High feed-in tariffs coupled with ready market could boosts investments in renewable energy as the country seeks to reduce the reliance on expensive fossil fuels.
According to a recent Power Purchase Agreement (PPA), which the government signed with GigaWatt Global Rwanda Ltd, Rwanda Energy Group (REG), a government power company, is paying 50 per cent more for solar energy produced by the independent power producer and added onto the national grid.
This translates into $24 cents per kilowatt hour, which is more than the $22 cents the final consumers pay for each kilowatt hour.
Comparatively, REG is to pay $14 cents per kilowatt hour for power to be imported from Kenya, which is also far below the $24 cents for solar power.
The most affordable power purchase agreement the government concluded was with KivuWatt, an American firm which will charge $12 cents per kilowatt hour.
However, the country will have to wait a little longer for the power plant being constructed to be completed.
The methane power plant, which was expected to be commissioned in 2011 is still under construction, attracting anger from REG.
“We have given KivuWatt up to March 2015 to complete the plant,” said John Bosco Mugiraneza chief executive of REG.
Reasons for the delayed completion of this project, according to officials, water and gas separators was held at Mombasa port for a longer period. However, the equipment has since been transported from Mombasa to pave the way for installation.
In the first phase of the project, 26MW of electricity will be produced.
The premium prices have been guaranteed for over 20 years as part of the many incentives government has come up to attract investments in the energy sector.
Analyst attending the Rwanda power and infrastructure investment forum in Kigali recently noted that the goal of feed-in tariffs is to offer cost-based compensation to renewable energy producers.
“The aim is to provide price certainty and long-term contracts that help finance renewable energy investments,” said Stephen Byaruhanga, a risk analyst with Eskom Uganda.
The managing director of Energy Development Company Robert Nyavumba, said they were told to come up with attractive power tariffs as solar power generation is a heavy capital investment.
It is estimated that to produce one megawatt of solar energy, at least $6 million is needed compared with other sources of energy.
GigaWatt Global Rwanda Ltd, which generates 8.5MW of solar power at Agahozo-Shalom Youth Village in Rwamagana District, is the first firm to produce power in larger scale to benefit from government incentive.
It is reported that this is the first grid-level solar electric generating plant and is the largest in Rwanda.
Another 28MW from River Nyabarongo hydro electricity power plant helped the country scale up its production capacity from 110MWs mid this year to 155MW.
Rwanda is looking forward to increasing its installed power generation capacity. Combined with imports and locally produced power, the country depends on 95MW of hydro power, 47.8MW of diesel, 3.6MW of methane and 8.75 of solar.
But the national target is to produce 563MW in three years for the country to meet the projected demand needed to drive the economic growth to 11.5 per cent per year.
Power generation in Rwanda has remained low partly because the country has not fully exploited other sources of energy.
The low power supply hurts industries, with some of them operating bellow installed production capacities.
“We may be losing some potential investments because of energy shortage. When we discuss with investors, they always ask us whether they will have energy supply. This means that if we can developthe energy sector, it will be a big boost for the economic development of the country,” said Kigali mayor Fidele Ndayisaba.
The government is also coming up with new tax incentives for investors in a new tax code currently before parliament. It has been proposed that corporate income tax will be reduced from 30 per cent to 15 per cent.
Availability of affordable power is expected to increase Rwanda’s per capita energy consumption.