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Project Development Programme East Africa
Tanzania’s Wind Energy Market Target Market Analysis
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Target Market Analysis
Tanzania’s Wind Energy Market
www.german-renewable-energy.com
Author
Integrated Energy Solutions (IES)
Mark Hankins
November 2009
Editor
Deutsche Gesellschaft für Technische
Zusammenarbeit (GTZ) GmbH
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of Economics and Technology (BMWi)
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by the Deutsche Gesellschaft für 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
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Target Market Analysis: Tanzania’s Wind Energy Market V
Content
1 STATUS QUO OF THE WIND ENERGY SECTOR ................................................................. 1
1.1 Brief Wind Energy Sector Overview ...................................................................................................... 1
1.2 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
2 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 WIND ENERGY-SPECIFIC REGULATION AND FRAMEWORK ..................................... 10
3.1 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 BUSINESS PARTNERS AND COMPETITORS IN THE WIND ENERGY SECTOR....... 14
4.1 Overview of Wind Energy Key Market Players .................................................................................... 14
4.2 Overview Major and/or Most Emblematic Wind Energy Projects ....................................................... 14
ANNEX: STANDARDISED POWER PURCHASE TARIFFS (SPPT) ...................................... 15
Target Market Analysis: Tanzania’s 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 = TZS 1,440 (May 2010)
1 € = TZS 1,776 (May 2010)
Measurement
W Watt Wp Watt peak Wh Watt hour
kW Kilowatt kWp Kilowatt peak kWh Kilowatt hour
MW Megawatt MWp Megawatt peak MWh Megawatt hour
GW Gigawatt GWp Gigawatt peak GWh Gigawatt hour
Target Market Analysis: Tanzania’s Wind Energy Market VII
List of Acronyms
BBS Battery Based System
CDM Clean Development Mechanism
DANIDA Danish International Aid Organisation (Ministry of Foreign Affairs)
EIA Environmental Impact Assessment
EWURA Energy and Water Utility Regulatory Authority
GEF Global Environment Facility
HFO Heavy Fuel Oil
ICT Information and Communication Technology
LRMC Long Run Marginal Cost
MEM Ministry of Energy and Minerals
MFI Micro Finance Institutions
m/s Meter per Second (Wind Speed Measurement)
NEMA National Environment Monitoring Agency
NGO Non-Governmental Organisation
O & M Operation and Maintenance
PPA Power Purchase Agreement
PV Photovoltaic
REA Rural Energy Agency
SHS Solar Home System
SIDA Swedish International Development Cooperation Agency
SME Small- and medium-sized enterprise
SPP Small Power Project
SPPA Standardised Power Purchase Agreement
SPPT Standardised Power Purchase Tariffs
TADEP Tanzania Access Development Energy Project
TANESCO Tanzania Electric Supply Company
TIC Tanzania Investment Centre
UNDP United Nations Development Programme
USAID United States Agency for International Development
VDC Volts Direct Current
Target Market Analysis: Tanzania’s 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 grid-
connected 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: Tanzania’s Wind Energy Market 1
1 Status Quo of the Wind Energy Sector
1.1 Brief Wind Energy Sector Overview
Before the 1990’s, 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.
Monsoon) winds offered marginal potential as wind farm sites. However, after 20001, 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/Risø/ 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 Study 10 m Wind
Speed (m/s)
30 m Wind Speed (m/s)
Makambako Original Wind East
Africa
7.6 8.7
Singida Wind East Africa 8.2 9.4
Karatu (Arusha) DANIDA/Risø/
TANESCO
4.9 5.5
Mkumbara (Tanga) DANIDA/Risø/
TANESCO
4.14 4.9
Gomvu (Kigamboni) DANIDA/Risø/
TANESCO
3.56 4.28
Litembe (Mtwara) DANIDA/Risø/
TANESCO
3.21 4.47
The DANIDA/Risø/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 Tanzania’s 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.
1 Following similar inland studies along the Rift Valley in Kenya.
Target Market Analysis: Tanzania’s Wind Energy Market 2
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/Risø 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 TANESCO’s
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 Tanzania’s
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: Tanzania’s Wind Energy Market 3
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: Tanzania’s Wind Energy Market 4
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
Wind resource study -/+ ++ -/+
Site survey and rough
system design
+ + -/+
PPA Negotiation - + -/+
Technical plant design -/+ + -
Feasibility study + ++ +
Construction work ++ ++ N/A
Engineering work + + -/+
Electrical work ++ + +
Business development
advice
+ + N/A
- not available; -/+ limited; + can be found; ++ there is choice
Target Market Analysis: Tanzania’s Wind Energy Market 5
2 Wind Energy Market Potentials
2.1 Overall Sector Outlook
Table 3 below summarises the main opportunities in the Tanzanian wind sector. These include grid-
connected 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
Current demand Basic description of opportunity
Stand-alone off-grid
wind opportunities Total installed
capacity less than 500
kW
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
Grid-connect or mini-
grid wind opportunities
No active grid connect
farms
Several 50 MW+
projects in planning
stages
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
Water pumping ±150 installed units in
the country
Sporadic installations
Agricultural: Focus on pumping and market ready
applications
Livestock
Community water supply
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/Risø/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: Tanzania’s Wind Energy Market 6
“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
experienced suppliers.”2
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
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
Expected financial
volume Hundreds of millions of USD
Competitiveness Where wind resources are above 7-8 m/s, wind appears to be competitive with the
cost of grid electricity.
Planning Two or more year time horizon
Predominate operator
models
Developer consortium including technology provider
Engineering firms
Financier
Carbon traders
Local partners
Constraints/obstacles
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
Recommendations
for German
enterprises
A strong partner with government linkages is necessary to complete local
negotiations.
Understand the PPA-development process as a first step.
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.).
2 Risø/Danida, 2003.
Target Market Analysis: Tanzania’s Wind Energy Market 7
Off-grid wind generation opportunities are similar to opportunities in the off-grid PV sector3 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 medium-
sized 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.
Expected financial
volume
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.
Competitiveness 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 (gen-
sets, PV) to the off-grid market.
Planning 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.
Predominate operator
models
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
Constraints/obstacles 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
3 See related report on Tanzania’s solar energy sector: “Target Market Analysis: Tanzania’s Solar Energy Market.”
Target Market Analysis: Tanzania’s Wind Energy Market 8
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 lead-
acid 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 1.5 – 10 kW wind generators charge consumer batteries and sell related products
and services.
Anticipated total
potential Economic potential is in the hundreds of units.
Applicable
support/financing
mechanisms
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.
Constraints/obstacles Development of an appropriate business model is a concern with this concept.
Financing of the units for entrepreneurs is also a key obstacle.
Recommendations for
German enterprises 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 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+).
Anticipated total
potential Total market size is relatively small (15-30 systems) each of which would perhaps
be as large as 50 kW on average.
Applicable
support/financing
mechanisms Tourism players would identify their own finance.
Constraints/obstacles 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.
Recommendations for
German enterprises 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: Tanzania’s Wind Energy Market 9
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 Hybrid wind-generator-battery units powering base station for cell phone companies.
Wind provides > 70 % of total energy for system.
Anticipated total
potential Total potential market of > 100 sites where ±3 kW units would be installed.
Applicable
support/financing
mechanisms
Telecommunication companies (or base station operators) buy units or pay for
energy service.
Pilot Safaricom in Kenya is piloting units successfully.
Constraints/obstacles 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.
Recommendations for
German enterprises 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 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.
Anticipated total
potential Scores of potential sites identified in Rural Electrification Master Plan.
Applicable
support/financing
mechanisms
This type of system would be funded by donors, REA, missions. See section 3.2 to
off-grid tariff structures for SPPTs.
Pilot
Constraints/obstacles
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.
Recommendations for
German enterprises
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.
Target Market Analysis: Tanzania’s 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
energy power source (or waste heat) with an installed capacity of between 100 kW and 10 MW4.
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 government’s 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 REA’s 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: Tanzania’s 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: Tanzania’s 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
Standardised power
purchase tariffs (SPPT)
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).
Tax relief Projects with a status of strategic national importance can negotiate tax
incentives from the government.
Rural Energy Agency (REA)
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.
Special loan options Nothing locally available
Duties No import duties because of registration with Tanzania Investment Centre
(TIC).
Carbon credits Tanzania is a party to the Kyoto Protocol and has a standard government
process for approval of Clean Development Mechanism (CDM) projects.
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.
Target Market Analysis: Tanzania’s Wind Energy Market 13
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 USD
Long-run marginal financial costs adjusted for
avoided losses
80.0 TZS/kWh 0.064/kWh
Seasonally adjusted
standardised
Dry season Aug-Nov 96.0 TZS/kWh 0.0768/kWh
Wet season Jan-Jul and
Dec
72.0 TZS/kWh
0.0576/kWh
Price Cap
Seasonally adjusted
standardised
Dry season Aug-Nov 280.5 TZS/kWh 0.224/kWh
Wet season Jan-Jul and
Dec
210.4 TZS/kWh 0.168/kWh
(Exemplary period of validity: 1st January to 31st December, 2008)
3.2.2 Mini-Grid Wind Tariffs
For off-grid projects, rates are much higher5, 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 Off-grid wind SPP payment
(TZS/kWh)
Off-grid wind SPP payment
(USD/kWh)
Escalable base O&M rate (year 1) 38.8 0.031
Escalable base fuel rate (year 1) 0 0.00
Tier 1 non-escalable (Year 1-8) 337.1 0.270
Tier 2 non-escalable (Year 9-15) 140.4 0.112
Escalable year 16+ 18.0 0.014
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.
5 Based on final recommendations of “Standardised SPPTs for Tanzania, Final Draft June 2007”.
Target Market Analysis: Tanzania’s Wind Energy Market 14
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
Company
description
Company
strategy
Major
activities
Contact details
Wind East
Africa
Tanzanian
owned wind
project
developer
Involved in
developing two 50
MW wind farms in
Singida
Wind
projects
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: [email protected]
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: [email protected]
Internet: www.ashtonenergy.com
Rural Energy
Agency
Address the
special
requirements of
rural consumers
Programmatic
grant and subsidy
support
Rural energy
support
agency
Mwakehesya Lutengano
Email: [email protected]
TANESCO State-owned
electricity
company
Electricity sales &
purchases. Pays
for wind electricity
Electricity
sales
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
the Wind East Africa project.6 The group has signed a Memorandum of Understanding to
acquire the 500-hectare property in Singida from Tanzania’s Power Pool East Africa Ltd.
Danida/Risø/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.
6 Project information from: http://www.windfair.net/press/5987.html.
Target Market Analysis: Tanzania’s Wind Energy Market 15
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 Months applicable to season TZS/kWh
Dry season August through November 96.0
Wet season January through July and December 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
Small hydro
(TZS/kWh)
Wind
(TZS/kWh)
Biomass
(waste)
(TZS/kWh)
Biomass
(grown)
(TZS/kWh)
Dry season August through November 157.1 280.5 200.7 246.1
Wet season January through July and
December
117.8 210.4 150.5 184.6
7 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.
Target Market Analysis: Tanzania’s Wind Energy Market 16
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.
Risø 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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