CICEP country presentation – Tanzania

Tanzania, similar to other developing countries, emphasizes the issues of adaptation as well as financial support and technology transfer to developing countries. Mitigation efforts must be assessed in the context of investment in renewable energy and long-term structural consequence of building out economic sectors related to fossil fuel. As the case of Tanzania illustrates renewable energy can provide for electricity, but is not looked upon as a strategic pathway for economic development similar to the exploration of fossil fuels. The Government envisions transferring Tanzania from a Least Developed Country to a Middle Income Country by 2025. Investing in electricity infrastructure is one crucial mean to achieve this goal.

By Ida Dokk Smith

Summary

-          Energy fundamentals and climate change has turned Tanzania towards fossil fuel. Tanzania is endowed with both renewable and non-renewable energy resources: from hydropower and geothermal to natural gas reserves, coal and uranium reserves.

-          Most of its resources are still untapped, while biomass is the major source for energy supply.

-          Enabling a well-functioning market and attracting international capital to the power sector is currently the most pressing issues in the electricity sector. Daily blackouts are a major cost for the population and the economy. Roughly 20% of the population has access to the grid.

-          Until now renewable energy has mostly been associated with off-grid electrification and the push for renewable energy is found internationally. However commercial and non-commercial pro-renewable energy actors are also growing within the country.

Key Facts

The United Republic of Tanzania constitutes mainland Tanzania and the island of Zanzibar. With an annual growth rate of over 7 percentages, a population expected to increase from 50 to almost 70 million within 2025, and a growing middle class, demand for energy services are increasing rapidly. The government plans to increase total energy capacity from today’s 1 500 MW to 10 000 MW over the next decade.

Current energy capacity consists of Heavy fuel oil/Diesel (31%), Hydro (36%) and natural gas (33%). With the implementation of existing power plan, gas and coal will gain a greater share. By 2025 the share of natural gas is expected to increase to 41% and coal 27%, while hydropower will drop to 19%. Geothermal (2%), wind (2%), solar (1%), HFO/Diesel (4%) and import (4%) make up the remaining. 

The electricity mix does not reveal the true picture of Tanzania’s energy landscape. Biomass accounts for over 90 percent of primary energy supply, petroleum products 8 percent and electricity 1,2 percent. This balance has changed little since independence from colonial rule in early 60s. EWUAR, the water and energy service regulator, only regulates 9% of total energy consumption in the country when biomass is included. Investment in capacity and current tariff structure benefit only those who are connected to the grid without additional grid extension. 

The electricity infrastructure only serves about 21% of the population, 8% in rural areas. The international community has put energy access high on the development agenda. Although policies in Tanzania are in place to ensure that 75% of the population is connected to the grid by 2033, this will not necessarily address the dependence on biomass which is mainly used as cooking fuels. Energy efficient cook stoves and formalizing the charcoal economy are two measures currently explored.

Policy Supply and Demand

Vision 2025 spells out the goal and prioritizations for how the Government attempts to bring Tanzania up to a Middle Income Country over the next decade. Investment in energy infrastructure, in particular electricity, is a key mean to achieve this goal. Several policy initiatives are undertaken: Update of the 2003 energy policy, privatization of the electricity sector, new tariff structure and a strategy for electrification.  Implementation capacity remains a challenge.

The President’s office has a separate unit working on renewable energy, while the Ministry of Energy and Minerals is responsible for implementing policies. The national utility TANESCO is at the moment both responsible for operating/maintain the grid and electricity generation, while Independent Power Producers (IPPs) are welcomed. EWURA is regulating the electricity sector. The Rural Energy Agency (REA) – now a well-known agency in most developing countries - was established in 2005 to specifically ensure electrification of rural areas.

In the UNFCCC, Tanzania participates actively in the African Group of Negotiators. Tanzania, similar to other developing countries, emphasizes the issues of adaptation as well as financial support and technology transfer to developing countries.

Domestic drivers and barriers

Resource endowments form the foundation for a nations energy policy. Since the Government announced the first gas discovery outside its coastline in 2011, gas has dominated much of the policy domain and created high expectations for national and local development. Gas reserves are now estimated to about 55TcF, leaving fewer incentives to explore alternative energy sources for electrification.

In 2011 East Africa experienced severe droughts and Tanzania’s power sector dependent on hydropower was vulnerable. The government implemented rationing of electricity and signed short-term contracts with IPPs delivering diesel-generated electricity for about 33 – 35 US cents/kWh. In policy circles, hydropower is now perceived as risky and the Governments priority is to diversify the energy mix. However, others argue that climate change is not the only reason why hydropower resources are unstable; better natural resource management upstream is required.

A precondition for successful energy policy independent of energy source is that the Government can enable a well-functioning market and attract investors in lack of public finance, though the viability of renewable energy projects are particular sensitive given high capital costs. Non cost-reflective tariff-structure has resulted in TANESCO being unable to finance needed maintenance and new capacity over its balance sheet. The establishment of EWURA has helped to depoliticize the sector and electricity prices are now close to electricity costs, but the risk for IPPs is still perceived to be high given high off-taker risk.

Renewable energy is framed in the context of off-grid small-scale electrification. With the creation of REA the Government has institutionalized its commitments for electrification. Faith based and non-governmental organizations have historically been active in developing a local market for distributed generation technologies. This process has been slow, and currently we are seeing a new tendency of external actors entering the market.

Given that Tanzania is currently making major energy investment decisions, how decision maker’s assessment the energy landscape is of great importance. The current power system master plan takes only into account about 3% of renewable energy potential (excluding hydropower) due to lack of resource information and inadequate planning tools. In lack of a strong civil society with the capacity to challenge current policy trajectories or worldviews, international donors and agencies are playing an important role. Given Tanzania’s dependence on aid, such actors have a significant influence on energy and climate policy in the country.

In addition, international clean tech companies are source for change. EWURA was in favor for a separate renewable energy policy given “passion from private actors”. Companies see market opportunities, despite challenging business environment. However, the international interests also move in the direction of fossil fuel such as China’s investment in the country’s coal sector.

The future

Climate change and energy policy are linked (at least) in two different ways. The Government is eager to develop its natural resources. Building infrastructure and institutions around economic sectors such as gas and coal can later create structural challenges for reducing greenhouse gas emissions. Furthermore, today’s investment in domestic energy infrastructure not at least the electricity grid, urban planning and housing sector has implication for future emissions trajectories. 

Policymakers will continue to focus on growth as the strategy to lift its population out of poverty. Given the country’s large gas resource, Tanzania will most likely not lead the renewable energy agenda in sub-Saharan Africa. Still the market approach leaves the future energy mix dependent on relative prices. We will most likely see a development of a diversified energy mix where the government embraces all forms of energy sources in particular if investors can also provide financing. However not all investment decisions are solely based on relative prices, a decision to invest in coal fire power plants might be made to cater to regional interests and depend on political economic reasons.

Sources

REEEP Policy Database, Tanzania http://www.reegle.info/policy-and-regulatory-overviews/TZ

The United Republic of Tanzania President’s Office Planning Commission: http://www.mipango.go.tz/#

Ministry of Energy and Minerals (MEM) https://mem.go.tz/