East Africa secures $600m to fund big power projects

Saturday November 30 2013

East African countries are gearing up for new investments in the power sector as investors and big financiers close new deals for energy projects, potentially easing the region’s power woes.

Over the past five days, at least seven major projects across the region have secured funding, boosting the bloc’s search for sufficient, stable and cheap power. This has seen a total of at least $605 million signed off in less than a week for projects in Kenya, Tanzania, Burundi and Rwanda.

The flurry of deals, analysts and government officials said, highlights the urgency of sorting out the EAC’s power woes, long defined by unreliable, expensive power and low connectivity for households and businesses. 

Based on the projects that have received funds, at least 10,000 Megawatts of electricity will come online in the next five years, encouraging countries to invest in joint regional and domestic transmission and distribution infrastructure.

A group of eight countries that includes all five EAC member states plus DR Congo, Sudan and Egypt said last week that they have raised at least $383 million to finance joint electricity projects to plug a growing deficit and increase connections to consumers.

The group of countries, known as the Nile Equatorial Lakes Subsidiary Action Programme (NELSAP), said this will supplement the efforts of the 10-member Eastern Africa Power Pool, which seeks to achieve inter-country interconnection and generation surplus of 27 per cent of total generation by 2038.


On Tuesday, Ethiopia said it plans to generate up to 1,200MW of power from nuclear energy following recommendations by a consulting firm hired by the Ethiopian Electric Power Corporation. It is expected that demand for power in Ethiopia will surge to 37,000MW by 2037, from the current 2,270MW, mostly from hydro sources.

Tanzania, Rwanda and Burundi plan to share 80MW generated from the regional Rusumo Falls Hydropower Project, which received funding of $97.3 million from the African Development Fund (ADF) and the Nigeria Trust Fund to finance transmission facilities.

The project has two components; an 80MW hydropower generation plant and transmission lines and substations expected to be completed by August 2018. Other financiers have committed money to be used in financing generation.

In Burundi, the World Bank last week said it had started releasing $70 million in loans and grants to fund the construction of two hydroelectricity dams in the country with a combined capacity to generate 48MW, helping ease the severe power shortage in the country.

By last year, the country’s total installed capacity was 42MW, meaning the development of the new power projects, known as Jiji and Mulembwe hydroelectric power stations, in the south part of the country will enable it to double its capacity.

Rain-fed hydroelectricity

Kenya has embarked on a wide range of renewable power generation projects in a bid to reduce dependence on unreliable rain-fed hydroelectricity and thermal power.

The African Union Commission on Wednesday invited geothermal power investors to apply for grants to fund initial exploration costs within the next one month.

The commission signed a $8.4 million guarantee financing agreement with Africa Geothermal International Kenya Ltd (Agil), which is exploring with a view to produce 140MW of electricity at Mt Longonot in Naivasha.

Kenya’s Energy Principal Secretary Joseph Njoroge said the country hoped to reduce the cost of power by 40 per cent once the major geothermal projects deliver power to the national grid by 2018.

“We expect that the geothermal power projects will help us reduce the cost of electricity in the coming years. Power prices should come down by 40 per cent within the next 40 months,” said Mr Njoroge.

At the same time, US energy firm OrPower 4 said it had received an extra $45.6 million loan for the completion of the 100MW Olkaria III geothermal project in Naivasha. The tranche was part of the $306.5 million funding kitty from the Overseas Private Investment Corporation (OPIC) — an agency of the US government.

The EAC Secretariat estimates that between 2013 and 2018, the region will need to invest $14 billion to meet its electricity needs, with total spending over the next 20 years expected to rise to $64 billion, or nearly half the region’s economy.

According to the World Bank, Kenya has the second highest number of households without electricity at 6.2 million after Tanzania’s 7.2 million. Uganda at 5.5 million, Rwanda at 1.7 million and Burundi with 1.4 million.

AfDB executives said the Rusumo project will increase hydroelectricity supply capacity and relieve the power deficit in all three countries.

It will also allow governments to address their low energy access rates — Rwanda and Tanzania will be able to replace some of the energy generated from high cost imported fuel with cheaper hydropower, therefore reducing the current electricity tariff. For Burundi, the project will provide 50 per cent of the current peak power demand.

“The Rusumo Falls hydro-project is in response to a crisis in low-energy access rates and limited infrastructure development in the region. Africa has incredible untapped hydropower potential, only four per cent of which has been exploited,” said Alex Rugamba, the director of the AfDB’s Energy, Environment and Climate Change Department.

Only Ethiopia and Egypt are on course in electricity investments as other countries feel the pressure of increasing demand from new household connections and an expanding industrial consumer base.

Two weeks ago, Kenyan consumers were slapped with higher electricity prices. Starting December, consumers will pay Ksh3.93 ($0.046) for the first 50 units of electricity consumed or nearly double the current rate of Ksh2 ($0.023), according to the new rates by the Energy Regulatory Commission.

The increase was prompted by a request by Kenya Power to enable the firm to earn more revenue to finance new investments in power distribution.

In Tanzania, the Tanzania Electric Supply Company has sought permission from the Energy and Water Utilities Regulatory Authority to increase electricity charges by an average of 67.9 per cent. The current tariffs were increased by 40.3 per cent in 2011.

In Uganda, electricity tariffs were increased by 69 per cent and 36 per cent respectively by the Uganda Electricity Regulatory Authority last year.

The firm has been seeking further increases this year of 15 per cent. Uganda is planning to double the length of its power grid from 1,700 km to 3,400 km with an investment of $500 million by 2017.

Under the NELSAP plan, National Project Implementation Units have been established and every country is implementing the projects through their national power utilities in charge of transmission.

The money will also be used to build in-country capacity to plan, build, operate, and manage cross-border interconnection to ensure system efficiency and reliability.

The funds were raised from the AfDB, the European Union, the government of Norway, the government of Germany through KfW and the government of the Netherlands.

Reported by Steve Mbogo and Anita Chepkoech.