GET FiT in Uganda – Observations & open issues from a financial perspective
An estimated 17% of the global population does not have access to electricity and fossil fuels still account for more than 80% of the world’s energy mix. A current policy paper by Deutsche Bank research illustrates the approach and up-to-date implementation of the GET FiT initiative to create renewable energy in developing and emerging countries and analyzes the program's possible implementation in other nations.
The GET FiT (Global Energy Transfer Feed-in Tariffs) concept was developed by Deutsche Bank in 2010. It intends to combat climate change and the lack of available energy by supporting private sector investment in capital intensive renewable generation assets in emerging and developing countries. The idea of the concept is that governments in the developed world and/or multilateral organisations support the upgrading of the existing regulatory framework in emerging economies to improve the risk profile and commercial viability of renewable energy investments from a private sector investor’s perspective. The GET FiT Pilot in Uganda, initiated jointly by KfW and Deutsche Bank and officially launched in Kampala on 31 May 2013, will support approx. 125 MW of renewable energy.
There are major barriers for private sector investments in renewable energy projects due to lacking transparency, the (perceived) risk of retroactive changes to the Feed-in Tariffs (FiT) scheme as well as the limited creditworthiness of a single off-taker. KfW – supported by other donors – has spent significant time with public sector stakeholders in Uganda to increase awareness of private sector requirements. The review and standardisation of the required legal documentation have increased transparency for project sponsors and will reduce transaction costs for lenders significantly. In addition, the Government of Uganda has requested World Bank support to mitigate regulatory risk by providing Partial Risk Guarantees improving the risk profile for investors.
Additionally, the top-up of the existing FiT, which is – as the base FiT – fixed per technology (hydro, solar PV, wind, etc.), closes the remaining gap between current FiT and the levelised cost of electricity after mitigation of regulatory/off-taker risk. Our analysis shows that the required donor payments would have been close to zero, if carbon markets and the Clean Development Mechanisms had put an appropriate price on carbon emissions. Due to the carbon market failure, investment grants need to replace the economic instrument for the time being.
GET FiT has so far succeeded, with regard to private sector development activity and equity investments. Initial projects benefitting from GET FiT support are expected to start construction in early 2014 and will contribute to avoiding load shedding and/or the use of expensive, carbon intensive emergency power. To achieve private sector participation in debt financing, it will be crucial to give private sector lenders a “fair chance” to participate on their terms. We are confident that GET FiT can play a crucial role in developing Uganda’s energy sector.
“We are confident that GET FiT can play a crucial role in developing Uganda’s energy sector.”