1.0 currently has 850 Megawatts (MW) of installed capacity,

1.0 Uganda’s energy system

Uganda is a landlocked country in the region of East Africa,
whose energy infrastructure has been growing since its energy reformation
policies in the nineties.

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Figure 1 : Uganda 1

Total Area (km²)

241,550

Population (2016)

41,487,965

Rural Population (% of total population, 2016)

84

GDP (current US$, 2016)

25,527,910,090.63

GDP per capita (current US$, 2016)

615.31

Access to electricity (% of total population, 2016)

20.40

Table 1: Uganda key statistics 2

Figure 2: Unbundling
of Uganda’s energy structure 3

 

The Government of Uganda implemented a Reform and Privatisation
Policy, resulting in the liberalisation of Uganda’s power sector. The
state-owned Uganda Electricity Board was unbundled in 2001, as shown in Figure
2. The unbundling of the electricity sectors has also led to the creation of
the Rural Electrification Agency, whose goal is to increase the electrification
rate of the rural areas of Uganda 4.

 

2.1 Energy resources

Uganda is richly endowed with abundant energy resources, these
resources are summarised below.

Energy source

Potential

Hydropower

2,000MW

Biomass

1,650MW

Solar

5.1 kWh/m2 

Geothermal

450MW

Peat

800MW

Fossil fuels

6.5 billion barrels

Table 2: Uganda’s energy
resources 5

2.2 Energy supply

Uganda currently has 850 Megawatts (MW) of installed
capacity, of which approximately 645 MW is hydropower and 101.5 MW is thermal generating
capacity 6. What is interesting
to note is that renewable energy already dominates Uganda’s power sector. This
is part of the concept that developing countries could “leap frog” over fossils
fuels 7.
However, this energy source is underutilised 8.

2.3 Energy demand

The energy sector in Uganda is predominantly dependent on
wood fuel, which accounts of the vast majority the country’s total energy
needs. Wood fuel is the main source of heating and cooking in rural and urban
areas 4.
Biomass is also used to support several industries such as brick making, tea
drying, tobacco, and sugar 9. Uganda has
considerable renewable energy, however renewable resources are not fully
exploited, which further increases the high demand for wood fuel. The transport
sector is the major consumer of fossil fuels and accounts for about 75 per cent
of the fossil-fuel import bill 10.

Figure 3: Uganda
energy demand 5

 

 

2.0 Drivers of change

Uganda’s current energy system is inefficient, unreliable
and unsustainable. Here several of the drivers of change will be discussed.

2.1 Environmental

As the majority of Uganda’s population uses wood to produce
their energy 4,
this has created a large demand for biomass and this has led to increasing
rates of deforestation and land degradation.

 

Figure 4: Forest Area (% of
Land Area), from 2

 

As seen from the graph above, the percentage of forest area
has been greatly reduced, from 24% in 1990 to just 10% in 2015. Not only has
that, but the actual rate of deforestation increased since 2005. At the current
rate of deforestation, there would be no forest area within 20 years.

2.2 Economic growth

Energy generation supply and economic growth are intrinsically
linked 11. However, due to the
inefficient and limited energy supply, this has led to expensive electricity
costs for industry. Uganda’s industries have been finding it difficult to grow
and compete due to this binding constraint, which affects big and small
businesses 11.
Purchasing backup generators are necessary due to regular power cuts. Increased
operating costs from the electricity and increased capital expenditure from the
generators leads to higher products costs. Combined with the already expensive
costs of transportation results in businesses being uncompetitive with imports
from neighbouring countries that have better energy infrastructure 9 12.

 

 

Last week we had power for just
two days. It’s getting worse every day,” she complained. “I am about
to make redundant two members of staff, because there is no work. You lose
customers, because every time they come in there’s no power. So we’ve lost
customers. We don’t know where they do their printing”

Figure 5: Comment from a
printing business owner in Kampala 13

 

“Power supply is still very
unreliable because electricity is usually on and off without a consistent
pattern. This has led to considerable losses in production and higher running
costs,”

Figure 6: Comment from the
managing director of a Regional Pharmaceutical Distributor 14

 

 

Figure 7: GDP growth rate
(1980-2016), from 2

 

Figure 8: Annual Growth Rate 15

 

 

Figure 9: GDP Growth rate
(2011-2017) 15

 

As shown in Figures 7, 8 and 9, Uganda’s growth has been positive,
but erratic. The currently economic slowdown is mainly driven by the unrest in
South Sudan, private sector credit constraints, and the poor execution of
public sector projects 16.

 

 

 

 

 

2.3 Investment

Uganda’s expensive electricity costs and poor infrastructure
has made it more difficult to invest in. FDI mainly goes to the coffee and
mining sectors 17.

Figure 10: Uganda FDI 2

Uganda’s FDI has increased significantly as it has opened up
its market to foreign investment and has been steadily increasing until 2010,
where FDI dipped, due to investment concerns 16.

2.4 Energy poverty

Hydropower is the major source of clean energy in Uganda and
this has proved to be expensive for many, has resulted into heavy dependence on
traditional biomass to meet household energy needs which is speeding up
deforestation and health effects on communities 18.
Many hours are also lost collecting the firewood daily 18.
Expensive electricity costs mean that families are paying a greater percentage
of their earnings on energy costs, having less money to spend.

2.5 Market failure

There is a current market failure in which electricity is
not supplied at a level that meets demand, which results in frequent load
shedding. Uganda imports all its oil from Kenya, which itself imports crude
oil. This means that transportations costs are very high and that Uganda is
very vulnerable to oil price shocks. This has led to petroleum products being
smuggled across the border 10. Also, there are
massive tariffs and subsidies 10
with Uganda having the highest power tariff in East Africa and the highest in
the world after Sweden 10.

 

 

 

 

3.0 Relevant energy and innovation policies that
are being put in place

The Government of Uganda has implemented several policies to
address the concerns that were introduced in the previous chapter.

3.1 Off grid electrification

Uganda is undertaking a program to increase rural access to
electricity (RESP- rural electrification strategy and plan, 2013-2022) to 26%
by 2022, from the current level of around 7% 4 19. This will result in
a drop in demand and reliance on burning biomass for energy needs.

“To achieve an accelerated pace
of electricity access and service penetration to meet national development
goals during the planning period and beyond”

Figure 11: Primary objective of
the RESP 2013-2022 4

“Ensure that, progressively, the
program facilitates access to all forms of modern energy services to replace
kerosene lighting and other forms of traditional cooking and heating by 2030”

Figure 12: Secondary objective
of the RESP 4

Year

% of rural electrification

2022

26%

2030

51%

2040

100%

Table 3: Rural electrification targets 4

The strategy focuses on the government having more
responsibility for the rural electrification sector 20.
This removes obstacles for private investment as the government will be
absorbing the risk. Increased priority will be given to small distributed power
generation facilities. Also, professional and technical competency training
will be provided by the REA and its partnering agencies 4
19.

There are also many NGO and non-profit organisations that
are helping to provide small solar heaters, cookers and efficient stove.

Figure 13: Improved cooking
stoves that use less firewood and also reduces emitted smoke (United Nations
Development Programme Uganda) 21

3.2 Expansion and diversification of the grid

There is a rapid expansion in the hydroelectric power that
generates the majority of Uganda’s energy supply. There are currently 16
completed hydroelectric power stations, 7 under construction (with expected
completion times from 2018-2020) and 10 proposed hydroelectric power stations 22.

One of the hydroelectric plants under construction is the
Karuma hydroelectric power station. When completed (in 2020), it will be
Uganda’s largest power generating plant in the country (expected capacity of
600MW). The project is priced at $1.7 billion and is funded by the Bank of
China, one of Uganda’s many ventures with China 23.

Figure 14: Karuma hydroelectric
plant 23

The government also wants to diversify its energy sources,
and not be too reliant on one type of energy source. The government has
provided power production licences to several thermal power cogeneration
stations that burn bagasse (the substance that is left after sugar cane is
crushed to extract their juice). There are currently 5 bagasse thermal power
stations 22.

 

Figure 15: Bagasse 24

 

 

Unsurprisingly, Uganda has good potential for solar power.
So far the country has completed two solar power stations (with a combined
capacity of 20MW), with seven in development 22.
There is also solar energy production on a smaller scale, with NGOs and
non-profits providing solar heaters, cookers and small scale power production 25.

Figure 16: Uganda solar
radiation 26

 

Uganda has established a government department named
“Geothermal Resources Department” 27.
The Geothermal potential is shown by the Shell Scenarios tool 28 , which has
geothermal potential at 1,893 PJ/Y Figure 17. There are four areas under
study 29,
with two geothermal power stations being proposed (Buranga at 100MW and Katwe
at 150MW) 22.

Figure 17: Uganda’s energy
scenarios 28

 

 

3.3 Oil exploration

Uganda has an estimated 6.5 billion barrels of oil, 1.4
billion of which are recoverable. The government has issued exploration and
production licenses. Oil production is expected to begin in 2020 30. A crude oil
pipeline is also planned to run from Uganda to Tanzania, costs are expected to
be $3.55 billion 30.
The Ministry of Energy and Mineral
Development is currently evaluating several bids.

 

 

 

 

                                                                              

 

 

 

 

 

 

 

3.4 Cross country partnerships

Uganda is participating several cross country partnerships
to improve the energy circumstances in East Africa. The cross country pipeline
which was discussed previously is one example 30.

Uganda joined the East Power Pool (EAPP) in December 2012 31. The main objectives
are: optimising energy resources, enhancing power supply, and a long term
development of an electricity market. Regarding Uganda, two interconnection
lines are under construction: Uganda-Kenya (220KV) and Uganda-Rwanda (220KV) 32. The project is
estimated to provide a NPV of $456 million over the next 20 years 10.

 

Figure 18: EAPP member states 32

 

 

 

 

 

 

 

4.0 The challenges to implementing such policies

 

4.1 Allocation of scarce resources

4.11 Finance

The Government of Uganda has limited resources for extending
the grid to rural areas. There are many different strategies to allocating
scarce resources, some to name include: an auction or market, lottery,
competition and government decree 33.
At the moment, the Government’s focus is on solving the power supply crisis
that is crippling the national economy. Currently it will concentrate its
efforts to extend the grid to major urban areas 5.

4.12 Land

Land is also a finite resource and the government will have
to decide how this resource will be used. Hydropower requires a lot of land 34, could this land be
better used for agriculture, which is Uganda’s biggest export (coffee, tea,
tobacco, food crops) 35
and which its economy is built on, or for biomass? This is something that
government will to consider when weighing the opportunity costs.

4.2 Significant investment costs

Large projects such as hydropower and geothermal require a
significant amount of investment. Investors will be cautious sinking so much
money, and will want a transparent business environment with no corruption. Uganda
is currently 122th in the World Bank’s Ease of Doing Business index, which is
well below its neighbours Kenya and Rwanda, which are 80th and 41th respectively
37.

When I went into the Rwanda Development Board recently, I hadn’t even sat down
and they were already offering me tax breaks and other incentives to invest
there,” says a Kampala-based businessman. “That would never happen here.”

Figure 19: A businessman
comparing the business environment in Rwanda and Uganda 36

 

4.3 Cross country commitment for large projects

There is a lot of legal and regulatory framework when
participating in cross country partnerships. For example, the EAPMP requires
significant political commitment from multiple countries to reduce private
investment risk 10
. The oil pipeline was meant to go to Kenya, but was changed to Tanzania. The
reasoning from the president is that the Uganda-Tanzania pipeline is more cost
effective, the terrain is flatter and that security was less of an issue due to
Kenya’s proximity to Somalia 38.
However some officials in Kenya have accused Uganda and Tanzania of
locking the country out of talks 39.

 

 

 

4.4 Lack of infrastructure

Roads are most commonly used in transportation and they
carry over 90% of all traffic 40. However, only 25%
of national roads are paved and the rail network is dilapidated with only 26%
functional 40 . This increases the
costs of investing.

Energy Sector

Challenges

Generation sector

Large investment costs and hydropower not operating at full capacity

Transmission grid

Vandalism

Distribution grid

Illegal connections, transformer failure,
vandalism and overloading

Table 4: Challenges of the energy sector 41

5.0 The range of views being expressed by
stakeholders in the country

Several views have already been described throughout this
report, here some other views will be described and summarised.

5.1 Ministry of Energy and Mineral Development

As explained before, the government wants to focus on
developing infrastructure and economy, focusing investment in urban areas 5.

Regarding oil prospecting, there are disagreements between
the government and companies (Tullow and Heritage). Government believes that
the local demand should be met first and that the oil should also refined in
the country 10.

5.2 Population

5.21 Urban vs Rural

The views of the population of Uganda vary depending on
whether they are based in urban or rural areas. One thing they both share is
their dissatisfaction with the energy supplier, UMEME ltd. 10.
The differences in investing energy supply in urban and rural areas has
resulted in differences in tariffs.

5.22 Areas of investment

People who are living in areas where oil prospecting is
being undertaken believe they should have first priority of jobs, this has also
led to county vs county rivalries 10.
        

5.3 Business

5.31 Domestic

Significant electricity costs and irregular supply has
frustrated business owners (see 2.2 Economic Growth). Businesses surveyed said
that the greatest problem was unstable power (51%) followed by expensive power
(22%). 77% of consumers had no power for more than 3 days a week. With no
power, 42% use generators, 40% use lanterns or candles for lighting, and 18%
close business for the day 41.
Infrastructure and corruption are also big issues 36.

5.32 International

As explain beforehand (see 4.2 significant investment
costs), international businesses are reluctant to invest without solid legal
framework and without having to pay bribes 36.
International businesses also have the same reservations regarding the
expensive electricity cost and irregular supply 42.

6.0 Conclusion

In the next 15 years Uganda’s energy system will
drastically evolve with numerous power plant projects in hydropower, solar,
geothermal cogeneration and even oil with the prospecting of the Ugandan oil
fields. Hydropower installed capacity will also be fully utilised. Development
of the energy infrastructure with investors and cross country partnerships will
provide affordable and reliable power supply to make investing much easier and
cheaper. Off grid electrification with small scale energy supply with support
from NGOs and non-profits will help develop the rural areas of Uganda. However,
biomass will still be a big energy source, especially in rural areas.