Uganda REFIT Stakeholder Consultation

TARIFF MODELLING SERVICES
UNDER THE GET FIT TA FACILITY

STAKEHOLDER CONSULTATION DOCUMENT 15.04.2016
Content
1 Introduction ...................................................................................................................... 4
1.1 Imperative to strengthen the energy sector ........................................................ 4
1.2 Participation of the private sector, and public support mechanisms .................... 5
1.3 Communication and transition to next phase of small and medium-scale
renewable energy role....................................................................................... 7
1.4 Challenges and trade-offs ................................................................................. 7
1.5 The overall approach: science and art ................................................................ 8
2 REFiTs and International Best Practices ............................................................................ 10

2.1 Why FiTs? What they do and key risks ............................................................. 10
2.2 Taxonomy of FiTs and bases for differentiation ................................................ 11
2.3 Experiences in other regional markets: Kenya, Rwanda, Tanzania .................... 12
3 Applying the Methodology to Uganda ............................................................................. 14

3.1 Previous REFiT levels in Uganda and resulting project development .................. 14
3.2 Avoided costs in the future.............................................................................. 16
3.3 Preliminary considerations for tariff calculation ................................................ 18
3.3.1 Eligible/priority technologies for the FiT ........................................................... 18
3.3.2 Linear hydro tariff schedule ............................................................................. 19
3.4 The “Science” – Input data and implied tariff ranges ....................................... 20
3.4.1 Cost-plus tariff setting methodology and calculations ...................................... 20
3.4.2 Required data inputs for the model and sources .............................................. 21
3.4.3 CAPEX ............................................................................................................ 21
3.4.4 OPEX .............................................................................................................. 22
3.4.5 Operating inputs and total generation ............................................................. 23
3.4.6 Financing structures and costs......................................................................... 24
3.4.7 Upfront transaction costs ................................................................................ 25
3.4.8 Taxes .............................................................................................................. 25
3.4.9 Carbon finance ............................................................................................... 26
3.4.10 Initial output ranges relative to existing tariff structure .................................... 26
3.5 REFiT calculation methodology as an art and a science .................................... 27
4 Policy Amendment and Outlook ...................................................................................... 32

4.1 Policy amendments ......................................................................................... 32
4.1.1 Generation gap and the future role of small and medium-scale renewable energy32
4.1.2 Treatment of secondhand equipment .............................................................. 32
4.1.3 Frontloading FiTs for IPPs ................................................................................ 32
Uganda REFiT Revision Stakeholder Consultation Document Page i

4.1.4 Transparency and future cost analysis.............................................................. 33
4.2 Policy outlook ................................................................................................. 34
4.2.1 Storage........................................................................................................... 34
4.2.2 Local currency option for FiTs .......................................................................... 34
4.2.3 Geospatial analysis ......................................................................................... 35
5 Stakeholder consultation process..................................................................................... 36
Figures
Figure 1: A clear relationship between GDP and electricity consumption ....................................... 4
Figure 2: Electricity demand forecast for Uganda (MWh) ............................................................... 5
Figure 3: The science and art of determining REFiT levels .............................................................. 8
Figure 4: Forecasted avoided costs through 2023 (USD/kWh) ..................................................... 17
Figure 5: GET FiT SHP specific capex costs vs. installed capacity .................................................. 22
Figure 6: Capital structures of a corporate finance and project finance deal................................. 24
Figure 7: The science and art of determining REFiT levels ............................................................ 28
Figure 8: Comparative hydro tariff (Phase II and Proposed) in USDc/kWh .................................... 30
Figure 9: Proposed FiTs in relation to FiTs in the region (USD/kWh) ............................................. 31
Tables
Table 1: Phase II FiTs (revised July 2013) .................................................................................... 15
Table 2: Proposed return expectations for other technologies...................................................... 19
Table 3: CAPEX assumptions for all technologies ........................................................................ 22
Table 4: OPEX assumptions for all technologies .......................................................................... 23
Table 5: O&M Shares of Current vs. Proposed FITs...................................................................... 23
Table 6: Generation input for all technologies ............................................................................ 23
Table 7: Financing structure and cost assumptions ..................................................................... 25
Table 8: Financing assumptions for all technologies (for flat tariff approach) ............................... 25
Table 9: ERA Phase II 2013 FiTs vs. 2015 FS-LEI model output (USD/kWh) .................................. 27
Table 10: FiT recommendations.................................................................................................. 29
Table 11: Linear Tariff for hydro (>5 MW - 10 MW) in USD/kWh ............................................... 30
Table 12: Frontloaded vs. flat tariffs ........................................................................................... 33
Equations
Equation 1: LCOE calculation for REFiT ....................................................................................... 20
Uganda REFiT Revision Stakeholder Consultation Document Page ii

Abbreviations
CAPEX Capital Expenditure
CDM Clean Development Mechanism
CER Certified Emission Reduction
EPC Engineering, Procurement, and Construction
ERA Electricity Regulatory Authority
GET FiT Global Energy Transfer Feed-in Tariff
IPP Independent Power Producer
kW(h) Kilowatt (hour)
LCOE Levelised cost of energy
LEI London Economics International
MSW Municipal Solid Waste
MW(h) Megawatt (hour)
NPV Net Present Value
O&M Operations and Maintenance
OPEX Operating Expenditure
PPA Power Purchase Agreement
PRG Partial Risk Guarantee
PV Photovoltaic
RE Renewable Energy
REFiT Renewable Energy Feed-in Tariff
REIPPP Renewable Energy Independent Power Producer Procurement
RURA Rwanda Utilities Regulatory Authority
SPPP Small Power Producer Programme
TA Technical Assistance
TANESCO Tanzania Electric Supply Company Limited
UECTL Uganda Electricity Transmission Company Limited
WACC Weighted Average Cost of Capital
This document has been produced for the use of the Ugandan Electricity Regulatory
Authority (ERA) in its external feed-in tariff (FiT) consultations for the revision of its
Phase II FiT regime. It has been prepared by consultants from the Frankfurt School of
Finance & Management and London Economics International, and should facilitate an
informed discussion about FiT policy. Items and arguments presented below have
been discussed with and included comments and changes requested by ERA.
Funds for this assignment were provided by the GET FiT TA Facility and managed by
KfW under the Agreement of Delegated Cooperation with the Secretary of State for
International Development of the United Kingdom of Great Britain and Northern
Ireland.
Uganda REFiT Revision Stakeholder Consultation Document Page iii

1 Introduction
1.1 Imperative to strengthen the energy sector
 Key messages:
 Uganda will require substantial additional generation capacity in the coming years if it strives
to achieve its development goals.
 ERA will need many tools at its disposal to ensure that these additions are made such that
the country’s production matches its system capacity and demand and to avoid overcapacity,
which results in higher costs of energy.
Like many parts of sub-Saharan Africa, Uganda is characterised by energy poverty, where rates of
access to the national electricity grid are as low as 7% and 55% for rural and urban populations
respectively. 1 As with all developing countries, Uganda requires a growing and reliable supply of
energy in order to achieve sustainable development. Indeed, a clear relationship between electricity
consumption and national wealth indicators has been empirically established (see Figure 1), and in
fact countries with rates such as Uganda’s typically suffer from reduced per capita GDP and lower
economic growth than would otherwise be the case.
Figure 1: A clear relationship between GDP and electricity consumption
Source: Castellano, A. et al. (2015). Brighter Africa: The growth potential of the sub-Saharan electricity
sector. McKinsey & Company Electric Power & Natural Gas.
As such, as part of its national development objectives and the achievement of the Uganda Vision
2040, the country aims to dramatically increase its installed capacity, annual consumption, as well
as its access rates across the country, with ERA’s estimates on the order of more than 8,000MW,
14,000MW, and 40,000MW of installed capacity required over the next 5, 10, and 25 years
respectively. 2 Further, in light of the fact that Uganda is poised for a period of strong economic
growth – on account of oil discoveries and resulting industrialisation, regional integration, and
macroeconomic stability – electricity demand is forecast to increase substantially in the coming
years.
1
OECD/IEA (2015). World Energy Outlook 2015 – Electricity Access Database.
2
ERA (2014). Strategic Plan 2014/15 – 2023/24.
Uganda REFiT Review Stakeholder Consultation Document Page 4

However, increasing generation alone will not meaningfully strengthen the country’s energy sector.
Uganda will require extensive work to increase interconnections in the system, and will need to
carefully consider how to increase generation strategically such that it is matched by a
commensurate growth in economic demand, and that issues such as the seasonality of resources
are well managed.
Figure 2: Electricity demand forecast for Uganda (MWh)
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-
2010 2012 2014 2016 2018 2020 2022
Source: Authors’ calculations.
The costs of generation and distribution expansion are formidable, with the Government
estimating that over USD 9 billion will be required between now and 2030 to achieve 30%
electricity access (up from an estimated 15% in 2013); a substantial sum of which will require
significant private sector involvement. 3
1.2 Participation of the private sector, and public support mechanisms

 Key messages:
 Recognising the need for private sector participation, Uganda has made many reforms and
established a strong track record.
 GET FiT has provided key support to improve the performance of the sector and create clear
processes and risk mitigation tools for developers to be better able to plan and manage their
operations within the country.
 ERA aims with the FiT revision to ensure a smooth energy sector development and continued
strong developer activity after the phasing out of GET FiT.
To address the issue of attracting private investment into the power sector, in 1999 the
Government unbundled the Uganda Electricity Board, inviting private sector participation in its
generation and distribution assets; created a national regulator; and developed incentives such as
3
Kreibiehl, S. and Miltner, S. (2013). GET FiT in Uganda: Observations & open issues from a financial
perspective. Deutsche Bank Research: https://www.dbresearch.com

concessional loans and sovereign guarantees. Recognising the important role that renewable
energy sources can play in the country’s generation mix, the Government took another critical step
in 2007, instituting a Renewable Energy Policy, which set ambitious targets and created innovative
financing mechanisms, such as targeted subsidies and a REFiT policy, to meet them. The REFiT
policy incorporated, among its central tenets, a guaranteed but technologically differentiated
purchase price over a fixed time-frame, tariff degression, guaranteed access to the grid, a purchase
obligation of the system operator, and caps on generation qualified to receive the FiT to control
consumer prices. 4
These reforms have borne fruit, as between 2003-2013 Uganda witnessed an expansion of
installed capacity of 380-852MW, the transmission network of 1,165-1,626km, and energy sales
of 1,038-2,118GWh. This trend will need to continue, as demand is forecast to grow by 10-12%
per annum over the medium term. 5 ERA has argued that small and medium-scale renewable
projects will fill an essential part of this growing demand, especially prior to large hydro projects
coming online in 2018. As such, the need for policy incentives, such as a REFiT, is pressing.
While initial REFiTs were consciously kept low in order to soften the adverse impact on end-user
tariffs, both the initial and revised REFiT levels were not attractive enough to attract sufficient
interest and financing from the private sector to realise medium-scale projects as envisioned. Of
course the REFiT policy cannot be considered in isolation, and indeed ERA, the GET FiT
programme, and other key players in the Ugandan power sector have made significant strides in
improving the implementation of the Renewable Energy Policy – including introducing a
standardised Power Purchase Agreement (PPA), a donor-financed FiT top-up, improved liquidity of
the single offtaker, the Uganda Electricity Transmission Company Limited (UECTL), as well as the
negotiating of a Partial Risk Guarantee (PRG) with the World Bank. These advances
notwithstanding, it the contention of ERA, KfW, and other stakeholders that the methodology
employed to set the REFiT levels in the past could be improved upon.
Three rounds of GET FiT requests for proposal round as well as the inaugural solar auction have
both been concluded. During the set-up of GET FiT and the related negotiations with donors, the
Government and ERA have committed to adjust FiTs after the implementation of the GET FiT-
supported projects to ensure the sustainability of the intervention. Consequently, it is expected that
donor-financed FiT top-ups under the programme will no longer be available. GET FiT will have
facilitated the realisation of a significant number of projects contributing to a solid track record of
renewable energy in Uganda. This should trigger learning curve effects, which will serve to drive
down generation costs below the current base REFiT plus top-up levels. These FiT revisions are
therefore aimed to ensure a smooth energy sector development and continued strong developer
activity after the phasing out of GET FiT. This will be critical for Uganda to achieve its long-term
electricity sector objectives.
4
Electricity Regulatory Authority (2013). Uganda Renewable Energy Feed-in Tariff (REFIT) Phase 2
Guidelines: http://www.era.or.ug/index.php/2013-12-14-14-58-04/guidelines
5
Electricity Regulatory Authority (2014). Strategic Plan 2014/15 – 2023/24:
http://www.era.or.ug/index.php/2013-12-14-14-58-04/plans)

1.3 Communication and transition to next phase of small and medium-
scale renewable energy role
 Key messages:
 ERA will prepare developers for phase out of FiTs in order to create visibility and avoid
shocks. It appreciates the continued open dialogue with the private sector and work to
maintain this in the future.
 ERA will raise awareness regarding avoided costs in Uganda and the necessity of developers
to demonstrate economic viability.
In order to maintain the trust and momentum that ERA has garnered over the previous years, it is
understood that it will maintain clear communication with the private sector. Preparing them for
reforms and policy changes well in advance allows them adjust, and maintain confidence that
there is predictability in the sector.
The strategy with developers will also address ERA’s priorities and guiding principles, in terms of
adding generation when and where it adds value. This entails tempering expectations that not all
projects will be supported, but only those that can demonstrate economic viability for the system.
An expectation about acceptable levels of equity returns also allows developers to have a clearer
picture about how their proposals will be received.
Finally, a potential instrument to update avoided costs and economic considerations and
developers’ cost trends could be to convene a stakeholder discussion every six months. This could
help to manage a smooth transition to a more restrictive regulation in the future.
1.4 Challenges and trade-offs

 Key messages:
 ERA is in a difficult position, as it strives to increase generation capacity and per capita
consumption, while at the same time adhering to the least cost development plan.
 Taking into consideration infrastructure requirements, including interconnections, a great deal
of capital will be required in the coming years.
 ERA and the private sector are jointly responsible to agree on FiT levels, which allow small
and medium-scale renewable energy to be part of the least cost development path.
The purpose of GET FiT was to close the immediate electricity supply gap pending the commission
of the Karuma Power Station by fast-tracking small and medium-scale renewable projects. With
near term targets having been largely met, the authorities need to carefully manage additional
capacity on the system, taking into consideration grid interconnection, economic demand forecasts,
and end-users’ ability to pay. Further, as Uganda does not have a strong seasonal demand swing,
the need for baseload and dispatchable power is especially pronounced.
ERA therefore finds itself in a somewhat difficult position, as it strives to add generation capacity
while adhering to the country’s least cost development plan. As such, incentives for adding
generation should clearly consider which new projects add the most economic value – indeed, it
may be the case that small and medium-scale renewables are not necessarily the projects that will
add the most value to the system. In this note, “economic value” refers to the societal value
provided by the projects based on avoided costs, availability of power, future generation mix,
which are only able to be assessed ex ante, and may turn out to be different ex post.
These considerations should be weighed against the need to maintain the interest of the private
sector moving forward. ERA has achieved impressive momentum in engaging private developers

and financiers, an achievement recently recognised by Climatescope’s 2015 rankings, in which
Uganda comes in ninth out of 55 markets and third in sub-Saharan Africa. 6 This trust and good will
are essential moving forward, and ERA will need to attempt to leverage private sector players to
support projects that add the most economic value – not to support every project that is proposed.
For example, if too much additional small hydro is connected to the grid, this represents higher
fixed costs for UETCL, which will lock in take-or-pay contracts for that capacity. The private sector
needs to understand that while ERA has a mandate to ensure that the country has a stable supply
of electricity, it can do so only if the price is deemed appropriate. Therefore, it is important that
both parties agree on FiT levels that can contribute to the least cost development path.
1.5 The overall approach: science and art

 Key messages:
 Setting FiTs is a combination of sound quantitative data collection and analysis on the one
hand, and of taking into account larger systemic and strategic factors on the other.
 Economic viability is a central factor that should inform the FiT policy moving forward.
While FiTs offer the same prices for all projects of one technology (as above, in some cases intra-
technology differentiation exists), it should be highlighted that as site characteristics vary, this FiT
may result in varying returns for investors in different projects. Or, interpreted the other way round:
an analysis of specific projects will only result in a levelised cost of electricity (LCOE) range rather
than a single FiT. Setting the FiT somewhere within this range allows for signalling and steering.
The first phase of this process needs to be based on verifiable data and sound calculations and
methodologies, and consequently “science”. The second phase does not result in a “correct” or
“wrong” FiT, but rather underscores that the process of setting context-appropriate FiTs is as much
an “art” as it is a science. Figure 3 below summarises the approach.
Figure 3: The science and art of determining REFiT levels
Avoided cost
Source: FS-UNEP Centre (note that REFiT ranges are meant to be indicative only)
6
See http://global-climatescope.org/en/ for more information about the rankings and methodology.

It should indeed be noted that ERA and the Ugandan public sector have made great strides in
terms of preparing the groundwork both for a thorough “scientific” analysis (e.g. through
extensive data collection and benchmarking methodology development) as well as provided
consultations on the softer “artistic” factors (e.g. viewpoints on which technologies are generally
financed on vs. off balance sheet, which affects financing costs, see below).
FiT models usually rely on the LCOE, and ERA, in collaboration with its development partners, has
used such an approach in its earlier REFiT development and revision iterations. However, because
financing costs are such an important driver of overall costs for capital-intensive renewable energy
projects, ERA has based FiT calculations on realistic estimates. In project finance, the average
financing costs increase over time as debt is repaid first and consequently the capital structure
becomes more equity dominated. Calculating FiTs based on the initial WACC of a project-financed
transaction will result in heavily underestimated financing costs. As such, a detailed model, which
takes into account the financing structure, varying discount rates, and the unique country
characteristics, is essential to arrive at a truly cost-reflective REFiT level.
Taking into account that the majority of GET FiT projects are financed by way of project finance,
this approach offers a more detailed approach to calculating LCOE that accounts more precisely for
project financing costs and capital structure (see below).
ERA’s FiT model and cost database will be updated and analysed on an ongoing basis. FiT models
are based on input data ranges rather than concrete data points as they need to reflect a variety of
projects. As a consequence, ERA will strike a balance between detail and reflection of different
transaction structures and assumptions, while specifically addressing the most important cost
drivers.
The “art” aspect focuses on setting a concrete FiT within the range resulting from the science
aspect of the exercise. This includes a solid trends analysis. For example, Uganda’s current FiT
regime sets fixed tariffs for all technologies except for PV and hydro. For hydro the tariff is
dependent on the project size, i.e. based on the assumption that LCOEs of larger projects are lower
than for smaller projects and – given that this is the only variable impacting the FiT – that
sensitivities on size are the strongest ones. This is an assumption that is reviewed below based on
the investment and other cost data from existing projects. Another example relates to resource
availability, in particular for hydro projects. The sites with the best resource availability are ideally
developed first meaning that generation costs would increase over time. The strength of this effect
has therefore been considered, taking into account learning curve effects can compensate for this
trend.
While the REFiT calculation methodology has been based on the LCOE of the technology in
question, LCOE can only be a starting point from which to set a REFiT. Rather, a systemic approach
is used, taking into account unique temporal and spatial characteristics of different technologies
that can affect the national electricity market and the overall system costs (e.g. integration costs).
As such, the LCOE yielded by the financial model is treated as a first step to find the optimal tariff
level.
To summarise, the approach emphasises two central tenets:
1) A sound quantitative analysis that carefully reflects trends in investment per technology
and financing costs. In line with previous ERA REFiT experience and sectoral goals, this is
a cost-based analysis.
2) The big picture considerations (e.g. resource risk, grid integration, the role of different
subsidies) that have accompanied the quantitative analysis.

2 REFiTs and International Best Practices
2.1 Why FiTs? What they do and key risks
 Key messages:
 FiTs have been an extremely popular policy tool to support the development of small and
medium-scale renewable energy project – enacted in over 100 states/countries.
 Setting FiTs requires a great deal of information to get “right.”
 While FiTs can be less time consuming and costly than auctions or bilateral negotiations, they
are difficult to set, as they must be high enough to generate interest, but not so high as to
generate a windfall for the developer or project sponsor.
 Uganda will maintain its current split of using FiTs for small and medium-scale hydro and
bagasse, and tenders for solar PV.
As countries aim to design incentives for private sector players to develop renewable energy
projects, they have several options, including offering a long-term price for selling power or a feed-
in tariff (FiT). FiTs, in which a regulatory body sets a price per unit of electricity sold, are the most
commonly deployed policy instrument worldwide to support renewable energy development,
having been enacted in over 100 states/countries. In many regions, FiTs have been successful at
driving new investments in renewable generation, and are in place in Uganda and several of its
neighbours. However, FiTs are not homogenous, and can be differentiated in many ways, including
by size, technology, resource quality, inclusion of storage, and others (see below).
FiTs therefore provide a greater degree of predictability for investors, who then enjoy greater clarity
in modelling their risks and returns as they consider dedicating resources toward promoting and/or
evaluating renewable projects. However, importantly – though with some notable exceptions in
European markets – FiTs are necessarily generalised, and therefore are not site or project-specific.
This means that when the relevant authority sets the FiT, it needs to carefully consider whether the
efficiency gains of offering a predetermined tariff outweigh risks of not realising any projects (if set
too low) or providing a windfall to some investors and imposing unnecessary costs of ratepayers
and/or taxpayers (if set too high). Such gains manifest themselves with many relatively small-scale
projects, in which individual bilateral negotiations may prove too time-consuming and costly.
Administratively-set FiTs require a great deal of knowledge by the regulator about costs and
demand including the cost of capital that is required by investors. Indeed, when such information is
unavailable, prices are unlikely to be set at efficient levels. This can lead to very high FiTs, in which
investors receive a windfall, or to very low FiTs, which stall progress in renewable development.
On the other hand, administratively-set FiTs in some countries allow any project meeting the basic
eligibility criteria to qualify and be guaranteed grid access. This makes the process relatively simple
and reduces transaction costs. However, when quantity is not limited, there may be extra costs for
providing guaranteed grid access under a FiT (as versus, for example, higher transaction costs for
auctions where sites are specified) as well as excess investment and unnecessary cost unless FiTs
will only be paid when there is demand – and not anytime the project produces electricity.
Given the Ugandan context of focusing on least cost expansion, tenders might offer an attractive
alternative. In contract to FiTs, tenders can be easily structured in a way to incentivize development
of projects in a specific location. This helps to ensure the economic viability of the projects.
Furthermore, additional contracted capacity can be more easily steered, in line with the broader
sector context, as the learning curve effects are easier to take into account.

As will be explored in greater detail below, Uganda will maintain its current technological
breakdown into the two mechanisms: FiTs for small and medium-scale hydro and bagasse projects,
and competitive tenders for solar PV.
2.2 Taxonomy of FiTs and bases for differentiation

 Key messages:
 There are many different methodologies for setting FiTs – each with advantages and
disadvantages.
 Uganda will continue with a cost plus reasonable return methodology as long as economic
viability of a technology is given.
FiTs offer a high level of transparency and predictability by offering the same prices for all projects
of one technology (and often size). However, there are a wide variety of methodological variations
and approaches with regard to the interpretation of quantitative results that can be utilised to set
tariff levels, depending on the status of the market, broader policy goals, and generation
alternatives. Tariff calculation methodologies can be broadly divided into cost-based tariff
calculation methods and avoided cost based methods. In the same way, FiTs can be calculated as a
function of the fixed and operating costs of eligible renewable energy technologies (a cost-based
tariff), or as a function of the value of the commodities produced by eligible generators, akin to an
avoided cost benchmark (a value-based tariff). 7
Only few countries and states have applied avoided cost approaches to calculate feed-in tariffs.
Under value-based approaches, the rate is pegged to the value of another commodity or metric.
For instance, until 2013, California set its FiT based on avoided cost of new natural gas generation,
plus an assumed value of greenhouse gas emissions reductions. Likewise Tanzania began with an
avoided cost-based FiT, before transitioning to a cost-plus model more recently. Portugal also used
to calculate the feed-in tariff for each technology using an equation that takes into account the
value of conventional electricity, comparative environmental benefits, and the avoided transmission
and distribution losses of renewable energy. In Germany from 1991-1999, the feed-in tariff rate
was set as a percentage of the retail rate of electricity. However, most jurisdictions have moved
away from the avoided cost approach and are applying a variety of a cost-based tariff.
In the case of avoided cost calculation approaches, the tariff level will only coincidentally match the
costs for the producer. There is a high risk, however, that the tariff level will either be too low or
too high. If the tariff is too low, no investment will be triggered and the FIT scheme will be
ineffective. If the tariff is too high, investments will be made but the costs for the final consumer
will be unnecessary high due to windfall profits. 8
Uganda, of course, is in the comfortable situation that costs of medium-scale renewable energy, on
average, come in below alternatives of incremental energy supply (future projections and relevance
for tariff setting is assessed below). Further, the REFiT in Uganda will adopt a cost-reflective,
technologically differentiated methodology. However, there are a variety of other policy
considerations to be made when designing a REFiT scheme, including price setting mechanisms,
payment differentiation, potential bonus payments, and a variety of other ancillary options.
7
Grace, R. et al. (2008). Exploring feed-in tariffs for California: Feed-in tariff design and implementation
issues and options. Sacramento, CA: California Energy Commission: http://www.energy.ca.gov)
8
Mendonça, M. et al. (2010). Powering the Green Economy: the Feed-in Tariff Handbook. Earthscan:
London.

Countries further need to consider eligibility criteria, generation caps, purchase obligations,
interconnection requirements, among others. 9
2.3 Experiences in other regional markets: Kenya, Rwanda, Tanzania

 Key messages:
 There are lessons to be learned from the FiT policies enacted by Uganda’s East African
neighbours: Kenya, Rwanda, and Tanzania.
 Key success factors include transparency/clarity for developers, coordination between
regulators and utilities, and offtaker creditworthiness.
As indicated previously, FiTs have been a popular policy instrument in both emerging and
industrialised markets around the world. This popularity extends into East Africa, where FiTs have
been developed and employed to varying degrees and in different manners in Kenya, Rwanda, and
Tanzania. This section briefly overviews the experiences in each market, as experiences from its
neighbours could yield insights for the Ugandan case. Indeed, ERA is open to extracting lessons
learned beyond Uganda’s borders to formulate the most effective FiT policy for the public sector to
achieve its strategic objectives in the power sector. Further, overall Uganda has attracted the most
investment in the region in recent years, and ERA aims to build on this strong track record.
Kenya. A series of FiTs were adopted in Kenya in 2008 by the Ministry of Energy, covering a
variety of technologies including wind, biomass, small hydro, geothermal, biogas, solar and
municipal waste energy. The approach taken was a technology-specific, cost plus reasonable return
methodology, with slightly different provisions for projects above/below 10MW. Other salient
features include: FiTs were denominated in USD, were not to exceed the long-run marginal cost of
generation of the system, and have the O&M component indexed to inflation the United States’
Consumer Price Index. 10 The FiTs have been subsequently revised on two occasions, and are
currently undergoing a third revision, which may precipitate a shift toward an auction-based
system in the future.
In terms of results, 5MW has been commissioned under the FiT program since its inception, with
another 20MW currently being constructed. Many more projects have had their expressions of
interest approved, and the Ministry of Energy intends to follow up with many more projects – as
more than 250MW has already been issued with PPAs.
Rwanda. In 2012 the Rwanda Utilities Regulatory Authority (RURA) issued REFiT Regulations,
which were specifically targeting hydropower and mini-hydropower projects. 11 These regulations
covered projects within 10km of the grid, indexed local currency FiT payments to USD rates, and
instituted an overall ceiling of 50MW to be supported under the programme.
The results of the FiT regulation have been disappointing, and the process was due for review in
2015. While this review was conducted and circulated among stakeholders in the Rwandan energy
sector, the recommendations have not been adopted, and developers in the country have
effectively been told that there will be a USDc 13/kWh cap on all new generation projects, as there
remains a widespread concern about bringing down end-user tariffs, which remain among the
highest in the region.
9
Couture, T. et al. (2010). A Policymaker’s Guide to Feed-in Tariff Policy Design. National Renewable Energy
Laboratory (NREL): www.nrel.gov/docs/fy10osti/44849.pdf
10
For additional information, see the Feed-in Tariff Policy at,
http://erc.go.ke/index.php?option=com_content&view=article&id=148&Itemid=573
11
RURA (2012). Regulations N°001/Energy/Rura/2012 of 09/02/2012 on Rwanda Renewable Energy Feed in
Tariff: http://www.rura.rw/fileadmin/docs/REGULATIONS_ON_FEED_TARIFFS_HYDRO_POWER_PLANTS.pdf

Tanzania. The Small Power Producer Programme (SPPP) was established in 2008, which included
an avoided-cost (based on TANESCO’s costs) FiT, which were denominated in local currency and
adjusted seasonally – within overall limits – as the cost of service fluctuated between the wet and
dry seasons. The FiT system yielded disappointing results, with less than 15MW generating power
to the grid. As such, the system was amended in 2014, and FiTs shifted from the avoided cost
approach to a technology-specific fixed tariff. Indeed, in the second phase of the SPP,
operationalised in 2015, for hydro and biomass projects, this tariff is set administratively, while for
wind and solar, a bidding framework was approved by the regulator’s Board in February 2016 (for
projects between 1-10MW). The revision also denominates FiTs in USD (and potentially other hard
currencies through mutual agreement of the parties).

3 Applying the Methodology to Uganda
3.1 Previous REFiT levels in Uganda and resulting project development
 Key messages:
 Uganda has been enacting FiT policies since 2007, most recently revised in 2013.
 Priority technologies under the current FiT were deemed too low for investors, and were
granted small top-ups by GET FiT to reach viability.
 With GET FiT support, the FiT programme has achieved more than 90% of its 170MW target
for new installed capacity.
As part of the Renewable Energy Policy of 2007, Uganda established a feed-in tariff to attract
private developers into the country’s renewable generation market. This Phase I FiT, only
containing provisions for bagasse cogeneration and hydropower based on avoided rather than
generation costs, ran until 2009. The tariffs themselves were deliberately kept low by the regulator
so as to minimise any adverse impact on end-user tariffs, under the assumption that targeted
public support instruments could be used instead to promote small and medium-scale projects.
While the vision was sound, the execution did not ultimately succeed in attracting private
developers, ostensibly on account of the low tariffs offered to developers. However, a more
complete interpretation must also consider other non-tariff barriers that remained, including
unclear implementation processes and legal documents, as well as delays from overburdened
parties such as UETCL, which did not have a consistent framework for negotiating with developers.
To address some of the key gaps, a revision took place in 2010, resulting in the Phase II FiT to
cover the period through 2014, and which remains in place today. New FiTs were based on
updated generation costs, thereby raising their levels slightly from Phase I. Unfortunately this
revision coincided with a particularly difficult macroeconomic period for Uganda, which saw its
currency depreciate significantly and, coupled with high fuel prices – especially damaging as the
country had approximately 120MW of high-speed diesel feeding into the grid – resulted in the
Government making substantial fiscal outlays to stabilise retail tariffs.
The Phase II tariffs have since been revised upwards, first in 2012 with the assistance of a
consultant (Camco) and most recently by ERA in 2013. Key provisions of the current FiT regulation
include the following: 12
 Only grid-connected projects are qualified to receive the FiT, while off-grid projects may
be included in future revisions;
 Only projects with installed capacity between 0.5 and 20MW are qualified to receive the
FiT;
 Technologies that ERA estimates have LCOEs significantly above the avoided cost are not
considered priorities, and are recommended for tender processes or other mechanisms;
 FiTs are denominated in USD, but are actually paid by UETCL in UGX based on the
average buy rate13 (though UETCL may pay in USD at its option);
12
Electricity Regulatory Authority (2013). Uganda Renewable Energy Feed-in Tariff (REFIT) Phase 2
Guidelines: http://www.era.or.ug/index.php/2013-12-14-14-58-04/guidelines
13
According to the standardised PPA, the average buy rate for each month’s invoice is calculated using “the
average of the daily published rate for the purchase of Dollars with Shillings as published by the Central Bank
of Uganda on each Business Day of the preceding calendar month.”

 Tariffs are set according to when the license is issued and are guaranteed over a period of
20 years, with only the O&M portion subject to inflation (US Core Producer Price Index)
adjustment;
 ERA has the option to implement a frontloaded tariff structure that retains an equivalent
NPV but assists developers during their debt repayment period;
 Developers receive guaranteed access to the transmission and distribution grids, and the
system operator has an obligation to purchase and discharge all electricity produced;
 Developers are required to accept the standardised PPA;
 Developers are required to post performance bonds on a per MW basis to secure the
scheduled construction start date and the commercial operations date;
 Technology-specific annual capacity limits are included to protect consumers from
excessive increases in the cost of service.
The most up-to-date tariffs available to developers are currently listed in Table 1 below:
Table 1: Phase II FiTs (revised July 2013)
Tariff Cumulative Capacity Limits (MW) Approved

Technology O&M Installed
(USD/kWh) 2013 2014 2015 2016 Capacity (MW)
Hydro (9-20MW) 0.085 7.61% 30 90 135 180 66-76 14
Hydro (1-9MW) Linear 7.24% 30 75 105 135 58
Hydro (0.5-1MW) 0.115 7.08% 1 2 2.5 5.5 --
Bagasse 0.095 22.65% 30 70 95 120 20
Biomass (MSW) 0.103 16.23% 5 15 25 45 --
Biogas 0.115 19.23% 5 15 25 45 --
Landfill gas 0.089 19.71% 0 10 20 40 --
Geothermal 0.077 4.29% 10 30 50 75 --
Wind 0.124 6.34% 25 75 100 150 --
Solar PV 0.110 0% -- -- 50 -- 20
Notes: The linear hydro tariff increases from USD 0.085-0.115 as the plant size decreases from 9-1MW, and
cumulative capacity limits for solar were only established later (see discussion of solar tender below).
The current FiT provides further specifics about priority technologies and qualified bidders, the
calculation methodology (incl. investment costs, interconnection costs, O&M, fuel costs where
relevant, and financing costs), as well as the application and licensing process for developers to
follow. While this revision of Phase II represented an improvement, the response from developers
was initially underwhelming, and it appeared that slight modifications were in order for projects to
reach financial close.
14
The final figure depends on whether funding becomes available for Achwa III (9.9MW).

GET FiT provided a burden sharing opportunity for Uganda, as the agreement reached in 2013 was
that the country’s end-users would pay the FiTs as published above, and the international
development partners would finance a top-up to the tariff in order to make them attractive enough
for private capital to flow. These top-ups were relatively small, sized at USD 0.014/kWh for hydro,
USD 0.005/kWh for bagasse, and USD 0.01/kWh for biomass. 15 The top-ups, in their
accompanying role to the technical assistance, revised project documents, and programmatic
World Bank PRG, have targeted approximately 170MW in hydropower, bagasse, and solar
projects. To date, no PPAs have been signed for biomass/MSW, biogas, landfill gas, geothermal, or
wind projects.
In the case of solar PV, a top-up was not announced, and ERA and GET FiT rather undertook a
competitive auction, in which qualified bidders competed for a top-up payment above the USD
0.11/kWh offered by ERA. The auction, which took place in late 2014, yielded four projects of
5MW each and an average levelised tariff of USD 0.164/kWh, well below expectations. 16
Following the success of GET FiT in terms of developing a strong track record for small and
medium-scale renewable IPPs in Uganda, the programme is planning to phase out as planned and
agreed between all parties that it is no longer required, and as ERA is comfortable taking over the
process. As part of that process, ERA’s revised FiTs need to be sufficiently high to attract continued
interest from private sector finance, while also capitalising on lessons learned and the evolving
state of its power market to ensure that it does not cause an undue burden on its ratepayers. The
follow section overviews ERA’s views both in terms of new FiTs, but also in terms of their
applicability, technology coverage, and other outstanding issues.
3.2 Avoided costs in the future

 Key messages:
 It is essential to consider the system’s current and future avoided costs when developing FiTs
to ensure that supported technologies are economically viable.
 An average avoided cost curve looking forward to 2023 was developed to provide some
rough signalling to ERA as well as developers, that avoided costs are likely to be in the range
of USD 0.10-0.11/kWh.
 Project location and intermittency are also critical in determining economic viability, though
they are not reflected in the avoided cost curve presented here.
While Uganda will not adopt avoided costs as their FiT, avoided costs are essential to keep in mind
when considering the country’s least cost development plan, and therefore the economic viability
of the proposed cost-based FiTs. The avoided cost of energy is what it would have cost to generate
the power that the new renewable source has displaced (or will displace). Using this approach, one
can estimate when a project’s value to the system is greater than its cost. Indeed, one of GET FiT
values was that it drove down average generation costs in the near term as Karuma’s
commissioning was still far in the future and it was able to replace expensive diesel.
To place the recommended FiTs in context, the avoided cost of energy has been estimated looking
forward. Given the aforementioned considerations, one should be quite sceptical about
incentivising deployment of technologies that are priced significantly above the avoided cost
(unless the incremental costs are picked up by a third party or there is another compelling reason
15
While these figures are listed on a per kWh basis, the support is structured to be disbursed over the first
five years of the plant’s operation: 50% on the commercial operations date, and 10% per year thereafter.
16
Meyer, R. Tenenbaum, B. and Hosier, R. (2015). Promoting Solar Energy through Auctions: The Case of
Uganda, Livewire 2015/49. World Bank Group.

to utilise this technology which is not captured in its levelised cost). Using data from ERA’s website
and GET FiT about current and future generation splits across technologies, and the respective
costs of each to UETCL, in Figure 4 below the avoided cost of energy is estimated looking forward
to 2023. Uganda’s avoided costs for the next several years are currently estimated to be in the
range of approximately USD 0.10-0.11/kWh.
Figure 4: Forecasted avoided costs through 2023 (USD/kWh)
0.25
0.20
0.15
0.10
0.05
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Note: This forecast make several assumptions about plant commissioning dates, future tariff structures,
excess supply/demand, and dispatch structures. As such, there remains a great deal of uncertainty as many
exogenous factors could affect the outcome. That said, the specific figure is less important than the stability
and trend, as avoided costs are projected to level out at around USD 0.10/kWh.
In the discussion of avoided costs, the key drivers of economic viability for a new generation
project are also considered. For example:
 Location is extremely important – in Western Uganda a significant gap has been filled,
and as such there may be areas in other regions (e.g. the North), in which economic
viability is easier to achieve.
 Intermittency is a significant challenge – to the extent that strong seasonality exists, too
much hydro power in a system can be costly as excess supply needs to be managed and
emergency backup needs to be installed in drier periods. As such, a technological
differentiation is a driver of viability as well. In this respect, it is worth observing that for
intermittent sources of energy, the avoided cost is equivalent to the variable cost of
dispatchable energy – as fixed costs cannot be avoided, because it is needed for back up.
As such, the average avoided cost curve represents something of an oversimplification; however as
to provide a price signal as well and avoid an overly complex analysis, it should continue to be
borne in mind.

3.3 Preliminary considerations for tariff calculation
3.3.1 Eligible/priority technologies for the FiT

 Key messages:
 ERA will keep the FiT for hydro and bagasse for now, while already preparing developers for a
phase-out in the medium term or site-specific FiTs.
 Solar PV should continue to be acquired by a tender process.
 Other technologies will be removed from the FiT offering, but a ceiling price and return on
equity level(s) will be indicated.
Current priorities. In the interest of consistency and respecting the importance of economic
viability, the priority technologies under the FiT – those whose LCOEs are not significantly higher
than the system’s avoided cost – remain as they are currently, and place the burden on justifying
any changes in the future. As ERA sees significant potential in geothermal and solar PV
technologies, they are addressed below.
The REFiT will cover hydro, wind, and bagasse projects – essentially the current priorities specified
in the Phase II FiT regime. For these projects there is relatively strong cost data and large shifts are
not expected to take place over the next FiT revision period. Further, given the track record
established with hydro and bagasse, a recommendation would be to continue to carry that
momentum forward.
Other technologies. For all other technologies, ERA will undertake bilateral negotiations with
the developers, with some guidance provided on renewable energy targets and acceptable equity
returns (see Table 2).
 Solar PV. The GET FiT solar PV auction, which took place in late 2014, has been
regarded as a success in terms of driving down costs while allowing ERA to control the
level and location of new intermittent installed capacity. As the cost of solar PV
technologies continues to fall, and the revenue required by developers is moderated by
additional learning curve effects, the auction modality should be maintained for this
technology. Indeed, though the environment is quite different, looking briefly at the
auction experience in South Africa, which launched its Renewable Energy Independent
Power Producer Procurement (REIPPP) programme in 2011, and which has seen solar PV
prices drop by 68% over three rounds (approximately 2.5 years). 17 Such an approach also
offers ERA the opportunity to carefully control solar PV’s proliferation, since the likely
demand in Uganda for additional, relatively expensive PV generation is highly limited. The
return expectations are reduced to 12% for solar PV projects compared to other
technologies on account of their relatively low technology risk.
 Geothermal. With respect to geothermal energy, a geothermal strategy for Uganda is
currently under development. As such, the risk profile will depend on the transaction
structure and risk allocation (most notably, which party accepts the drilling risk).
Therefore, the FiT at this point in time cannot be calculated appropriately. Additionally,
larger projects are likely to be of greater interest when the strategy is completed. This
exclusion, however, should not be interpreted as reduced interest in private sector
investments in geothermal projects.
17
For further detail, see Eberhard, A. et al. (2014). South Africa’s Renewable Energy IPP Procurement
Program: Success Factors and Lessons. PPIAF. http://www.ppiaf.org/sites/ppiaf.org/files/publication/South-
Africa-REIPP-Report_final_web.pdf

 Wind. Wind might be a promising technology in Uganda, particularly in light of the fact
that there is considerable interest in deploying this technology particularly in the
underserved Karamoja region in the Northeast. However, projects are very likely to have a
larger size than 20MW.
 Biomass. Biomass technologies differ, and their respective prices vary. ERA does not see
a pipeline at this stage, but is interested in discussing with developers. Should a valid
project(s) emerge, bilateral negotiations could take place.
The equity return expectations for other technologies have been proposed below.
Table 2: Proposed return expectations for other technologies
Acceptable return Project/ balance sheet

Technology
expectations financing
Biomass (MSW)/
Biogas/ 18% Balance sheet
Landfill gas
Wind 15% Project finance
Solar 12% Project finance
Ceiling price. As described briefly above, it must be recognised that the avoided cost (or the
benefit) of intermittent energy is what it would have cost to generate the power that the new
renewable source has displaced. This avoided cost of renewable energy is equivalent to the
variable cost of dispatchable energy – as fixed costs cannot be avoided, because they are already
incurred and the extra capacity is typically needed for back up. Using this approach, one can
estimate when a project’s value to the system is greater than its cost. As such, the avoided cost,
calculated periodically (e.g. biennially), could be considered as an absolute ceiling.
3.3.2 Linear hydro tariff schedule

 Key messages:
 ERA will maintain its previous approach of providing a linear tariff for certain sizes of hydro
projects, with some changes to the mechanics of the instrument.
 The linear hydro tariff might lead to some sub-optimal outcomes with smaller plant sizes.
Offering extra support to more expensive but socially important projects in rural areas could
more effectively be managed through grants.
 There are other approaches, including payment based on full load hours, which may be of
interest, but carry advantages and disadvantages for ERA, and are not yet ready.
The linear hydro tariff structure that ERA has adopted in its Phase II FiT has yielded a proliferation
of relatively small plants with very high capacity factors, some of which have been cited as sub-
optimally sized, and therefore not harvesting the full potential. This is problematic in the longer
term scenario, when all domestic sources will need to be harvested in the most efficient way. That
said, small hydro sites can play an important role in rural electrification efforts, even when they
face higher costs. However, the underlying situation is not equivalent in, for example, Western
versus Northern Uganda. It is recommended that this social co-benefit not be reflected in the FiT,

but rather that developers have an opportunity to negotiate grants where appropriate on a case-
by-case basis with the Rural Electrification Agency (REA).
While ERA has considered a variety of other options, for projects in the range of 5-10MW, the
linear tariff will be continued.
Another option would be to offer the FiT based on full load hours (FLH), as given the significant
disparities in the quality and predictability of the water flow from one project to another, setting
the FIT as a fixed payment for a fixed number of FLH (regardless of how many years that takes to
reach) can be a cost-effective way to capture a wide range of projects under one tariff. As in the
case of the linear tariff, each of these approaches has advantages and disadvantages, and may be
considered in a subsequent FiT review.
3.4 The “Science” – Input data and implied tariff ranges
3.4.1 Cost-plus tariff setting methodology and calculations

 Key messages:
 Uganda will maintain its cost plus reasonable return FiT approach, differentiated by
technology.
 The FiT calculation methodology is designed to accurately reflect financing costs under project
finance conditions in which the cost of capital is variable as the capital structure evolves.
In line with Uganda’s Phase II FiT methodology, ERA will maintain the approach of setting FiTs
with costs plus a reasonable return, rather than reverting to the avoided cost approach of Phase I.
These data have been inputted into a fully-fledged project finance cash-flow model, which has
calculated the required levelised tariff to ensure that the project investors (i.e. the equity holders)
are able to achieve an assumed required return over 20 years. As described above, the LCOE
calculation methodology adopted here more accurately reflects the changing financing structure –
and therefore weighted average cost of capital – over time. 18 The detailed calculation methodology
is included in Equation 1 below.
Equation 1: LCOE calculation for REFiT
𝑛
𝐸𝐸𝑡 × 𝑃𝑡 − 𝐼𝑡 − 𝑀𝑡 − ∆𝐷𝐷𝐷𝐷
𝑁𝑁𝑁 = � 𝑡
𝐷 𝐸
𝑡=1
�1 + � 𝐶𝑡 × ��
𝑟𝐷 × (1 − 𝜏) + 𝐶𝑡 × 𝑟�𝐸 ��
𝑡 𝑡
Elt = Electricity sold in kWh in t Dt = Debt amount in t

Pt = Electricity Price in USD/kWh in t Ct = Capital employed in t
It = Investment cost in t rD = Interest rate on debt
Mt = O&M cost in t τ= Tax rate
∆DSRA = Changes in debt service reserve account Et = equity amount in t
rE = equity return
18
Note that that this methodology need not apply to technologies that are normally financed on balance
sheet in Uganda – namely bagasse. For those technologies, one could calculate the FiT using a more
traditional corporate finance approach with a constant cost of capital.

3.4.2 Required data inputs for the model and sources
 Key messages:
 To accurately model LCOEs, one requires a great deal of project cost, performance, and
average resource data, which has been collected from several sources.
 CAPEX is a key cost driver for capital-intensive renewable energy projects.
 Estimated OPEX figures are provided, as well as amended O&M proportions of LCOEs, which
will drive the inflation escalation of the FiT.
 The analysis provides for both corporate and project financing structures, which have been
deployed to reflect economic and energy sector realities in Uganda.
 It is assumed that concessional financing will continue to be made available for small and
medium-scale renewable projects in Uganda, driving down the cost of debt.
 A small cost for currency conversion and repatriation has been suggested, but VAT and
carbon finance have been omitted for the present.
The first requirement for the cash-flow model from which the recommended FiTs are derived is up-
to-date and comprehensive input data on capital costs, technical/engineering details, operating
efficiencies, financing structures and associated costs, recent revisions in the Ugandan tax code,
and resource availability, among others. In order to compile these inputs, data from a variety of
sources was used, including:
 Financial models submitted by developers in the three RfP rounds and the solar tender of
GET FiT (though this data is far from perfect, in part because developers were provided
with a target equity IRR, and may have in some cases simply reverse engineered their
costs to achieve it);
 REFiT models developed for other markets in the region;
 Renewable energy cost publications from IRENA, Lazard, Nexant, Ecofys, ECA, Camco,
Mott MacDonald and others; and,
 Project data disclosed on a bilateral basis.
While every single input in the model is not described in detail, some of the key cost drivers are
reviewed to ensure their robustness. These input data are not perfect, and that judgments as which
points to include and which not should be carefully considered. Further, many projects have
naturally different inputs on account of resource availability (e.g. hydro sites with higher versus
lower head). In light of the uncertainties, a range of input data rather than a single figure is
included, which naturally yields a range of FiTs.
3.4.3 CAPEX
Unlike conventional thermal generation, renewable energy projects are highly capital intensive –
that is, they are characterised by substantial up-front costs and relatively low and stable operating
costs (though to a lesser degree with biomass projects). As such, the capital expenditure
assumption for each technology is an extremely important driver of cost, and therefore of the
required tariff for investors to achieve their required returns.
As can be seen in the accompanying cost database, CAPEX data has been collected from a wide
variety of sources covering all relevant technologies, and further analysed to extract to what extent
factors such as plant size play a role in role in increasing or reducing costs on a per unit of

generation basis. Figure 5 below provides an example of the cost data used to inform the
assumptions in the financial model.
Costs are expected to follow a different trend according to technology. For hydro, it is expected
that costs will decrease due to learning effects in the construction industry. For bagasse, it is
expected that the cost of technology will not change in the near future.
Note that the values included in Table 3 below include both the fixed and per unit costs associated
with each technology.
Figure 5: GET FiT SHP specific capex costs vs. installed capacity
6,000,000
5,000,000
SPECIFIC CAPEX (USD/MW)
4,000,000
3,000,000
2,000,000
1,000,000
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
TOTAL SIZE OF PLANT (MW)
Source: GET FiT small hydro power project proposals.
Table 3: CAPEX assumptions for all technologies
Technology CAPEX (USD/kW) Comment(s)
Hydro (10-20MW) 2,200 – 2,800 Construction costs split 30/30/40 over three years
Hydro (0.5-10MW) 2,500 – 3,100 Construction costs split 30/30/40 over three years
Bagasse 1,800 – 2,100 Key focus on past sugar cogeneration in Uganda
3.4.4 OPEX
Though a smaller cost driver than capital expenditures, operating expenditures are also an
important consideration in calculating fully cost-reflective tariffs. As above, international cost
estimates as well as regional and national project data sources were used to estimate OPEX both
in absolute terms per unit of generation capacity and as a proportion of overall costs. This latter
figure will prove important as this percentage of the tariff be indexed to inflation over the lifetime
of the project, in keeping with ERA’s current treatment. Indeed, ERA will maintain its O&M
inflation adjustment approach from its Phase II FiT revision, in which the operations and
maintenance portion of the feed-in tariff is indexed to inflation, measured by the US Core Producer
Price Index. For most of the technologies the O&M share has increased in revised model.

Table 4: OPEX assumptions for all technologies
Technology OPEX (USD/kW/year)
Hydro (>10-20MW) 42 – 56
Hydro (0.5-10MW) 48 – 54
Bagasse 144.0 – 170.0
Table 5: O&M Shares of Current vs. Proposed FITs
ERA Phase II FS-LEI Model
Technology O&M share – ERA Technology O&M share. FS/LEI
Hydro (9-20MW) 7.61% Hydro (10-20MW) 11.82%
Hydro (1-9MW) 7.24% Hydro (5-10MW) 11.1%
Hydro (0.5-1MW) 7.08% Hydro (0.5-5MW) 11.1%
Bagasse 22.65% Bagasse 34.77%
3.4.5 Operating inputs and total generation

As indicated below in Table 6, a series of operating assumptions inform the estimated total
generation on a per annum basis for each technology. This is essential in order to calculate each
project’s prospective annual revenues, based on the recommended tariff.
For the hydro plants, capacities in the middle of each range of sizes were used to arrive at a central
figure, while for the other technologies reasonable sizes based on previous projects and what is
likely representative of future projects were used (at least for technologies which are likely to prove
economically and financially viable). Capacity factors were derived both from the international
literature as well as the GET FiT project data, including the project review documents produced for
the consideration of the Investment Committee – hence these figures have been independently
verified to mitigate potential bias. With regard to degradation, a small annual figure could be
applied to wind and solar PV, but not to the other technologies, which will not realistically
experience any significant degradation over their lifetimes.
Table 6: Generation input for all technologies
Technology Capacity factor 19 Production (MWh/MW/year)
Hydro (>10-20MW) 50-54% 4,380-4,730
Hydro (0.5-10MW) 50-54% 4,380-4,730
Bagasse 68-72% 5,956-6,307
19
Note that for biomass, bagasse, biogas, and landfill gas technologies, a plant factor is used rather than a
capacity factor, as it takes into consideration the number of operational days per year.

Estimated annual generation is included for each technology based on the assumptions in the
table. Note that this figure does not in and of itself represent an assumption, as it necessarily
follows from the other input data.
3.4.6 Financing structures and costs

Generally speaking, there are two primary ways to finance small and medium-scale renewable
energy projects: through project finance and corporate finance. In a corporate finance approach,
the project sponsor would use its balance sheet to finance the project. As such, the capital
structure (and thereby the cost of capital) remains constant throughout the lifetime of the project.
With project finance, on the other hand, the project sponsor creates a special purposes vehicle in
the host country, and only offers recourse to the assets and cashflows generated by the project in
question – or put another way, the lenders to the project have no or limited recourse to the
sponsor’s parent company. Figure 6 below provides a visualisation of the each time of financing’s
capital structure as it evolves over the 20-year project lifetime.
For the bulk of the technologies evaluated, a project finance structure is assumed using the
methodology depicted in Equation 1, while for bagasse, 20 corporate finance assumptions are used,
as there is significant potential in Uganda for financing these projects on balance sheet. While
some developers may be interested in making project finance arrangements for these projects,
since corporate financing is generally cheaper, there is no compelling reason to offer a higher FiT
than strictly necessary.
Figure 6: Capital structures of a corporate finance and project finance deal
Corporate finance Project finance
In terms of financing assumptions, indicative concessional loan terms are used, which are likely to
continue to be available for small and medium-scale renewable projects in Uganda, with
commercial bank terms also included as a senior tranche for the frontloading modality (for the
tariffs that remain flat over 20 years, a single debt tranche is used). Indeed, almost all debt
provided to small and medium-scale renewable projects in Uganda to date has been provided by
DFIs rather than commercial banks.
In terms of equity returns, technology-specific assumptions are used based on track record,
perceived risk, and anticipated financing structure. 15% is the benchmark, which is adjusted
slightly in the case of bagasse cogeneration up to 18% on account of their higher opportunity cost
of capital.
20
This would most likely apply for other biomass technologies, though a FiT for them is not recommended at
this stage.

As indicated above, slightly different financing assumptions are used for each technology. Further,
rather than assuming a common capital structure for all projects, the debt burden that lenders
would be willing to support is based on the projected Debt Service Coverage Ratio (DSCR) for each
technology. Here the debt payback period is checked to ensure that the project’s cash flows
available for debt service are always at least 30% higher than that year’s debt burden (i.e. the
DSCR is at least 1.3). If this requirement is not meant in any year, then the debt volume is reduced
until the project passes this test. For the projects financed on balance sheet, a constant gearing
ratio is assumed with a 50/50 debt/equity split of total capital respectively. The estimated debt and
equity ratios are stated in Table 8 below. Overall the financing assumptions that have been used
for the tariff modelling exercise are conservative.
Table 7: Financing structure and cost assumptions
Parameter Assumption
Debt portion Determined by DSCR of 1.3; maximum 75%
Debt interest rate 7%
Debt tenor 12 years
Debt grace period Construction period (1-4 years)
Equity portion Minimum 25%
Equity IRR 15-18%
Table 8: Financing assumptions for all technologies (for flat tariff approach)
Project/ balance Debt portion Target equity

Technology Equity portion
sheet financing (max. 75%) IRR
Hydro (>10-20MW) Project finance 75% 25% 15%
Hydro (0.5-10MW) Project finance 75% 25% 15%
Bagasse Balance sheet 50% 50% 18%
3.4.7 Upfront transaction costs

In recognition of the fact that developers are likely to incur additional costs in the initial phases of
the project cycle, the model adds 2% of each month’s revenues as additional costs for the first year
of operation.
3.4.8 Taxes
In the financial model, a standard corporate tax rate in Uganda of 30%, applied equally across
technologies, has been assumed. No additional taxes are added onto capital expenditures – such
as customs duties or VAT. Harmonised tax treatment is expected to come into effect in 2016. Note
that much of the CAPEX data in the benchmark cost database is not disaggregated to the level in
which one can easily identify and isolate tax effects, and as such individual points are to be treated
cautiously.

In terms of comparisons between the cost-plus tariff setting approach and the system’s avoided
costs, ignore taxes are deliberately ignored, even though they should be removed when societal
costs are considered, because the avoided cost curve in the future includes IPPs, which would have
to pay taxes in any case.
3.4.9 Carbon finance

To the extent that it can be demonstrated that the projects supported under the FiT regime are less
carbon intensive than the business-as-usual scenario, there may be potential in the future for
compensation for carbon credits to factor in. However, with Certified Emission Reduction united
(CER) trading at extremely low prices that is a less relevant issue in the near term. Further, given
the rather extensive and costly Clean Development Mechanism (CDM) registration processes, even
where CER prices more closely reflect the estimated societal costs of carbon, they would be more
suited for large-scale projects, rather than the small and medium-scale IPPs targeted by the FiT.
3.4.10 Initial output ranges relative to existing tariff structure

 Key messages:
 Recognising that the input data are not perfect, a high and low scenario for each technology
is presented.
 Generally the FiTs come in lower than the figures published under ERA’s 2013 revision (and
including the GET FiT top-up where relevant), which is to be expected on account of
technology cost developments and learning curve effects.
 The FiTs indicated here should be considered on a standalone basis, as the policy
recommendations inform the ways in which they could be deployed.
Using the input data and parameters described above, and running the model for all technologies,
yields the output listed in Table 9 below. Note that the input ranges described above yield a range
in possible FiTs, which are shown below by providing a high and low FiT level.
Note that most of the values do not deviate drastically from the values that ERA had arrived at two
years ago, however many have increased on account of the fact that GET FiT will no longer be an
available burden sharing option for the Government, meaning that unless another source of
financing arrives (e.g. incremental cost support of international climate funds, carbon financing,
etc.), these tariffs should provide sufficient revenues for private developers entering the market.
Also note that ERA makes recommendations below as to which of these technologies should be
included in the revised FiT offering.
No value within the range can be considered the “right” FiT. Rather, the focus should be on
choosing the appropriate FiTs to incentivize the development of the most efficient sites. These
figures will be revisited in the sections below, as the “artistic” considerations are weighed and
applied.

Table 9: ERA Phase II 2013 FiTs vs. 2015 FS-LEI model output (USD/kWh)
ERA + GET
Technology ERA base Technology FS/LEI low FS/LEI high
FiT top-up
Hydro (9-20MW) 0.085 0.099 Hydro (>10-20MW) 0.079 0.109
Hydro (1-9MW) Linear Lin. + 0.014 Hydro (>5-10MW) Linear
Hydro (0.5-1MW) 0.115 0.129 Hydro (0.5-5MW) 0.089 0.120
Bagasse 0.095 0.105 Bagasse 0.065 0.080
Biomass (MSW) 0.103 0.113

Biomass (MSW)/
Biogas 0.115 0.115 Biogas/ Bilateral negotiations
Landfill gas
Landfill gas 0.089 0.089
Geothermal 0.077 0.077 Geothermal Bilateral negotiations
Wind 0.124 0.124 Wind Bilateral negotiations
Solar PV 21 0.110 0.164 Solar PV Tender

Note: While the ERA Phase II FiT differentiated hydro projects into three categories at 1MW and 9MW, this
review differentiates hydro projects at 5MW and 10MW.
3.5 REFiT calculation methodology as an art and a science

 Key messages:
 Suggested FiTs shall ensure positive contribution to the least cost development path.
 Focus on reaching financial viability for economically attractive projects only.
 Suggested FiTs come in well below GET FiT level for most of the common technologies.
As described above, setting an optimal FiT is as much of an art as it is a science. In the preceding
sections, the science has been explained – i.e. collecting and analysing cost and output
assumptions, and calculating an LCOE based on the most appropriate financing structure for each
technology. With respect to the art, a series of policy recommendations are included below, which
can inform which values are ultimately adopted, and under which conditions they will be applied.
To revisit Figure 7 below, ERA is quite clear about its intention to stick to its least cost
development plan, and only offering tariffs that are significantly above avoided costs to achieve
specific policy or social goals, as they higher societal costs. For hydro these costs are more or less
flat or slightly up depending on the specific site and driven by the fact that additional hydro will
further increase the seasonality effect. Bagasse is flat or slightly down driven by its diversification
effect and extremely high capacity factor – i.e. it is more or less baseload.
21
Note that the top-up figure is an average of the four 5MW projects that were selected by the auction.

Figure 7: The science and art of determining REFiT levels
0.14
0.120
0.12
0.109
USD/kWh
0.10
0.089
0.080
0.08
0.079
0.065
0.06
Hydro (10-20MW) Hydro (0.5-5MW) Bagasse
Range Avoided costs Societal Costs
Source: Authors’ calculations
A key message to come out of this is that the priority technologies appear to be viable against
avoided costs. However, this does not mean that ERA will provide blanket approval for all
ostensibly viable projects. Indeed, the generation gap in Uganda may not be sufficiently large in
the coming years to justify a blanket interest in small and medium-scale renewable energy projects.
Rather, the country can be more selective in which kinds of projects they would like to support,
and in which sites. As such, it may be that the next step following the publication of the next
round of FiTs would be to use geospatial analysis to calculate the location-specific economic value
proposition of each project, and then adjust the FiT up or down based on that. 22 As project
development and investment occurs on a successful, sustained basis, enabling Uganda to make
progress toward its energy sector objectives, FiTs may begin to be offered on a more selective
basis.
Increasing selectivity will be beneficial for the Ugandan economic environment, as only the most
valuable projects will be supported. Reduced or more stringent FiTs will not be sufficient to make
all projects financially viable, which will likely be frustrating for some developers. However,
adopting such a process would create transparency and avoid shocks. Indeed, a clear methodology
or set of selection criteria should be developed in order for ERA to screen projects in the future,
which could then be made clear to developers and investors.
Based on these considerations, ERA will continue to offer FiTs for hydro, biomass, and bagasse
projects (see
22
For a recent analysis of this kind in the United States, see Brown et al. (2015). Estimating Renewable
Energy Economic Potential in the United States: Methodology and Initial Results. National Renewable Energy
Laboratory (NREL): http://www.nrel.gov/docs/fy15osti/64503.pdf

Table 9). For other technologies, a discussion of the policy recommendations should precede any
decision (see section 4.1). For hydro, the tariff is lower due to the expected learning curve effects.
It is expected that the process for solar PV will continue to be a competitive tender.
Table 10: FiT recommendations
ERA +
FS/LEI ∆ incl. ∆ excl.
Technology ERA GET FiT Technology
recom. top-up top-up
top-up
Hydro (9-20MW) 0.085 0.099 Hydro (>10-20MW) 0.090 –0.009 +0.005
Linear +
Hydro (1-9MW) Linear Hydro (>5-10MW) Linear
0.014
Hydro (0.5-1MW) 0.115 0.129 Hydro (0.5-5MW) 0.100 N/A N/A
Bagasse 0.095 0.105 Bagasse 0.075 –0.030 –0.020
Biomass (MSW) 0.103 0.113

Biomass (MSW)/
Biogas 0.115 0.115 Biogas/ Bilateral negotiations
Landfill gas
Landfill gas 0.089 0.089
Geothermal 0.077 0.077 Geothermal Bilateral negotiations
Wind 0.124 0.124 Wind Bilateral negotiations
Solar PV 0.110 0.164 Solar PV Tender
The proposed tariff structure for hydro is similar to the previous round with a modified flat tariff
range for relatively small hydro (≤ 5MW) projects. The figure below shows the proposed tariff
structure for hydro plants in green. The blue lines represent the existing Phase II hydro tariff
structure, including both the base tariff (only) and including the GET FiT top-up. For small hydro
projects with a size of less than 5 MW, the linear tariffs do not provide the overall realistic tariffs
because of high capacity factors (see section 3.3.2). For projects in the range of 5-10MW, a linear
tariff is the optimal solution as for these projects the required revenues decrease linearly as plant
size increases. The tariff comes in lower than the base plus GET FiT support tariff. The tariff for
medium sized projects >10MW remains flat as before and comes in lower than the base plus top-
up tariff.
The linear tariff range for projects between 5 and 10 MW has also been detailed in the table
below.

Figure 8: Comparative hydro tariff (Phase II and Proposed) in USDc/kWh
Table 11: Linear Tariff for hydro (>5 MW - 10 MW) in USD/kWh

Tariff Tariff Tariff
MW MW MW
(USD/kWh) (USD/kWh) (USD/kWh)
5.1 0.100 6.8 0.097 8.5 0.093
5.2 0.100 6.9 0.096 8.6 0.093
5.3 0.100 7 0.096 8.7 0.092
5.4 0.100 7.1 0.096 8.8 0.092
5.5 0.099 7.2 0.096 8.9 0.092
5.6 0.099 7.3 0.096 9 0.092
5.7 0.099 7.4 0.095 9.1 0.092
5.8 0.099 7.5 0.095 9.2 0.091
5.9 0.099 7.6 0.095 9.3 0.091
6 0.098 7.7 0.095 9.4 0.091
6.1 0.098 7.8 0.094 9.5 0.091
6.2 0.098 7.9 0.094 9.6 0.091
6.3 0.098 8 0.094 9.7 0.090
6.4 0.097 8.1 0.094 9.8 0.090
6.5 0.097 8.2 0.094 9.9 0.090
6.6 0.097 8.3 0.093 10 0.090
6.7 0.097 8.4 0.093

While the table above places the new FiTs in context relative to their previous levels, it is also
worthwhile to consider them in reference to other FiT levels in the region. As such, Figure 9 below
provides an indication of where some of the FiTs – hydro and bagasse/biomass of varying fuel
sources. Note that in the bars in the chart represent ranges of FiTs offered for a single technology
of different sizes. For most technologies, the Ugandan FiT comes in at similar levels. For biomass,
the FiT is at the lower end of the ranges in other countries. However, biomass includes many sub-
technologies and is used as indicative tariff for bagasse in case data is unavailable for bagasse and
is hence less compatible. Note that the Uganda figures include the low, base, and high scenarios in
the range.
Figure 9: Proposed FiTs in relation to FiTs in the region (USD/kWh)
0.25
0.20
0.15
0.10
0.05
0.00
Kenya Ghana Tanzania Uganda Kenya Ghana Tanzania Uganda
Hydro Bagasse
Note: The Ghana REFiTs only cover a 10-year period, and as such as somewhat higher than they would be if
levelised over 20 years. For bagasse technology in case of Kenya, Ghana and Tanzania, the biomass FiTs
have been taken as they are the most representative technology for bagasse and in some cases comprise of
variety of fuel types including bagasse.

4 Policy Amendment and Outlook
4.1 Policy amendments
4.1.1 Generation gap and the future role of small and medium-scale
renewable energy
 Key messages:
 ERA should be careful with general FiTs. It is important to slow down development while
remaining transparent.
The generation gap in Uganda may not be sufficiently large in the coming years to justify a blanket
interest in small and medium-scale renewable energy projects. Rather, the country can be more
selective in which kinds of projects they would like to support, and in which sites.
4.1.2 Treatment of secondhand equipment

 Key messages:
 ERA will consider the use and appropriate compensation for projects deploying secondhand
equipment on a case-by-case basis.
 Carefully balancing sustainability and short-term viability considerations
For developers that propose to use secondhand equipment in their projects, ERA will not adopt a
standardised rule. Generally, this issue is only relevant for wind and biomass projects, and ERA will
require that developers disclose this information, so it would only be considered on case-by-case
basis. ERA will consider the RoE in evaluating such a request, and reserve the right to adjust the
tariff as needed. In any case, the burden would be on the developer to prove sustainability. The
concern is that the use of second-hand equipment carries risks beyond those to the developer –
e.g. underperformance of otherwise resource-strong sites – and could have adverse impacts on
economic value.
4.1.3 Frontloading FiTs for IPPs

 Key messages:
 Frontloading tariffs rather than paying them on a levelised basis can be a powerful tool to
provide extra cashflows to developers during their debt repayment.
 Too much frontloading can result in equity returns achieved too early, which risks that
projects will not be managed efficiently throughout their lifetime.
While FiTs are quoted on a levelised basis in the sections above, in some cases it may be better to
structure the FiTs such that they are frontloaded for the first years, and reduced thereafter. This can
be structured such that the equity IRR remains unchanged, but the developers are able to more
comfortably service their debt, while also mitigating (perceived) policy risk as avoided costs are
reduced in later years. Further, from a societal perspective, higher initial higher costs are
absorbable because of higher avoided costs, but should be brought down in the later years when
average generation costs come down.
ERA already reserves the right to institute such a structuring in their current FiT policy, and this
therefore comprises a continuance into the future. However, there are a few considerations that
should influence how frontloading should be implemented, of which the most important is to
review developers’ anticipated equity return profiles. Frontloading tariffs too much runs that risk

that developers will receive returns very early in the lifetime of the project, potentially risking that
they lose their incentive to efficiently run the project throughout its lifetime. This will be a major
concern for lenders, who want to see that developers will maintain their interest throughout the
loan period, and should be of particular concern to ERA and other public stakeholders in Uganda,
which do not want to see projects terminated or wound down early in most scenarios.
To control for this, ERA will review the expected equity return profile over the lifetime of the plant,
and judge whether it is likely to lead to a continually well-run project over 20 years. One safeguard
could be only to provide frontloading for projects financed on balance sheet (e.g. bagasse
cogeneration), with a steady debt-to-equity ratio, and not to offer it to project financed
transactions as it adversely impacts their equity IRR in the later years when the corporate taxation
effect is higher with the depreciation of assets occurring in the initial years. To provide an
indication, Table 12 below indicates how the frontloaded tariffs might look relative to the flat
tariffs (base case) listed above.
Table 12: Frontloaded vs. flat tariffs
Flat tariff Frontloaded Frontloaded

Technology
(USD/kWh) years 1-6 (USD/kWh) years 7-20 (USD/kWh)
Hydro (10-20MW) 0.090 0.100 0.061
Hydro (5-10MW) Linear Linear Linear
Hydro (0.5-5MW) 0.100 0.110 0.074
Bagasse 0.075 0.085 0.057
4.1.4 Transparency and future cost analysis

 Key messages:
 To mitigate overstating costs and to provide a steady channel of data collection for ERA, all
developers receiving the FiT will be required to submit their EPC invoices after construction.
It is a given that some of the stakeholders consulted in this review, and whose financial
assumptions were considered during this process, have an underlying incentive to see FiTs increase
in the coming years as they would be the very parties to receive them. As such, to control against
this tendency, especially for the future revision of cost estimate in developing new FiTs, project
developers will be required to submit their engineering, procurement and construction (EPC)
invoices to ERA subsequent to construction of their projects. This would both hedge against
overstating CAPEX in their proposals, as well as provide a source of data for ERA to use as they
update the cost database. This has become standard practice in many markets – e.g. Italy – and
would make a strong addition the Ugandan FiT policy framework.

4.2 Policy outlook
4.2.1 Storage
 Key messages:
 While storage increases the economic value of an intermittent project, such considerations
will be omitted for the time being on account of flexibility, lack of data, and the site-specific
nature of economic viability.
While some FiTs differentiated on the basis of whether or not the power source is dispatchable (i.e.
whether or not it is accompanied by storage or a grid stability system), ERA will omit this
distinction in the revised FiT. As indicated previously, simplicity is an essential component to a
successful FiT scheme, given the necessity of communication and clarity between stakeholders.
Further, there is little useful and universally applicable data that could be used to justify an
additional payment for a storage scheme, many of which would in any case make projects
economically unviable despite their added value. As such, storage has been intentionally left out of
the recommendations.
This consideration may become more appropriate at such a point in the future when ERA can
calculate the site-specific economic value of a power plant (see 4.2.3).
4.2.2 Local currency option for FiTs

 Key messages:
 Currency risk can be addressed if FiTs are offered not only in USD but also in UGX. However,
it could be transformed into refinancing risk.
 There could be additional spillover benefits, such as development of the local financial
markets.
As an alternative to offering USD-denominated FiTs, ERA will consider offering UGX-denominated
FiTs as well. This would allow developers to seek out financing denominated in local rather than
international currency, thereby addressing the pervasive currency risk issue – currently addressed
through indexation, which merely transforms the currency risk into a credit risk as the utility may be
unable to make payments in the case of a strong depreciation (assuming that it will not fully pass
on the costs to end-users, which may then become a political risk).
Such an approach could also have other spillover benefits, such as developing local financial
markets and institutions, including banks and bonds. However, the major obstacle to this approach
is that investors often run into difficulties accessing finance in nascent financial markets of a
sufficient maturity as required for many capital-intensive renewable energy projects. In these cases,
the currency risk is rather transformed into a refinancing risk on the part of the developer, which
becomes problematic at roll-over as he or she may not be able to access refinancing, or only at an
unfavourable or unviable interest rate.
Therefore, In the interest of mitigating currency risk and also crowding-in the local financial sector,
but with due recognition to the fact that key risks remain, ERA will consider introducing a UGX-
denominated FiT in parallel to the USD-denominated FiT. The developer would then have the
option to select either FiT, depending on his or her risk appetite and sources of financing. The UGX
FiT could then be adjusted on a quarterly basis, based on a model to be prepared to avoid
arbitrage.
Note that developing a comprehensive mechanism for the introduction of parallel currency options
is likely to require significant time and resources, and as such this recommendation is not included

in the Phase III REFiT, but rather placed on the agenda for future development in a subsequent
phase.
4.2.3 Geospatial analysis

 Key messages:
 ERA may undertake a study to determine whether geospatial analysis could be used to
calculate location-specific economic value of each project, which would inform the FiT.
It may be that a next step following the publication of the next round of FiTs would be to use
geospatial analysis to calculate the location-specific economic value proposition of each project,
and then adjust the FiT up or down based on that. 23 However, the recommendation of
implementing location-specific FiTs would not be applied to Phase III REFiT roll-out, but only to
subsequent phases. Therefore FiTs in the Phase III guidelines would not be subject to change based
on a project’s location.
23
For a recent analysis of this kind in the United States, see Brown et al. (2015). Estimating Renewable
Energy Economic Potential in the United States: Methodology and Initial Results. National Renewable Energy
Laboratory (NREL): http://www.nrel.gov/docs/fy15osti/64503.pdf

5 Stakeholder consultation process
[Information on timeline, workshops, stakeholder engagement level to be inserted by ERA once the
process has been clarified.]

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TARIFF MODELLING SERVICES

UNDER THE GET FIT TA FACILITY

2 REFiTs and International Best Practices ............................................................................ 10

3 Applying the Methodology to Uganda ............................................................................. 14

4 Policy Amendment and Outlook ...................................................................................... 32

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5 Stakeholder consultation process..................................................................................... 36

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Figure 1: A clear relationship between GDP and electricity consumption

Uganda REFiT Review Stakeholder Consultation Document Page 4

Figure 2: Electricity demand forecast for Uganda (MWh)

Source: Authors’ calculations.

1.2 Participation of the private sector, and public support mechanisms

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1.4 Challenges and trade-offs

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1.5 The overall approach: science and art

Figure 3: The science and art of determining REFiT levels

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2.2 Taxonomy of FiTs and bases for differentiation

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2.3 Experiences in other regional markets: Kenya, Rwanda, Tanzania

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Table 1: Phase II FiTs (revised July 2013)

Tariff Cumulative Capacity Limits (MW) Approved

Hydro (9-20MW) 0.085 7.61% 30 90 135 180 66-76 14

Hydro (1-9MW) Linear 7.24% 30 75 105 135 58

Hydro (0.5-1MW) 0.115 7.08% 1 2 2.5 5.5 --

Bagasse 0.095 22.65% 30 70 95 120 20

Biomass (MSW) 0.103 16.23% 5 15 25 45 --

Biogas 0.115 19.23% 5 15 25 45 --

Landfill gas 0.089 19.71% 0 10 20 40 --

Geothermal 0.077 4.29% 10 30 50 75 --

Wind 0.124 6.34% 25 75 100 150 --

Uganda REFiT Review Stakeholder Consultation Document Page 15

3.2 Avoided costs in the future

Uganda REFiT Review Stakeholder Consultation Document Page 16

Figure 4: Forecasted avoided costs through 2023 (USD/kWh)

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3.3.1 Eligible/priority technologies for the FiT

Uganda REFiT Review Stakeholder Consultation Document Page 18

Table 2: Proposed return expectations for other technologies

Acceptable return Project/ balance sheet

Wind 15% Project finance

Solar 12% Project finance

3.3.2 Linear hydro tariff schedule

Uganda REFiT Review Stakeholder Consultation Document Page 19

3.4 The “Science” – Input data and implied tariff ranges

3.4.1 Cost-plus tariff setting methodology and calculations

Equation 1: LCOE calculation for REFiT

Elt = Electricity sold in kWh in t Dt = Debt amount in t

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