Inadequate government support and limited financing from commercial banks, among others, are hindering the private sector from investing in…
Inadequate government support and limited financing from commercial banks, among others, are hindering the private sector from investing in renewable energy, a new report has revealed.
Renewable energy, often referred to as clean energy, comes from natural sources or processes that are constantly replenished such as solar energy and biogas.
Dubbed, ‘Financing Mechanisms for Private Sector Investment in Renewable Energy Access in Uganda,’ the report shows that renewable energy is a profitable venture for investors as well as saving the environment.
However, it indicates that the government does not provide the incentives in form of taxes, electricity subsidies and other sources of financing to attract the private sector to invest in renewable energy sources.
For instance, the report shows that 65 percent of renewable energy companies in Kampala and 85 percent of those upcountry did not know any funding opportunities in Uganda.
“…high and uncertain project development costs, lack of well-defined bankable projects, poor credit profile and financial records, unclear taxation and subsidies, low renewable energy technology sales and fragmented funding landscape and a scattergun approach to private sector support,” reads the report commissioned by civil society body Environmental Alert in partnership with NORAD.
The report is in regard to the project titled, ‘Increasing access to sustainable and renewable energy alternatives in the AlbertineGraben’ that is implemented by World Wide Fund-Uganda.
The report shows that Uganda has found it challenging to utilize many of these renewable energy resources and to ensure the energy mix to accelerate energy access.
“Increasing access to electricity will require a sharp increase in energy access investments. Since public funds are limited, the necessary investments cannot be made by the government alone. Therefore, the mobilization of private investment and finance is crucial,” the report adds.
While launching the report on Friday, Dr Joshua Zake, the Executive Director of Environmental Alert, revealed that apart from inadequate government support, private sector players face higher foreign exchange risks when sourcing international funds and that despite availability of financial instruments to hedge the risk for commonly traded currencies, some borrowers are unwilling to provide the same instrument for currencies traded less frequently.
“The small scale of many renewable energy projects creates significant problems in obtaining international private financing. The sums of finance often required by the projects in their start-up phase are often too small for mainstream investors and banks. The transaction costs of funding many small projects are high because of the due diligence and bureaucracy involved,” he quoted the report, revealing that typical due diligence costs for larger projects can be in the range of $ 0.5 million to $1 million.
Dr Zake however, said that the report, enlists key financing sources that can be tapped to invest in renewable energy by the private sector.
“The report findings and recommendations have helped us to clarify the actions and what duty bearers should do towards the implementation of the study in as far as accessing financing for renewable energy by private sector is concerned,” he said.
In response, Mr John Bosco Tumuhimbise, the Assistant Commissioner in charge of renewable energy at the Energy ministry, admitted that the low level of development and modest contribution of modern renewables are a result of several barriers and challenges which are economic in nature.
“These barriers are financial, fiscal and socio-economic. Investment in renewable energy must compete for resources with other projects whose risks may be lower but also offer better returns on investment. Renewable energy tariffs usually do not factor in other non-monetary benefits such as improved health, reduction in harmful emissions, environmental sustainability and ecosystem services,” he said.
To ensure a steady increase in the contribution of renewable energy sources, Mr Tumuhimbise revealed that government is reviewing the renewable energy policy to address a range of constraints that have hindered the development and adoption of modern renewable energy
The report revealed that financing underdeveloped financial markets, inappropriate financing terms and conditions, limited long-term financing, limited awareness of energy financing opportunities and few well-defined bankable projects are barriers to investment in renewable energy.
“Investments in low-income energy markets like in Uganda are often longer-term, higher risk, and generate a lower financial return. Commercial investors may be unwilling to spend time building the relationships and market demand required to generate a decent return, requiring more ‘patient’ forms of capital instead,” reads the report.
The report shows that many renewable energy projects are too small for mainstream investors, banks; associated with higher risk, lower financial return thereby limiting financing of private sector investment.
Statistics show that despite the recent efforts by the government to increase access to electricity by all Ugandans, more than two-thirds of the population lack access to electricity.
Uganda is among countries with the lowest electricity access rate; over 93% of the population relying on biomass for energy.
Kindly find the ENR-CSO’s Position Paper on Performance in the Environment and Natural Resources Subsector for the Financial Year 2019/2020. Presented a head of the 12th Annual Water and Environment Joint Sector Review 2020. Theme: “The role of Water and Environment in the industrialization and wealth creation agenda of Uganda.”
On a bright Wednesday afternoon, deep in Kyanaisoke Sub-county, Kagadi District, Nyandera has decided to invest her hard-earned money in something valuable. A mother of four and wife to Bigabwa, she has decided to purchase a solar-powered lighting system for her home.
“I am happy and now my sons will be able to revise their books. I can also finally charge my phone from home,” she says. This is an example of how women are delving into renewable energy technologies in the region in a bid to improve the quality of their lives.
The role of women in the energy value chains cannot be under looked and it is evident that it improves overall access. How women access renewable energy is important because it helps improve livelihoods and spur businesses. But there is one pertinent question that comes to our minds: whether access to renewable energy has a serious gender bias. Is Nyandera more likely to use solar compared to Bigabwa or other men in the village? Or does it matter how much either of them spends on a solar unit or an improved cook stove?
Research by Kitara Civil Society Organisation Network between 2018 and 2019 in the Mid-Albertine rift provided evidence that women spend more than men to access renewable energy. It indicated that men were more likely to own solar units or other renewable technologies (60.4 per cent) compared to women (12.8 per cent).
Ironically, women were more likely to spend Shs26,000 more compared to men to access the same unit of renewable energy. This translates into an additional Shs26,000 paid by a woman, for instance, to access a solar unit that a man would acquire. This is a great challenge, given that the high cost (cash or otherwise) incurred by women to access renewable energy deters their movement up the energy ladder and, therefore, denies them an opportunity to engage in other productive activities that would otherwise spur development and attainment of the Sustainable Development Goals and other local commitments.
There are prospects of mainstreaming gender and providing opportunities for various gendered groups.
Although Uganda has made strides in the development of the renewable energy sector, it is apparent that gender is not effectively mainstreamed within our energy policies, legislation, and programmes. There is lack of clear gender strategies for addressing the gender concerns within the country’s ministries, departments and agencies. For instance, the ministry of Energy does not have a gender mainstreaming strategy for the sector (RECSO Network, 2019).
To address these bottlenecks, there is need for, among others, to:
a) Deliberately focus on gender issues leading to a gender mainstreaming strategy in the renewable energy sector. Specifically, the ongoing energy policy review process ought to have a clear strategy of mainstreaming gender issues in the sector, with clear timelines and targets that will periodically be reviewed.
b) There is need for renewable energy programmes and projects to target women specifically in the financing sector. Incentive packages need to be developed that target women to spur improved adoption and access to the renewable energy technologies.
c) The private sector players need to be targeted to have gender specific and responsive goods that will be adopted by the women. The pricing models need to be considerate of women needs and abilities.
Mr Phillip Kihumuro is a researcher at Ecosystem Associates (ECOSAS)
Rose (a single mother of two and a resident of Ngaara village in Mbarara District) has always dreamt of having a solar energy system for her home. However, with her limited income and surviving on the margins, her dream remains just that – a dream.
“I am faced with the struggle to find money for school fees for my two daughters. I am not even able to provide two meals each day for my family! How can I think of a solar system that requires Shs200,000. Yes, we need light in our house for my children to use, but the only option is a kerosene lantern,” she says.
Rose is among millions of Ugandans, especially in rural areas, where access to hydro power is still limited due to its high cost, who are seeking efficient and affordable clean energy in their homes, but can’t also afford the modern clean renewable energy, because it is still out of reach. Renewable energy technologies, particularly solar power, are meant to provide rural communities with cheap, clean, efficient and healthy alternatives, but remain out of reach for most of these communities.
Solar energy can be used for cooking, heating as well as power, which can reduce the dependency on firewood, charcoal, candles, and kerosene lanterns that are majorly used in rural areas.
However, despite its potential and all its wonderful benefits, its use is still limited! One of the major constraints is the initial cost of installation besides lack of knowledge about its benefits and where to access the genuine products.
There is also the issue of security of the panels, which must be kept outdoors where they can tap energy from the sun. Although access to renewable energy alternatives, especially for the rural poor, is the United Nations desired goal in efforts to stem global warming and deadly gas emissions, many communities are still unable to access them because of the related high costs.
Sustainable Development Goal 7 (SDG7) focuses on ensuring affordable clean energy for all. It also focuses on improved access to clean and safe cooking fuels and technologies for three billion people. Furthermore, it seeks to expand the use of renewable energy beyond the electricity sector, and to increase electrification in sub-Saharan Africa.
In this region, more than 789 million people are living without access to electricity. Worse still, those who have access, only have limited or unreliable electricity supplies. Yet electricity is key to keeping people connected at home, run businesses and keeping many sectors operating efficiently.
In Uganda, current World Bank statistics show that only 42.7 per cent of the urban population have access to power. The largest population in rural areas, still depends on biomass as their source of fuel (in terms of charcoal, firewood, and plant residues) while a few have solar.
Uganda’s Vision 2040 set a pathway through which the country would transform from a lower income country to a middle-income country focusing on the energy and mineral development sector as the key drivers to attaining this desired goal.
The government also looks at other projects such as a H-tech ICT city, with related infrastructure, large irrigation schemes, industries, standard railway gauge network, technology parks and many more of which require affordable and sufficient energy to run .
This further confirms the importance and need of sufficient and affordable energy alternatives in the entire country.
The main source of energy for large scale projects is still hydro electric power. But it doesn’t reach all parts of the country due to high transmission costs and the need of expensive infrastructure. In these sparsely populated rural settlements, leaving them with solar energy is their best option.
Ms Maclean Atukwatse is the programme assistant environmental and livelihoods at AGEs Considered (ACO).