Creating Enabling Environment - Light Handed Regulation on Small Power Projects (SPP) in Tanzania

…Creating Enabling Environment -

Light Handed Regulation on Small Power Projects (SPP) in Tanzania

Presentation at the Workshop Innovations in Off-grid Lighting Products and Energy Services for

Rural Tanzania

8th & 9th April 2010

Presented by:Eng. Norbert Kahyoza – Commercial Manager (Electricity)

EWURA 1

OutlineElectricity Supply – Basic FactsLegislative FrameworkObjectivesStandardized Power Purchase

AgreementStandardized Tariff MethodologyRules and GuidelinesLicensing Requirements

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Basic Facts on Electricity Supply in Tanzania (2009) Installed Capacity – 1051MW Dependable Capacity – about 55% Still Hydro dependent – 53.4%

Major threat from diminishing water resources Peak demand – close to 740MW Customer base – 740,954 Electricity Access level – 12.7% (HBS 2007)

(Grid + Solar)3

Basic Facts on Electricity Supply in Tanzania (2009) – Cont. Why Small renewable now?

No strategic promoters, Planners, Financiers, Service Companies, etc.

Abundant resources Clean Energy Capacity addition to grid Boost Rural Electrification Promotes Entrepreneurship

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Legislative Framework National Energy Policy, 2003 Energy and Water Utilities Regulatory Authority

Act, Chapter 414 of the Laws of Tanzania, 2001 Operations Commenced February, 2006

Rural Energy Act (2005) Establishing REA & REF

The Electricity Act, 20085

Legislative Framework – Cont.Energy Policy Statement No. 36

Establish norms, codes of practice, guidelines and standards for renewable energy technologies, to facilitate the creation of an enabling environment for sustainable development of renewable energy sources

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SPP Regulatory Framework Objectives

To support the enabling environment for sustainable development of renewable energy sources through Light-handed regulation

1. Minimizing amount of information that is required. 2. Minimizing the number of separate regulatory

requirements and decisions. 3. Use of standardized documents so as to reduce

need for case-by-case analysis and negotiation.7

SPP Framework Structure

Standardized Power Purchase Agreement Grid and Off-grid Connections

Standardized Tariff Methodologies Grid and Off-grid Connections

Rules and Guidelines Standard Forms

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Standardized Power Purchase Agreement (PPA)

It is a legal contract between an electricity generator and a power purchaser

The PPA is a central document in the development of independent power plants, and is a key to obtaining project financing for the project.

In some renewable energy contracts, the buyer has the option to purchase the facility at the end of the term.

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Standardized Power Purchase Agreement (PPA) – Cont.

Key provisions include Definitions Sale of Capacity and Energy Term and Termination Operation, Metering and Payment Terms Force Majeure Dispute Resolutions Representations and Warranties Miscellaneous Annexes (contain most of technical details)

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Standardized Tariff Methodology Tariff Categories

Calculated separately for Main Grid and Mini-grids Based on TANESCO’s avoided costs of generation

At the moment it is technology free, Actual calculation somehow complicated involving a

number of conversions and adjustments, Specifies Floor Price and Price Cap for each SPP

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Tariff for Mini-grid Calculation Steps

a) LRMC at MV Distribution level of main grid (same as for Main Grid Adjusted for avoided Transmission losses)

b) Incremental Capacity and Variable Cost of Mini-grids (Based on cost of investment and Operation of a 1MW diesel generator)

c) Standardized Mini-grid SPP Tariff for the year is the average of (a) and (b) above OR Tariff Case 2 = ½(ClrmcGrid + CavgMini)

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Tariff Cases 3 (main grid) and 4 (isolated): selling also at retail to end use customers Tariff is proposed by SPP generator, subject to

EWURA review Less oversight demanded in cases in which

community is in agreement with proposed tariff Where possible, EWURA draws on financial

analysis submitted to REA for rural electrification subsidy

Case 4 also applies for an SPP cum DNO

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Rules and Guidelines Rules & Guidelines, as for SPPA, are developed

through extensive consultation with stakeholders, They are all addressing the SPP implementation

requirements, But The Rules are legal requirements that shall be

complied to and are enforceable by law, while The Guidelines are procedural steps to guide the

parties when carrying out a requisite process. 14

Rules and Guidelines – Cont. The Guidelines and Rules are intended to assist

Small Power Project (SPP) developers to understand; the SPP legal framework and process, EWURA’s licensing requirements and procedures, how to obtain authorizations from other government

institutions, and other technical, commercial and regulatory

requirements necessary to bring an SPP into operation.

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Two main components: Procedural and Technical requirements

Audiences: SPP developers, EWURA, TANESCO, REA, Bankers, etc

Purpose: Guidance to an SPP on how to acquire necessary consents and make safe interconnection to existing network.

Goal: Backed by the Rules, achieve light handed regulation on SPP and promote development of renewable energy sources in Tanzania .

Main Aspects of the Guidelines

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Main Contents of the Guidelines Process Guidelines

Project Development Sequence Licensing Requirement Reporting requirements Tariff Issues Licence Fee Working group operations Dedicated SPP Unit for a DNO Interconnection of the Main Grid with the mini-

grid 17

Main Contents of the Guidelines – Cont. Interconnection Guidelines

These are guidelines for technical reference for design, construction, testing and operation of the interconnection between SPP and a grid/mini-grid systems in Tanzania.

They are prepared in three categories Part A: scope, mandatory requirements, and the procedure for

testing. Part B: instructions on how to classify projects depending on the

different network arrangements, and the types of protection equipment and their settings to be provided.

Part C: technical reference providing information directly relevant to embedded generator protection, and associated designs.

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19EWURA license

Business license, tax registration, etc.

SPPA

Land title or lease

Resource Rights (e.g. water rights from River Basin Water Office)

Letter of Intent (LOI) with DNO (Tanesco)

Environmental and Social Clearance (NEMC)

Building Permit

Sample procedure for the necessary permits and clearances

Sequence is important to

avoid competing claims on

project sites

Standard Forms Establishes minimum necessary information Enhances transparency in the implementation

process Includes

Application forms Letter of Intent Interconnection Certificate Registration Forms (SPP < 1MW) Licence Application form (SPP>1MW)

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EWURA license SPPs up to 1 MW are exempt from EWURA’s

licensure requirements Must submit completed registration form

Location, business registration, capacity of facility, GWh/yr, date of planned construction

Non-exempt (>1 MW) Submit license application

Same as registration, plus Section on managerial competence Feasibility study Business plan Permits and clearances (NEMC, water rights, etc.)

Where possible, EWURA draws on financial analysis submitted to REA for rural electrification subsidy

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Proposed rules related to EWURA license The Authority shall approve or disapprove a

license not later than forty-five (45) days after receipt of such application.

An initial license will be granted for fifteen (15) years. Subsequently, renewed licenses will be granted for fifteen (15) years.

All generators are required to submit, on an annual basis, a completed SPP Annual Reporting Form.

The EWURA license application requires a fee of Tsh 100,000 (about US$75).

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Thank you

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