Tanzania’s power sector is dominated by state-owned Tanesco, which owns most of the country’s transmission and distribution network and more than half of its generating capacity. Tanzania’s second Five-Year Development Plan (FYDP II), unveiled in June 2016, foresees a six-fold expansion of the power grid over the next decade. The plan sets a top-line installed base target of 10GW by 2025/26 – up from only 1.5GW in 2015. Hydro and fossil fuels will account for a sizeable chunk of the grid’s growth, while the role of wind and solar is much less clear. The government’s reform of the power sector, in the 2014 Electricity Supply Industry Reform Strategy and Roadmap, would see Tanesco unbundled by 2025. Full liberalization, however, will be hard to achieve within the prescribed timelines.
The Ministry of Energy and Minerals has updated the Power System Master Plan (PSMP), which lays out several scenarios for the development of Tanzania’s electricity industry in December 2016. Under the ‘optimal expansion plan’, the country would add ten times more fossil fuel capacity than renewables by 2030. Emphasis on adding ‘firm’ capacity outstrips ambitions to be ‘clean’. For example, by 2030, under the PSMP’s ‘optimal’ mix, Tanzania aims to build 3.4GW of new coal capacity, tapping into domestic coal reserves. It will also add more than 3.3GW of natural gas-fired generation, bolster its existing hydroelectric fleet by 1GW, and install 650MW of wind and solar (combined).
Policies in the FYDP II and PSMP are not aligned. The PSMP puts Tanzania on pace for 27% hydro + renewables by 2040 in its generation capacity, whereas the FYDP II aims for 70% by 2025. Neither projection is backed by concrete policy mandates. Incidentally, Tanzania missed its capacity targets under the country’s first Five Year Development Plan (FYPD I), growing the grid to less than half of its intended installed capacity.
One issue holding back investment is non-payment by the utility to independent generators: Tanesco has debt of $363 million in January 2017, up from $250 million at the end of 2015. The government discussed a $200 million loan with the World Bank to clear the debt. Fundamentally, retail electricity rates are set too low to unlock generation opportunities upstream. Requests to boost retail tariffs have been repeatedly denied or watered down for political reasons. Tanesco submitted a request to the regulator Ewura in October to increase its average electricity tariff by 18%. Ewura approved an increase of just 8%, which had not been implemented as of June 2017.
Tanzania has one of the most robust regulatory and legal frameworks in the region that encourages the construction of small power projects. At end-2015, the regulator approved the so-called second-generation framework, which improves on its predecessor in several ways: projects will earn a fixed tariff for the lifetime of the PPA. Previously the rates fluctuated annually based on the distribution network operator’s avoided costs. The selection method will vary by technology, so there will be an administrative process for small hydro and biomass projects, and competitive bidding for solar and wind. Indeed, competitive bidding is now the catchphrase of Tanzania’s approach to energy policy and will form part of the regulatory framework for utility-scale renewable power producers. However, it is still unclear when the plan will be implemented.
An ecosystem of off-grid energy providers has emerged in rural Tanzania, set apart from the bureaucratic quagmire that stifles prospects for a centralized grid. Tanzania is a hotspot for the distribution of pico-solar lighting products and the development of mobile-based, pay-as-you-go business models for access to off-grid solar arrays.