGIS-GTZ Partnership (AMES-U) ==

Biomass (firewood, charcoal and crop residues) plays a very significant role in Uganda's energy supply. It constitutes over 90% of total energy consumption in the country. It provides almost all the energy used to meet basic needs of cooking and water heating in rural and most urban households, institutions and commercial buildings. Biomass is the main source of energy for rural industries. Trading in biomass energy, especially charcoal contributes to the economy in terms of rural incomes, tax revenue and employment. Fuel wood requirements have contributed to the degradation of forests as wood reserves are depleted at a rapid rate in many regions.

Most of the traditional energy technologies (wood and charcoal stoves and charcoal production kilns) currently used in Uganda are inefficient. Several initiatives to conserve biomass resources have been undertaken by Government and the private sector, including NGOs. They include the promotion of improved stoves, as well as afforestation. However, the impact of these efforts is still limited due to a lack of awareness, poor coordination, and insufficient human and financial resources.

Uganda’s electrification rate is still very low, with grid access of only 5% for the entire country and less than 2% in rural areas. This means that only 240,000 customers are connected to the grid. Another 1% of the population provides itself with electricity using diesel and petrol gensets, car batteries and solar PV systems. The electricity prices, which had been last adjusted in 1993 along the lines of long-run marginal cost of supply, were recently reviewed to reflect the current economic cost of supply effective in June 2001. This helps to attract private sector participation in the electricity supply operations. Recognising the need and importance of accelerating access to rural areas, a new Rural Electrification Strategy and Plan was adopted by Cabinet in February 2001. This Strategy delineates the measures necessary to achieve a rural electrification rate of 10% by year 2010. Electrification in rural areas will comprise access to the interconnected grid, supply from isolated grids and solar home systems. As to the latter option, it is planned that about 20% of the newly electrified households between 2001 and 2010 will use solar energy to meet their electricity needs.

There is significant potential for energy efficiency (EE) through improved use in households, industry, commercial buildings and the transport sector. Since expenditure on energy constitutes a large proportion of the country’s GDP and a particularly large proportion of poor households’ expenditure, it is necessary to further the effective and efficient use of energy.

To make the energy policy more successful on the ground, it appeared necessary to involve districts and community decision-makers. In most districts the local governments have adopted a role in other sectors like water, environment and health, but not in energy. To extend their involvement also to the latter sector a decentralisation process together with the Ministry of Local Government was triggered. A decentralised setting, in terms of diversifying power generation, has been developed to ensure security of supply, increasing access to modern energy in rural areas and promoting renewable energy through awareness and capacity building. The main challenge so far, is to transfer the policy down to the local levels and apply it at the district and sub-county levels to meet the energy needs of the people.

Since 2003, the MEMD (Ministry of Energy and Mineral Development) is working with the local governments to mainstream energy in their District Development Plan and encourage the private sector and other institutions to effectively work together. In order to support this process, the German Ministry for Economic Cooperation and Development has commissioned GTZ to carry out the Energy Advisory Project. Originally, the Project included three districts. With the DGIS co-funding under the Partnership Agreement (Silent Partnership, AMES-U), which was approved by DGIS in November 2004, the BMZ is prepared to extend the Project to three more districts targeting 20,000 households (100,000 people), 30 SMEs and 30 public institutions.