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Project Development Programme East Africa

Tanzanias Wind Energy Market

Target Market Analysis

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Target Market Analysis Tanzanias Wind Energy Market

www.german-renewable-energy.com

Author Integrated Energy Solutions (IES) Mark Hankins November 2009 Editor Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) GmbH On behalf of the German Federal Ministry of Economics and Technology (BMWi) Contact Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) GmbH Potsdamer Platz 10, 10785 Berlin, Germany Fax: +49 (0)30 408 190 22 253 Email: pep-ostafrika@gtz.de Web: www.gtz.de/projektentwicklungsprogramm Web: www.exportinitiative.bmwi.de

This Target Market Analysis is part of the Project Development Programme (PDP) East Africa. PDP East Africa is implemented by the Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) on behalf of the German Federal Ministry of Economics and Technology (BMWi) in context of the Export Initiative Renewable Energies. More information about the PDP and about renewable energy markets in East Africa: www.gtz.de/projektentwicklungsprogramm

This publication, including all its information, is protected by copyright. GTZ cannot be liable for any material or immaterial damages caused directly indirectly by the use or disuse of parts. Any use that is not expressly permitted under copyright legislation requires the prior consent of GTZ.

www.german-renewable-energy.com timeliness, completeness or quality of the information provided.

All contents were created with the utmost care and in good faith. GTZ assumes no responsibility for the accuracy,

Target Market Analysis: Tanzanias Wind Energy Market

Content

1
1.1 1.2

STATUS QUO OF THE WIND ENERGY SECTOR ................................................................. 1

Brief Wind Energy Sector Overview ...................................................................................................... 1 Major Market Segments ....................................................................................................................... 2

1.3 Local Capacities..................................................................................................................................... 3 1.3.1 (Potential) Grid-Connect Wind Farms ................................................................................................. 3 1.3.2 Off-Grid Wind Projects ........................................................................................................................ 3

WIND ENERGY MARKET POTENTIALS ............................................................................... 5

2.1 Overall Sector Outlook.......................................................................................................................... 5 2.1.1 Grid-Connect Wind Generation Opportunities .......................................................................................... 5 2.1.2 Off-Grid Wind Generation Opportunities .................................................................................................. 6 2.2 Undeveloped Market Opportunities ..................................................................................................... 8 2.2.1 Stand-Alone Wind Systems for Commercial Battery Charging Stations..................................................... 8 2.2.2 Stand-Alone Wind Generators for Tourism in Off-Grid Locations ............................................................. 8 2.2.3 Stand-Alone Wind Generators in Hybrid Systems for Telecommunication ............................................... 9 2.2.4 Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids ................................................ 9

3
3.1

WIND ENERGY-SPECIFIC REGULATION AND FRAMEWORK..................................... 10

Policies and Regulations ..................................................................................................................... 10

3.2 Applicable Public Sector Support/ Financing Mechanisms and Sources .............................................. 12 3.2.1 Grid-Connected Wind Tariffs ................................................................................................................... 12 3.2.2 Mini-Grid Wind Tariffs .............................................................................................................................. 13

4
4.1 4.2

BUSINESS PARTNERS AND COMPETITORS IN THE WIND ENERGY SECTOR....... 14

Overview of Wind Energy Key Market Players .................................................................................... 14 Overview Major and/or Most Emblematic Wind Energy Projects ....................................................... 14

ANNEX: STANDARDISED POWER PURCHASE TARIFFS (SPPT) ...................................... 15

Target Market Analysis: Tanzanias Wind Energy Market

VI

List of Tables
Table 1: Wind Resources in Tanzania ..................................................................................................................... 1 Table 2: Existing Capacity for Studies and Works ................................................................................................... 4 Table 3: Summary of Wind Opportunities in Tanzania ............................................................................................ 5 Table 4: Grid-Connect Opportunities ....................................................................................................................... 6 Table 5: Off-Grid Stand Alone Wind Generator Opportunities ................................................................................. 7 Table 6: Stand-Alone Wind Systems for Commercial Battery Charging Stations .................................................... 8 Table 7: Stand-Alone Wind Generators for Tourism in Off-Grid Locations .............................................................. 8 Table 8: Stand-Alone Wind Generators in Hybrid Systems for Telecommunication ................................................ 9 Table 9: Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids .................................................. 9 Table 10: Incentives and Support Mechanisms for Wind Project Developers........................................................ 12 Table 11: Grid-Connected Wind Tariffs ................................................................................................................. 13 Table 12: Mini-Grid Wind Tariffs ............................................................................................................................ 13 Table 13: Tanzania's Wind Energy Key Market Players ........................................................................................ 14

Annex
Table 14: Seasonally Adjusted Standardised Tariff Payable for Power Delivered to Buyer in 2008 ...................... 15 Table 15: Seasonally Adjusted Standardised Tariffs ............................................................................................. 15

Currency
1 USD 1 = = TZS 1,440 (May 2010) TZS 1,776 (May 2010)

Measurement
W kW MW GW Watt Kilowatt Megawatt Gigawatt Wp kWp MWp GWp Watt peak Kilowatt peak Megawatt peak Gigawatt peak Wh kWh MWh GWh Watt hour Kilowatt hour Megawatt hour Gigawatt hour

Target Market Analysis: Tanzanias Wind Energy Market

VII

List of Acronyms
BBS CDM DANIDA EIA EWURA GEF HFO ICT LRMC MEM MFI m/s NEMA NGO O&M PPA PV REA SHS SIDA SME SPP SPPA SPPT TADEP TANESCO TIC UNDP USAID VDC Battery Based System Clean Development Mechanism Danish International Aid Organisation (Ministry of Foreign Affairs) Environmental Impact Assessment Energy and Water Utility Regulatory Authority Global Environment Facility Heavy Fuel Oil Information and Communication Technology Long Run Marginal Cost Ministry of Energy and Minerals Micro Finance Institutions Meter per Second (Wind Speed Measurement) National Environment Monitoring Agency Non-Governmental Organisation Operation and Maintenance Power Purchase Agreement Photovoltaic Rural Energy Agency Solar Home System Swedish International Development Cooperation Agency Small- and medium-sized enterprise Small Power Project Standardised Power Purchase Agreement Standardised Power Purchase Tariffs Tanzania Access Development Energy Project Tanzania Electric Supply Company Tanzania Investment Centre United Nations Development Programme United States Agency for International Development Volts Direct Current

Target Market Analysis: Tanzanias Wind Energy Market

VIII

Summary
Tanzania has encouraging wind resources throughout the Rift Valley, in the highland plains and along the coast, however, thorough exploration has yet to be conducted. To date, only a handful of off-grid wind plants have been installed, including wind pumps and small-scale power generators, and no gridconnected systems. There are undeveloped opportunities to establish stand-alone wind systems for telecom, tourism and mini-grid. There is an estimated short-term potential for 300-500 MW of grid-connected wind farms. Although Tanzania does not have a programme of feed-in tariffs that provides set payments for specified technologies, it has recently-designed mechanisms to encourage the development of small renewable energy-based power plants, namely hydro, wind and biomass. These mechanisms include a standardised power purchase agreement (SPPA) and associated standardised power purchase tariffs (SPPT). Small power projects are defined for small power plants that use a renewable energy power source (or waste heat) with an installed capacity of between 100 kW and 10 MW. At present, several companies are in development stages of setting up wind farms of around 50 MW and more in the Rift Valley that could be operational in the near future. It is expected that their positive experiences will open up a larger market for wind generation and improve the current poor product supply chains and technical training available.

Target Market Analysis: Tanzanias Wind Energy Market

1 Status Quo of the Wind Energy Sector

1.1 Brief Wind Energy Sector Overview
Before the 1990s, Tanzania was considered by the global wind power community to be an area of low wind potential. In the coastal areas prevailing South-Eastern (S.E. Trades) and North-Eastern (N.E. 1 Monsoon) winds offered marginal potential as wind farm sites. However, after 2000 , a number of inland areas along the edge of the Rift Valley were studied more carefully and seen to offer wind resources greater than coastal areas. A number of these areas are being considered as potential wind farm sites in 2009 by major investors. Tanzania has an estimated multi-GW wind potential that, as yet, has not been quantified. There is a lack of comprehensive data about wind resources in Tanzania, and any developer of projects or seller of wind equipment will need to focus on gathering quality data. Available data is mostly from 10 m masts of Tanzania Meteorological Agency stations, and much of it is not suitable for predicting output of wind farms. Nevertheless, results are promising in a number of sites with average speeds exceeding 8 m/s in certain locations. DANIDA/Ris/ TANESCO (2003) and wind companies themselves have made major efforts to assess wind resources and undertake investment feasibility for harnessing wind energy. Specific locations for which there is detailed information are described in the table below:
Table 1: Wind Resources in Tanzania Site Makambako Singida Karatu (Arusha) Mkumbara (Tanga) Gomvu (Kigamboni) Litembe (Mtwara) Study Original Wind Africa Wind East Africa DANIDA/Ris/ TANESCO DANIDA/Ris/ TANESCO DANIDA/Ris/ TANESCO DANIDA/Ris/ TANESCO East 10 m Wind Speed (m/s) 7.6 8.2 4.9 4.14 3.56 3.21 30 m Wind Speed (m/s) 8.7 9.4 5.5 4.9 4.28 4.47

The DANIDA/Ris/TANESCO study (2003) also used satellite data to evaluate off-shore coastal wind speeds and found that: the average of annual wind speed is over 6 m/s along the coast there is no significant variation between the North and the South coast of Tanzania and there is a significant seasonal difference in wind speed (speeds range between less than 5 m/s in November/December and over 8 m/s in July). Factors that make Tanzanias wind regime interesting (especially in the Rift Valley) are the low turbulence, high average speeds and unidirectional nature of the flow. From measurements in some sites, net annual capacity factors as high as 40 % would be possible. Also notable is the fact that ample areas of land are available in areas of good wind resources.

Following similar inland studies along the Rift Valley in Kenya.

Target Market Analysis: Tanzanias Wind Energy Market

Use of off-grid wind energy in Tanzania has been established for decades. At least 150 wind-pumping systems have been installed by missionary projects, communities and private individuals, but not all are currently operational. There are as many as several hundred installed small wind turbine units in off-grid parts of the country (totalling > 400 kW). However, neither the off-grid wind pump market nor the wind generator market has developed to warrant an organised supply chain for products outside of occasional purchases. Suppliers of off-grid wind systems are only beginning to get established, wind generators are available on demand from the major solar suppliers. As of June 2009, there was no grid connecting wind systems in Tanzania and two known projects of over 50 MW in planning stages. There is recently growing interest data-gathering throughout the country, following a 2002-DANIDA/Ris study that assessed four sites for large-scale wind projects (included in Table 1). The first generation of pioneer grid-connected wind farms are testing the waters and are negotiating with the government, power companies and regulatory bodies to put in place processes that will make wind projects and power purchase agreements (PPAs) much simpler in the future.

1.2 Major Market Segments

The current shortfall in electricity supply in Tanzania presents ample opportunities for wind electricity, both on- and off-grid. Nevertheless, it is taking time for the power sector to appreciate the major role that wind can play. The novel nature of wind technologies means that government players (the Ministry, the regulator EWURA, the power company TANESCO and the Rural Energy Agency (REA)) are only now coming to terms with the processes of assessing resources, attracting developers, and negotiating agreements with wind suppliers and projects as wind farms are increasingly seen as a viable method of closing the shortfall. Grid-based electricity There is no operating wind power generation on-grid. Installed generation capacity on TANESCOs interconnected transmission system amounts to 888 MW primarily from hydro and thermal generation as follows: Hydro: 561 MW. Note that most hydro sites are in the South of the country while demand is primarily in the North (Arusha, Mwanza) and East (Dar es Salaam). Hydro resources fluctuate considerably during extended dry periods. Thermal: 304 MW (from natural gas and HFO generators). Isolated thermal stations in about 12 sites contribute an additional total of 32 MW (Diesel based). Demand for power from 602,500 consumers, stands at just under 800 MW and has been growing at eight to 15 % per year, closely following the strong trends in economic growth over the past decade. It is recognised that demand for grid is out-stripping supply and that wind power is an option, particularly since wind tends to be available in increased amounts during dry periods when hydro availability is constrained. Off-grid electricity There are many small off-grid wind pumps and wind generators in operation. 75 % of Tanzanias estimated population of 41 million is located in rural areas. At the same time, less than 5 % of this population is served by the grid and large areas of the country are completely un-served by grid power. Many of these off-grid areas have excellent wind resources.

Target Market Analysis: Tanzanias Wind Energy Market

The key constraint of off-grid populations is ability-to-pay for electricity. In general, those located further from the grid have proportionally lower levels of economic activity, but there are a number of economically active sectors in areas poorly served by the grid, including mining, tourism, and telecom which would be willing to invest in power systems.

1.3 Local Capacities

Beyond the assessment of wind resources for wind energy projects, local skills regarding project design and implementation need specific capacity building measures in Tanzania both for off-grid and grid-connect projects. The challenges of each market are different, and the capacity needs of the sectors are distinct. The two categories are considered separately in the discussions below. There is no wind power industry association in the country. The current wind measurement, project development, negotiation and installation and capacities reside with a few agencies, including: TANESCO - Tanzania Electricity Supply Company Ltd Tanzania Meteorological Agency Ministry of Energy and Minerals (MEM) Wind East Africa (wind company)

1.3.1

(Potential) Grid-Connect Wind Farms

Wind farms rely extensively on imported expertise and technology. The current active projects in the country are rapidly building skills that previously were not available and will result in a network of agencies that can be utilised by future projects. The process, however, for the pioneer companies is time consuming and therefore result in relatively high up-front investment costs. For developers interested in importing 1 MW systems into the country, it would be expected that capacity issues would be a major problem. Wind studies: There has been a rapid build-up in capacity to gather data and this is not seen as a problem area. Companies that put up masts for telecom base stations are capable of readily setting up wind measurement stations. Power purchase agreements (PPA): There is little capacity in place to complete the complex legal arrangements involved in setting up PPAs. Civil works is not seen to be a major problem area as there are companies that have the capacity to install the wind generator bases and complete the interconnection work. Cranes for the erection of the wind towers are not available in the country currently. Transport of large wind towers and/or blade components on the limited road network is expensive and disruptive due to limited traffic flows from the port city of Dar es Salaam. There are regulations that make the process of moving equipment expensive and difficult to complete. Load flow study: Current projects have had to bring in their own consultants to complete these studies on behalf of the power company.

1.3.2

Off-Grid Wind Projects

Execution of small off-grid wind projects relies largely on existing networks of PV and generation installers/designers. Since retailers often lack capacity to design and market off-grid wind systems the support to develop these skills often comes from supplier companies or projects. Companies that install and design systems generally train their own staff or send their staff abroad for this training.

Target Market Analysis: Tanzanias Wind Energy Market

The demand for small wind generators in Tanzania has not developed and consequently neither have supply chains. Unlike the case for PV equipment, dealers do not usually stock wind turbines and they are supplied on order and/or purchased opportunistically by dealers. Dealers have not rolled out marketing campaigns for wind turbines, thus rural consumers are largely unaware of the technology and prices are extremely high. Those that purchase get their information along different channels or import units directly from outside the country. There is no accepted accreditation system or hand-over procedure to ensure that systems are properly done (as there is with grid systems). Consumer agencies are often at the mercy of suppliers when systems are installed. Development of the mini-grid or large off-grid system market is constrained by a lack of capacity to design and install large systems, and a lack of faith among potential customers, in company capacity to complete and execute large systems.
Table 2: Existing Capacity for Studies and Works Tanzania private firms or individuals -/+ + International firms present in Tanzania ++ + + + ++ ++ + + + Government institutions -/+ -/+ -/+ + N/A -/+ + N/A

Wind resource study Site survey and rough system design PPA Negotiation Technical plant design -/+ Feasibility study + Construction work ++ Engineering work + Electrical work ++ Business development + advice - not available; -/+ limited; + can be found; ++ there is choice

Target Market Analysis: Tanzanias Wind Energy Market

2 Wind Energy Market Potentials

2.1 Overall Sector Outlook
Table 3 below summarises the main opportunities in the Tanzanian wind sector. These include gridconnected wind farms, off-grid isolated wind generators for a variety of applications and wind pumping.
Table 3: Summary of Wind Opportunities in Tanzania Wind sector opportunities Stand-alone off-grid wind opportunities Current demand Total installed capacity less than 500 kW Basic description of opportunity Domestic market: High end market Social institutions and community (schools, clinics, NGOs) Commercial: small business applications Tourism: Systems for small camps and for larger off-grid lodges and camps (in combination with gensets as hybrid) Telecom: medium-sized systems for off-grid base stations, consumer side systems Wind farm opportunities. Most of the wind resources are along the Rift Valley Market for large-sized systems Hybrid mini-grids (in tourism, rural electrification, commercial developments) Isolated generation/hybrid: Mtwara, Lindi, Mafia Island Potential market for second hand used generators Agricultural: Focus on pumping and market ready applications Livestock Community water supply

Grid-connect or minigrid wind opportunities

No active grid connect farms Several 50 MW+ projects in planning stages

Water pumping

150 installed units in the country Sporadic installations

2.1.1 Grid-Connect Wind Generation Opportunities

The largest wind sector opportunity by far is grid-connected wind power, given the rising demand for grid electricity in Tanzania, ample wind resources and the virgin nature of the sector. The DANIDA/Ris/TANESCO study (2003) modelled 50 MW wind electricity project cost at USD 0,07-0,09 per kWh (at the Mkumbara site). This compares favourably with TANESCO LRMC of electricity (> USD 0,066). Tanzania is quickly developing interest in wind farms, since 2002 there has been a number of potential investors evaluating the country for wind projects. However, because (East) Africa is still seen as risky by large wind companies/developers, since the process of establishing a wind farm is not fully defined and Tanzania has not developed feed-in tariffs or specific targets for wind, this is still not an especially active area. Nevertheless, once there is an established method for developing and approving wind projects, it is likely that the sector will expand at a steady and promising pace.

Target Market Analysis: Tanzanias Wind Energy Market

Wind farms could be established anywhere along the national grid. The necessary sub-station and transmission lines for grid connection should be considered as part of the wind farm project. The feasibility of wind farms depends on the cost of energy from such a wind farm, which in turn will depend on the wind conditions. There is no reason to believe that costs of construction and operation of a wind farm in any of the areas visited along the Pangani River or between Mbulu and Karatu should be significantly higher than elsewhere in the world, provided that the wind farm has a sufficiently large size and uses commercially proven technology and internationally 2 experienced suppliers.

The short-term upper limit of wind farm activities is likely to be 300 500 MW. This is a technical limitation based on grid size (it does not necessarily mean wind potential would be exhausted or that more wind could be added as the grid increases in size). Larger wind farms would present technical difficulties in system integration, esp. regarding grid power balancing.
Table 4: Grid-Connect Opportunities Applied technology Expected financial volume Competitiveness Planning Wind farms utilising state-of-the-art large wind generators (i.e. 1-3 MW) Wind farms utilising second hand wind generators from European markets Wind farms feeding into isolated grids Hundreds of millions of USD Where wind resources are above 7-8 m/s, wind appears to be competitive with the cost of grid electricity. Two or more year time horizon Developer consortium including technology provider Engineering firms Financier Carbon traders Local partners Lack of defined feed-in tariff and risks of completing deal Difficulty of attracting major wind suppliers Financing arrangements PPAs Ability of TANESCO to pay Construction of towers (cranes), delivery of wind machines to site from coast A strong partner with government linkages is necessary to complete local negotiations. Understand the PPA-development process as a first step.

Predominate operator models

Constraints/obstacles

Recommendations for German enterprises

TANESCO operates twelve isolated networks - all based on small diesel engines: Kigoma, Mtwara, Lindi, Njombe, Mafia, Mpanda, Tunduru, Songea, Liwale, Ikwiriri, Masasi and Kilwa Masoko. These have a combined installed capacity of 31 MW but they effectively contribute about 15 MW due to aged machinery and lack of spare parts. These isolated networks may present an opportunity for mini-grid wind power, especially given the higher tariffs offered to isolated networks.

2.1.2 Off-Grid Wind Generation Opportunities

Opportunities in off-grid wind can generate a high return on investment. However, the potential clients are more dispersed, harder to educate and reach and expensive to serve. An off-grid wind business venture would make more sense if piggybacked upon a business that provides a similar product or service to off-grid customers (PV, generators, hardware, etc.).

Ris/Danida, 2003.

Target Market Analysis: Tanzanias Wind Energy Market

Off-grid wind generation opportunities are similar to opportunities in the off-grid PV sector and, if it was better developed, an off-grid wind supply chain could follow the same model. However, suppliers questioned about wind generators said that there is little demand and it is sporadic. Little study has been made of existing demand for stand-alone wind generation units. The technical and geographical potential for off-grid wind is relatively high. Known wind resources are ample and 75 % of the population is off-grid. However, the economic potential for wind in off-grid areas is limited because incomes in off-grid areas tend to be relatively low. Unlike PV systems, wind power systems have a lower size limit (i.e. 200 W) meaning that they cannot be scaled down to sizes and unit prices small enough to be attractive to the majority of rural households or small- and mediumsized enterprises (SMEs). Therefore, estimating reliable market potentials for off-grid wind systems is considerably more difficult than for the PV market because any demand would depend greatly on wind resources (which yet has to be completely scoped out), trade-offs against other technologies, consumers ability to pay and assumed consumer demand. Two main areas of potential interest include: Domestic and small commercial. Only high-end consumers with relatively sophisticated knowledge of energy systems would buy wind generators. If it were assumed that 5 % of the large solar home system (SHS) market (i.e. over 100 Wp) instead bought a wind generator, this would reflect a total market potential market of about 2000 units. Missions, NGOs and governmental institutions. This is the area where there has been the most activity in the market place. The Rural Energy Agency (REA) has set aside funds for purchase of wind generators for rural institutions. As well, there is constant demand for small energy systems from missions and NGOs.
Table 5: Off-Grid Stand Alone Wind Generator Opportunities Applied technology Wind generators for stand-alone applications including household power, community institutions, small commercial sites, tourism and telecommunications. Components include generators, invertors, charge regulators, batteries, associated electrical spares. Total potential market size is unlikely to be above USD 15 million. A well-developed market might sell several hundred thousand USD worth of equipment per year. There is little competition in this sector. An aggressive marketer of wind generators could conceivably do well selling wind generators in addition to other products (gensets, PV) to the off-grid market. Wind generators are expensive items to keep in inventory. Any agent would have to ensure that his ability to stock and deliver units is on part with demand. Would use PV or diesel gen-set supply networks Wholesaler-retailer-technician Possible use of agents in windy target areas Sales and system design for NGO/mission, tourism and telecommunication would require tailored approach High cost of inventory Lack of consumer awareness and demand Need for marketing and education of consumers Need for information about wind regimes in wide areas Lack of installation and design capacity

Expected financial volume Competitiveness

Planning Predominate operator models

Constraints/obstacles

See related report on Tanzanias solar energy sector: Target Market Analysis: Tanzanias Solar Energy Market.

Target Market Analysis: Tanzanias Wind Energy Market

Recommendations for German enterprises

Utilise the same supply chains that deliver PV systems Target approaches to the various market groups Work closely with the REA to develop procurement projects Train skilled installers to market product in target areas Avoid box-shifter dealers, focus on specialist that provide good customer service

2.2 Undeveloped Market Opportunities

2.2.1 Stand-Alone Wind Systems for Commercial Battery Charging Stations
A considerable number of off-grid small businesses and households utilise centrally-recharged leadacid batteries for 12 VDC electricity needs. In areas remote from the grid, charging 12 VDC batteries with wind power presents an interesting business opportunity. This business opportunity could be franchised by local organisations.
Table 6: Stand-Alone Wind Systems for Commercial Battery Charging Stations Technology to be applied Anticipated total potential Applicable support/financing mechanisms Constraints/obstacles Recommendations for German enterprises 1.5 10 kW wind generators charge consumer batteries and sell related products and services. Economic potential is in the hundreds of units. Because of the potential for employment and income generation, this type of business would be eligible for support from Micro Finance Institutions and possibly the REA. Development of an appropriate business model is a concern with this concept. Financing of the units for entrepreneurs is also a key obstacle. Business model and technical solution would have to be pushed out to the rural entrepreneurs, possibly in conjunction with financing.

2.2.2 Stand-Alone Wind Generators for Tourism in Off-Grid Locations

There are several hundred off-grid tented camps and lodges in Tanzania.
Table 7: Stand-Alone Wind Generators for Tourism in Off-Grid Locations Technology to be applied Anticipated total potential Applicable support/financing mechanisms Constraints/obstacles Recommendations for German enterprises Hybrid wind-generator systems and/or mini-grids. System sizes would vary greatly depending upon the size of the lodge or camp (3 kW to 100 kW+). Total market size is relatively small (15-30 systems) each of which would perhaps be as large as 50 kW on average. Tourism players would identify their own finance. Operation of wind systems would have to be integrated into normal operation of camp/lodge. High up-front investment costs would be difficult for many companies. Pursue wind power for camps at senior levels of tourism industry. Complete one demonstration and use it as a sales point for other camps/lodges.

Target Market Analysis: Tanzanias Wind Energy Market

2.2.3 Stand-Alone Wind Generators in Hybrid Systems for Telecommunication

Most base stations in East Africa are powered by diesel gen-sets, thus fuel is a huge cost factor for their operation. In Kenya, Safaricom has already installed at least 20 hybrid wind-generator systems for their off-grid base stations. In Tanzania, there are 600 off-grid base stations, perhaps 20 % of which are in presumably high-wind areas.
Table 8: Stand-Alone Wind Generators in Hybrid Systems for Telecommunication Technology to be applied Anticipated total potential Applicable support/financing mechanisms Pilot Constraints/obstacles Recommendations for German enterprises Hybrid wind-generator-battery units powering base station for cell phone companies. Wind provides > 70 % of total energy for system. Total potential market of > 100 sites where 3 kW units would be installed. Telecommunication companies (or base station operators) buy units or pay for energy service. Safaricom in Kenya is piloting units successfully. Base stations require power 100 % of the time and do not allow down time - this means that wind resources would have to be completely evaluated. Approach telecommunication providers at a high level.

2.2.4 Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids

Many remote out-posts in rural areas utilise diesel mini-grids for office, pumping, clinic and school power. Wind electricity fed into such grids can greatly reduce costs of fuel, which is the main operational cost of such systems.
Table 9: Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids Technology to be applied Anticipated total potential Applicable support/financing mechanisms Pilot Technology is relatively new. Management of systems in remote areas is a significant risk. Many operators of off-grid generators (who make a rent income from sales of diesel) would be reluctant to utilise wind and reduce fuel usage. Development of this business will require close collaboration with REA or funding donor. Consult the Energy and Water Utility Regulatory Authority (EWURA) on projects that might qualify for special Standardised Power Purchase Tariffs (SPPT) payments. Hybrid wind-diesel generator set (50 kW to 1 MW) possibly with battery back-ups and inverters. Size would depend on demand and available funding. Scores of potential sites identified in Rural Electrification Master Plan. This type of system would be funded by donors, REA, missions. See section 3.2 to off-grid tariff structures for SPPTs.

Constraints/obstacles

Recommendations for German enterprises

Target Market Analysis: Tanzanias Wind Energy Market

10

3 Wind Energy-Specific Regulation and Framework

Although Tanzania does not have a programme of feed-in tariffs that provides set payments for specified technologies, it has recently-designed mechanisms to encourage the development of small renewable energy-based power plants, namely hydro, wind and biomass. These mechanisms include a standardised power purchase agreement (SPPA) and associated standardised power purchase tariffs (SPPT). Small power projects (SPP) are defined for small power plants that use a renewable 4 energy power source (or waste heat) with an installed capacity of between 100 kW and 10 MW . Essentially, the purpose of the SPPAs is to speed up development and simplify the process of putting small power systems in place for standard 20-years-periods. The SPPAs encourage embedded generation on a system that is extremely susceptible to hydro power fluctuations, and which has large distances separating power supply and demand centres. Projects are only now being developed through the SPPA structures and the process is far from perfect. Some private sector players interviewed complain quietly that EWURA may be exceeding its mandate by not allowing developers and private investors to set their own rates of return or benchmarks, making the overall process risky from the point of view of investors who are already wary of Tanzania.

3.1 Policies and Regulations

Government policy in Tanzania is increasingly favourable to all renewable energy and wind energy in particular. Indeed, wind companies maintain that the overall tone of the government is extremely positive toward their projects. However, practical implementation of favourable policy has some ways to go to be fully facilitative of wind projects. The government agencies primarily concerned with development of wind projects include: Energy and Water Utilities Regulatory Authority (EWURA). The regulator is responsible for negotiation and approval of any PPA. It was empowered by the Energy and Water Utilities Regulatory Authority Act of 2001 to approve wholesale power sale terms and tariffs. Tanzania Electricity Supply Company Ltd (TANESCO). State-owned TANESCO is virtually a monopoly electricity utility in Tanzania. Proposals for grid-connected power projects must be made to TANESCO (and approved by EWURA). TANESCO pays project developers for power supplied on-grid. Ministry of Energy and Minerals (MEM). This is the governments policy-making body which is tasked with the job of administering law and facilitating the development of the SPP development and power sale. Rural Energy Agency (REA). This body is concerned with the development of off-grid projects and the administration and awarding of rural electrification subsidies and grants. Projects seeking support to supply power in remote or off-grid areas would deal with REA. REA was set up to address the special requirements of rural consumers through programmatic grant and subsidy support. The government, the World Bank, the Swedish International Development Cooperation Agency (SIDA) and numerous other donors provide funding for REAs activities.
4

Larger wind or biomass plants may be able to negotiate to fit under these agreements. However, if the size is significantly larger, the IPP may have to negotiate a new agreement.

Target Market Analysis: Tanzanias Wind Energy Market

11

Grid connection procedures TANESCO outlines on equipment, transmission and distribution requirements and standards, including the Interconnection Guidelines, that apply to the installation and to the operation of all equipment and interconnections. However, local project developers complain that TANESCO does not keep to defined standards for wind projects. Key permits required include the following: The National Environment Monitoring Agency (NEMA) approves environmental impact assessment (EIA). Registration at the Tanzania Investment Centre (TIC). This organisation supports investors and is extremely helpful in providing assistance to investing companies. Generating license or preliminary licence. Land acquisition. The land ownership process is complex as it involves agreements with municipalities and villages. Land surveys must be completed as well as evaluation compensation paid to local groups. Title deed for the land is necessary (all land in Tanzania is owned by the government and a midterm lease or 99 year lease would have to be obtained). Standards and technical requirements So far, there are no accepted standards or grid codes for wind farms. Local developers are following Europeans standards. Public acceptance issues At present there are few Not-in-my-backyard issues with regard to wind in Tanzania. Land is widely available, and, in general, the locations where wind resources are high are sparsely populated. Issues may arise where wind generators are located next to areas important to bird life or game reserves.

Target Market Analysis: Tanzanias Wind Energy Market

12

3.2 Applicable Public Sector Support/ Financing Mechanisms and Sources

Government support for wind projects has only been recently developed and those projects currently in the pipeline are testing the waters. None of the projects interviewed is moving as quickly as originally planned, but there is considerable optimism about the future of wind in the country. Incentives and support mechanisms available for developers of wind projects are briefly summarised in the table below:
Table 10: Incentives and Support Mechanisms for Wind Project Developers Support Mechanism Comments and Description Simplified standard 20 year tariff agreements for renewable energy projects between 100 kW and 10 MW. SPPA specifies tariff rates for Grid-connected and mini-grid power, Types of power (wind, biomass, hydro), and Power delivery season (dry/rainy). Projects with a status of strategic national importance can negotiate tax incentives from the government. Under the Ministry of Energy and Minerals (MEM)/Rural Electrification Agency (REA) and Tanzania Access Development Energy Project (TADEP) programme (supported with government and World Bank funds), special dispensations are available for renewable energy projects. Though wind projects are not specifically mentioned, it is likely that they would be considered. REA makes support available for innovative off-grid renewable energy projects. Nothing locally available No import duties because of registration with Tanzania Investment Centre (TIC). Tanzania is a party to the Kyoto Protocol and has a standard government process for approval of Clean Development Mechanism (CDM) projects.

Standardised power purchase tariffs (SPPT)

Tax relief

Rural Energy Agency (REA)

Special loan options Duties

Carbon credits

The following sections summarise the SPPT payment schemes as of 2008 in both grid-connected systems and off-grid systems.

3.2.1 Grid-Connected Wind Tariffs

As noted above, a Standardised Power Purchase Agreement (SPPA) was developed for small (100 kW- 10 MW) projects by the Tanzanian Government. However, this agreement was not found to meet the needs of existing wind developers (whose projects are above the 10 MW maximum anyway) and they have had to develop more comprehensive agreements. Tariffs for wind farms are based on calculated long run marginal costs of electricity calculated each year, with two fixed price boundaries. A lower Floor Price provides for returns on investment for investors while a Price Cap sets a maximum price per kWh to be paid to the SPP.

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These levels are set out in the table below. The seasonal adjustments are designed to lower prices paid during wet periods, when hydro power is more available.
Table 11: Grid-Connected Wind Tariffs Floor Price TZS Long-run marginal financial costs adjusted for 80.0 TZS/kWh avoided losses Seasonally adjusted Dry season Aug-Nov 96.0 TZS/kWh standardised Wet season Jan-Jul and 72.0 TZS/kWh Dec Price Cap Seasonally adjusted Dry season Aug-Nov 280.5 TZS/kWh standardised Wet season Jan-Jul and 210.4 TZS/kWh Dec (Exemplary period of validity: 1st January to 31st December, 2008) USD 0.064/kWh 0.0768/kWh 0.0576/kWh

0.224/kWh 0.168/kWh

3.2.2 Mini-Grid Wind Tariffs

For off-grid projects, rates are much higher , and reflect the higher costs of running diesel gen-sets in remote areas. Renewable projects connected to mini-grids of TANESCO (and other companies) will receive payments that are technology-specific, cost-based, and based on three tiers. The tariff will consist of a fixed rate, an operation and maintenance (O&M) rate (and a fuel rate for biomass). The table below summarises the proposed rates (from the 2007 draft SPPT report which has been adopted).
Table 12: Mini-Grid Wind Tariffs Tariff component Escalable base O&M rate (year 1) Escalable base fuel rate (year 1) Tier 1 non-escalable (Year 1-8) Tier 2 non-escalable (Year 9-15) Escalable year 16+ Off-grid wind SPP payment (TZS/kWh) 38.8 0 337.1 140.4 18.0 Off-grid wind SPP payment (USD/kWh) 0.031 0.00 0.270 0.112 0.014
5

For wind-based power generation in mini-grids, the payment process would be more complex, as there will be need for firm power from diesel generators to cover fluctuations in wind availability. Special tariffs paid for wind would have to be balanced against the costs of this spinning reserve. Therefore, wind in off-grid sites will not be as attractive as micro-hydro in mini-grids where it is available, and the incremental costs of setting up a wind-based mini-grid will necessarily be much higher than grid-connect.

Based on final recommendations of Standardised SPPTs for Tanzania, Final Draft June 2007.

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4 Business Partners and Competitors in the Wind Energy Sector

4.1 Overview of Wind Energy Key Market Players
Table 13: Tanzania's Wind Energy Key Market Players Importing company Wind East Africa Company description Tanzanian owned wind project developer Company strategy Involved in developing two 50 MW wind farms in Singida Major activities Wind projects Contact details Michael Case Principle Project Manager 5th Floor Barclays House P.O. Box 11133 Tel: (+255) (0) 786 7908 300 Fax: (+255) (0) 22 2127818 Email: mike.case@winde.co.tz

Ashton Energy

Wind project developer

Start-up company

Wind equipment and projects

Abbas Hirji, Director P.O. Box 5182 1st Floor Raha Towers Tel: (+255) (0) 222 137672 Mob: (+255) (0) 756 885 994 Email: abbas@ashtonenergy.com Internet: www.ashtonenergy.com

Rural Energy Agency

TANESCO

Address the special requirements of rural consumers State-owned electricity company

Programmatic grant and subsidy support Electricity sales & purchases. Pays for wind electricity

Rural energy support agency Electricity sales

Mwakehesya Lutengano Email: lmwakahesya@rea.go.tz

4.2 Overview Major and/or Most Emblematic Wind Energy Projects

There are two active wind projects in Tanzania: Wind East Africa project. Started by local investors in 2007, this project aims to install two 50 MW farms in Singida, in two phases. A UK investor is partner within the consortium. Land acquisition has been completed in Singida, the PPA is under negotiation. Financial close is expected in 2009/2010, and commissioning is expected to start directly thereafter. Good P.M Group (Korean), 210 MW project, Singida. The project was originally related to 6 the Wind East Africa project. The group has signed a Memorandum of Understanding to acquire the 500-hectare property in Singida from Tanzanias Power Pool East Africa Ltd. Danida/Ris/TANESCO demonstration. The 2001/02 Danida study has originally planned to work with TANESCO to implement a wind farm. The project is not active at present.

Project information from: http://www.windfair.net/press/5987.html.

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Annex: Standardised Power Purchase Tariffs (SPPT)7

Rates for Delivery of TANESCO's Entitlement The tariff payable shall be based on the avoided long-run marginal costs of buyer, as revised and announced by the regulator applicable to each calendar year of the agreement. The tariff is seasonally differentiated and is adjusted annually within the limits of a minimum and maximum price. Year of execution of SPPA: 2008
Table 14: Seasonally Adjusted Standardised Tariff Payable for Power Delivered to Buyer in 2008 Season Dry season Wet season Months applicable to season August through November January through July and December TZS/kWh 96.0 72.0

Minimum Price: The annually applicable tariff during the term of the agreement shall not be less than the price for the initial year, as set forth above. Maximum Price: The annually applicable tariff during the term of the agreement shall not exceed the prices, by type of SPP technology, set forth in the table below.
Table 15: Seasonally Adjusted Standardised Tariffs Season Months applicable to season August through November January through July and December Small hydro (TZS/kWh) 157.1 117.8 Wind (TZS/kWh) 280.5 210.4 Biomass (waste) (TZS/kWh) 200.7 150.5 Biomass (grown) (TZS/kWh) 246.1 184.6

Dry season Wet season

From: Standardised Power Purchase Agreement for purchase of grid-connected capacity and associated electric energy between TANESCO and a small power project (revised draft). June 2007.

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References
Nzali, A & Mushi, S. Wind Energy Utilization in Tanzania, PREA Workshop 2006. DFIC - Dr. Fromme International Consulting, The Potential of Renewable Energies in East Africa Wind Energy. East African Business Council. 2007. GTZ (2009): Business Guide Tansania, Eschborn. Ris National Laboratory/Danida: "Wind Measurements and Wind Power, Feasibility at Selected Sites in Tanzania, 2001-2002. Draft Final Report, May 2003. Standardised Small Power Purchase Tariffs for Tanzania. Final Draft Report June 2007. Ferrey, Steven, Standardised Power Purchase Agreement for purchase of grid-connected capacity and associated electric energy between TANESCO and a small power project (revised draft). June 2007.

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