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Ugandan Transmission Sector: On its path to attract private investments [free access]

June 17, 2020

The east African country of Uganda is focusing on renovating and expanding its power transmission infrastructure to keep pace with the diversifying generation mix and increasing power demand. However, progress in Uganda’s transmission sector has lagged mainly on account of financial constraints. Thus, private sector investment in the segment is the need of the hour. The country has had a good experience with private participation, as for years it has attracted significant private investment in the generation and distribution segments.

 

Currently, the country’s electrification rate stands at 51 per cent. Over the next decade, Uganda’s demand for power is expected to increase by almost fivefold. To this extent, the country plans to add around 2.3 GW of capacity by 2025.

 

To meet the increasing electricity demand and evacuate power from the upcoming generation plants, significant investment will be needed to expand and strengthen Uganda’s high voltage grid. In line, the country’s high voltage grid developer Uganda Electricity Transmission Company Limited (UETCL) plans to invest USD5.71 billion over the next five years to add 2,000 km of high voltage transmission lines and 33 substations to the country’s grid network.

 

Even though the country is receiving monetary support from various multilateral agencies, the transmission utility is facing a funding gap of around USD2.9 billion. To mitigate the financial constraints, Uganda’s energy regulator, Electricity Regulatory Authority (ERA), is focusing on developing transmission projects through public-private partnerships (PPPs), independent power transmission (IPT) and engineering, procurement, construction and funding (EPCF) modes. In line, the Uganda’s Ministry of Energy and Mineral Development (MEMD) recently invited bids for the formulation of a complete regulatory framework to facilitate private investment in transmission facilities.

 

Sector reforms and players

One of the early movers in initiating energy sector reforms, Uganda in 2001 unbundled the Uganda Electricity Board and created three separate utilities, one each for the power generation [Uganda Electricity Generation Company Limited (UEGCL)], transmission [Uganda Electricity Transmission Company Limited (UETCL)] and distribution [Uganda Electricity Distribution Company Limited (UEDCL)] segments.  

 

Following the unbundling, the government privatised some of its generation and distribution assets. In 2002, UEGCL gave a generation concession licence to Eskom Uganda Limited for two of its hydropower plants (HPP). Later in March 2005, UEDCL’s role was sub-leased to Umeme Limited for a 20-year concession, which ends in 2025.

 

The reforms also resulted in the creation of the ERA (electricity sector regulator), and the Rural Electrification Fund (REF), which is tasked with enhancing rural households’ access to electricity.

 

Private companies are present in the power generation and distribution segments. In addition to Eskom Uganda Limited, which holds a 20-year generation concession, several other independent power producers (IPPs) also operate in the sector. Key players include Bujagali Energy Limited, Hydromax and Jacobsen.

 However, the state-owned UETCL holds the monopoly in the power transmission sector. It also functions as the system operator.

 

To eliminate monopoly and improve the efficiency of the distribution sector, the ERA has issued licences to several electricity distribution companies. Currently, there are nine distribution companies operating in Uganda, the largest being Umeme Limited. Other distribution companies are West Nile Rural Electrification Company (WENRECo), Uganda Electricity Distribution Company Limited (UEDCL), Bundibugyo Electricity Co-operative Society (BECS), Kyegegwa Rural Energy Co-operative Society (KRECS), Pader-Abim Community Multi-Purpose Electric Co-operative Society (PACMECS), Kilembe Investments Limited (KIL), Kalangala Infrastructure Services Limited (KIS) and Kabalega Hydromax

 

  

Uganda’s existing power infrastructure

At the end of 2019, Uganda had an installed generation capacity of 1,252 MW of which 80 per cent or 1,004 MW was hydro-based, 8 per cent was thermal-based (100 MW) and 12 per cent or 148 MW was renewable energy (RE)-based. 

 

Over the five-year period 2015-19, the installed capacity increased at a compound annual growth rate (CAGR) of 8 per cent. In 2019, Uganda commissioned the 183 MW Isimba hydropower project and the 10 MW Bufulbi solar power plant.

 

The Ugandan government has also been undertaking programmes such as the Renewable Energy Feed-in-Tariffs (REFiT) and the Global Energy Transfer Feed-in Tariff (GET FiT) to increase the share of renewable-based capacity in the generation mix.

 

Figure 1: Growth of installed capacity in Uganda (MW)

Source: ERA; Global Transmission Research

 

At the end of 2019, Uganda’s transmission network comprised 2,890 km of line length at voltages ranging from 66 kV to 220 kV. The majority of the network, or about 64 per cent of the total line length, comprises 132 kV transmission lines, while 35 per cent is at 220 kV and 1 per cent is at 66 kV.

 

In 2019, around 1,265 km of line length was added to the country’s high voltage network. Some of the key projects completed during the year include the 160-km, 132 kV Mbarara–Nkenda line; the 137-km, 220 kV Kawanda–Masaka line; the 65-km, 220 kV Mbarara–Mirama Hill line; the 226-km, 220 kV Nkenda–Fort Portal–Hoima line; and the 42-km, 132 kV Isimba–Bujagal line.

 

 

Uganda has several cross-border interconnection projects with countries such as Kenya, Tanzania and Rwanda.

 

Figure 2: Growth in Uganda’s transmission line length (km)

 

Source: ERA; Global Transmission Research

 

Plans for power sector expansion

The country’s demand for electricity is expected to increase from 821 MW in 2020 to 3,489 MW by 2029, representing a CAGR of almost 17.43 per cent. To meet this electricity demand, Uganda plans to add around 2,324 MW to its generation capacity. Given the abundantly available hydro resources in the country, 65 per cent or 1,521 MW  of this planned capacity will be hydro-based. However, as hydroelectric power is impacted by erratic rainfall and droughts, which affects electricity supply and results in load shedding, the country is also planning the addition of around 561 MW (24 per cent) of RE  capacity and 10 per cent or 243 MW of  thermal-based generation capacity.

 

Currently, of the total (2,324 MW) planned capacity, around 903 MW is under construction and is expected to come online by 2022-2023. In addition, there are 25 projects aggregating 1,421 MW that are in the feasibility study stage, with the majority of them based on hydropower. Further, around 20 RE projects have been issued licences for development.

 

One of the key projects under construction is the 600 MW Karuma hydropower project, which is expected to come online by the end of 2020.

 

Under the REFiT programme, a key 500 MW solar-based project is in the feasibility study stage and is being planned by the China Energy Engineering Corporation (CEEC). Several other small-scale solar projects as well as mini hydro projects have also been planned over the next few years.

 

Figure 3: Planned generation capacity

Total capacity addition: 2,324 MW


 

Note: Data is based on detailed list of projects.

Source: Electricity Regulatory Authority, Uganda; Global Transmission Research

 

Given the increase in power demand, generation and wheeling capacity, it is crucial for UETCL to upgrade and strengthen its transmission network. To this end, the power utility has earmarked USD5.71 billion in investments over the next five years, focused on the expansion of the grid network.

 

The planned investment is directed towards four main areas, namely, evacuation of power from the upcoming generation capacity (USD1.81 billion), expansion of the transmission network (USD2.8 billion), upgrade of existing grid network (USD788 million) and regional interconnections (USD729 million).

 

As per estimates of Global Transmission Research based on UETCL’s grid plan for 2018–40, around 2,000 km of new transmission lines, 19,800 MVA of transformer capacity and 33 new substations will be added during 2020-25. Majority of the additions are planned at the 132 kV voltage level. However, the country plans to strengthen its network by the addition of a 400 kV voltage network to the national grid.

 

Figure 4: Uganda’s planned investment in transmission network for 2020–25, by category (%)

Total investment: USD5.71 billion

 

Source: ERA; Global Transmission Research

 

Currently, UETCL has four regional links that are at various stages of execution. The first is the 131-km-long, 220 kV Lessos (Kenya)–Tororo (Uganda) transmission line, which is 85 per cent complete and is expected to be completed by 2020. The second is the 220 kV Masaka (Uganda)–Mutukula (Tanzania)–Mwanza (Tanzania) interconnection, for which the Eastern Africa Power Pool (EAPP) will procure a consultant to update the feasibility study. The project is expected to come online by 2022.

 

The third interconnection is the 352-km-long, 220 kV Democratic Republic of Congo (DRC)–Uganda link, which will connect the eastern part of DRC to Uganda’s power grid. The DRC portion connecting Beni–Bunia–Butemboand will be 280 km long and will further connect to Nkenda (Uganda) via a 72-km-long line. The African Development Bank (AfDB) will provide financial support for updating the feasibility study of the project, which is scheduled to be completed within the next two years.

 

The fourth link is the 400 kV Olwiyo (Uganda)–Nimule (South Sudan) grid link for which the governments of both the respective countries had signed a memorandum of understanding (MoU) in 2015. However, there has been no significant development on the project since then. The project is expected to be completed by 2026.

 

Further, in order to fast-track the development of the planned projects, UETCL is considering the EPCF model to involve private developers in executing a few projects. Under this model, in addition to EPC, the contractor will be responsible for funding the project. The Muzizi interconnection substation project, the Mirama–Kikagati–Nsongezi transmission line, the Hoima–Kinyara transmission line, the Uhuru Falls interconnection project, the Mbarara North substation upgrade project, and the Nkenda (Uganda)–Mpondwe (DRC) transmission line project are some of the projects that are being considered for implementation via the EPCF mode.

 

In addition, several development agencies including AfDB, China Export Import (EXIM) Bank, Agence Française de Développement (AFD) and World Bank have extended funds for the implementation of the utility’s expansion plans. However, currently the country has imposed a lockdown to control the spread of the COVID-19 pandemic, which is likely to delay UETCL’s transmission development plan. Further, project costs of stalled projects are likely to increase. Also, post the lockdown, it will take time to restore the supply chain.  

 

Table 1: Key planned transmission projects  

Name of project

Technical parameters

Estimated cost (USD million)

Scheduled completion

Hoima–Kinyara transmission line

220 kV; 45 km

46.20

2021

400 kV Masaka–Mbarara transmission line

400 kV; 131 km

107.00

2021

Wobulenzi–Kapeeka transmission line

220 kV and 400 kV; 37 km

68.00

2021

Kapeeka–Kiboga–Hoima transmission line

220 kV; 143 km

73.00

2021

Mirama–Kabale transmission line and distribution project

132 kV, 76 km

NA

NA

Muzizi interconnection project

220/132/33 kV, 2x90 MVA

29.00

2023

Ayago interconnection project

400 kV

33.70

2023

Mirama–Kikagati–Nsongezi interconnection project

132 kV; 37.3 km

33.40

2022

Mbale–Bulambuli–Kapterol interconnection project

132 kV; 74 km;  2X 60/80 MVA;  2X45/60 MVA

57.00

2022

Masaka (Uganda)–Mutukula (Tanzania)–Mwanza (Tanzania) interconnection project

220 kV

40.00

2022

Beni–Bunia–Butemboand Democratic Republic of Congo (DRC)–Nkenda (Uganda) interconnection project

220 kV; 72 km (Uganda's portion)

42.00

2022

Olwiyo (Uganda)–Nimule (South Sudan) interconnection project

400 kV; 190 km (Uganda's portion)

130.00

2026

Lessos (Kenya)–Tororo (Uganda) interconnection project

220 kV

NA

2020

Note: NA – not available

Source: UETCL: Global Transmission Research 

 

Attracting private participation in transmission

The total transmission investment needed to absorb upcoming generation capacity and meet the increasing power demand currently stands at around USD5.71 billion, of which UETCL has secured funding for only USD2.57 billion. To address the issue of insufficient funding, ERA plans to develop an investment framework for IPT and PPP models.

 

To this end, in March 2020 Uganda’s MEMD invited bids seeking consultancy services for developing a regulatory framework to facilitate private investment in transmission facilities. This initiative will be funded by the International Development Association (IDA) under the Energy for Rural Transformation Project III (ERT III). The objective of the assignment is to develop an exhaustive framework for private sector investments and participation in the transmission segment that will provide certainty and predictability to prospective investors on the procedure and structure for recovery of investments as well as maintain the financial soundness of the transmission segment.

 

The regulator is also considering offering opportunities to private players to develop ancillary service markets and regional power trade; provide technical support in transmission network management; undertake a study to assess the feasibility of utilities partnering with the off-grid market for financial sustainability and improved power supply reliability; and develop the power storage market.

 

Challenges and way forward

UETCL has set ambitious targets for strengthening the country’s grid network to deal with the increasing power demand and upcoming generation capacity. Given the investment requirements to meet these goals, the government and utility recognise the indispensable role the private sector can play in closing the funding gap.

 

Thus, the Ugandan government is now working towards increasing opportunities for the private sector and looking to adopt PPP and IPT models for future transmission projects. In the near-term, the transmission utility also plans to award projects though the EPCF mode to attract private developers in the segment.