Rwanda hopes to see a 50 per cent drop in power tariffs, as energy from cheaper sources enters the grid, which could reduce production costs in the country.
While a new tariff structure is still under review, the proposal is based on a combination of increasing generation capacity, diversification of energy sources, reducing the proportion of thermal power in the energy mix and negotiating better feed in tariffs.
“We have substantially increased electricity generation. Therefore, there is a need to make power affordable for domestic and industrial users,” said Emmanuel Kamanzi, managing director of Energy Development Corporation Ltd — a subsidiary of Rwanda Energy Group Ltd.
Rwanda’s move comes as regional economies grapple with high electricity tariffs that have put manufacturers in a less competitive position relative to cheap imports from Asia and other Comesa member countries.
The Rwanda Private Sector Federation, Kenya Manufacturers Association and Uganda Manufacturers Association have cited high energy costs as contributing to high production costs.
According to highly placed sources, manufacturers in Rwanda will pay an average $0.12 per kWh, a sharp drop from the current average tariff of $0.24 per kWh — the most expensive tariff in East Africa.
Comparatively, Tanzania’s industrial tariffs average $0.12; while Uganda’s average $0.13.
According to statistics from Rwanda Energy Group, the government has also recently scaled down the use of expensive heavy fuel oil plants, which are contributing only 37.8 per cent of available energy, down from more than 50 per cent.
The heavy dependency on heavy fuel oil power plants resulted in the country spending $37 million annually in subsidies to make power more affordable for end users, further piling pressure on the budget.
The power utility company buys electricity at $0.33 per kWh from independent firms. However, the country has now negotiated better tariffs with new independent power producers. Some have agreed to sell their power at US cents 9.8 per kWh.
Affordable power will be generated through the $260 million-80MW peat-fuelled plant, which is being developed by Hakan, a private Turkish company; and the 80MW Rusumo Hydroelectric Project, due for completion by 2019. Burundi, Tanzania and Rwanda will share the power generation at Rusumo equally.
High power tariffs have partly been blamed for the slow growth of the manufacturing sector in the country.
“High energy costs are repeatedly cited as negatively impacting on the profitability of businesses in Rwanda,” said Andrew Mold officer-in-charge sub-regional office for Eastern Africa of the United Nations Economic Commission for Africa.