As Uganda gears for the commissioning of the 600-megawatt Karuma power dam in September, investors are debating the impact of a fresh electricity surplus margin on future projects.

Whereas the commissioning of the $1.7 billion Karuma power dam is more than three years behind schedule, the addition of more than 600MW will create a surplus of more than 100MW in the short term.

Excess power available on the national electricity grid poses a disincentive to foreign investors willing to inject capital in new generation projects for fear of reduced returns, energy experts say.

Karuma power dam and other generation projects are expected to raise Uganda’s overall generation capacity to around 1,925.9MW compared to total electricity demand estimated at 1,875MWs in mid-2022 according to industry data.

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“The government’s decision not to renew the Umeme Ltd concession agreement symbolises huge political risk among industry players,” said an energy industry source who requested anonymity, citing confidentiality obligations.

Uganda’s energy mix is currently dominated by hydropower which accounts for 79.7 percent of installed capacity amounting to 1,072.9 megawatts followed by Thermal and Bagasse with a 15.7 percent contribution while the balance is attributed to solar power sources, government statistics show.

“Electricity demand is not elastic in the short run, meaning that when you pump 600 megawatts into Uganda’s grid, this would amount to about a 50 percent increase. It means that there is likely to be a short-term imbalance.

What this means is that unless there is an unusual growth in demand, supply is likely to exceed demand for about five years,” said a business analyst at the Electricity Regulatory Authority (ERA) who chose anonymity, citing confidentiality rules.

Nonetheless, optimism has gripped power sector insiders keen on the huge supply potential offered by the country’s biggest and most expensive power plant to date.

“Despite the massive power supply expected from the Karuma dam, any excess power available on the national grid will be exhausted after five years and that implies another big dam will be needed to take care of fresh electricity demand pressures,” argued Selestino Babungi, managing director of Umeme Ltd.

Read: Museveni fuels doubt over Umeme concession renewal as profits dip

The national electricity transmission network covered 3,784 kilometres by the end of March 2023.

On the other hand, Uganda’s electricity access ratio grew from 22 percent in 2016/17 to 24 percent in 2019/20, reflecting a national electricity access gap of 76 percent, government data shows.

“Karuma’s fourth generation unit is undergoing production tests at this time. But I do not think Karuma’s entry is going to discourage new investors in the power sector. We are already working on about 3-4 hydropower projects with a generation capacity of 5-20 megawatts and the growth opportunities are clear to us. Although the government had difficulties paying some private power producers during the Covid-19-induced lockdown period, UETCL has maintained regular payments to private electricity companies since the lockdown ended. The commissioning of the Karuma power dam is likely to unleash heavy debt repayment obligations against the government and this will make it difficult for it to invest in a big electricity project soon,” said Nicholas Ecimu, a Partner at S&L Advocates.