Criteria

Financing

Types of supported projects

Support financing for mini grid developers can be available through the Rural Energy Fund (REF), which is managed by the Rural Electrification Agency (REA). REF support is technology neutral. Projects should comprise a least cost approach to serving new areas with electricity, i.e. a least cost solution among comparable alternatives. Categories of rural energy projects that can be supported are:

  • Distribution line extension projects: This category comprises projects for the extension of existing distribution lines to cover new and/or previously unelectrified areas. These types of projects can be justified, as a least cost option, when the volume of demand over a 15 year time horizon is such that an extension of existing distribution lines to new areas implies savings in diesel operations.
  • Mini grids or isolated grids: This category comprises grids that are sufficiently far from the national grid to be cost effective solutions to providing certain areas with electricity. The least cost technology option could be renewable energy capacity, agro-industrial generating capacity currently used for self-generation (e.g. bagasse cogeneration), hybrid solutions, etc. depending on the specific context of the area to be served.
  • Stand-alone systems: This category comprises photovoltaic (PV) systems which have limited capacity and offer less scope for income generating activities than the two aforementioned categories. Typically, they can be the only viable option for households, small commercial establishments, health centres, schools and community halls in isolated and dispersed rural areas.
  • Embedded generation: This category comprises electricity generation plants connected to the distribution network (33 kV and lower). Generally, embedded generation comprises smaller generators that use a variety of generation technologies, e.g. biogas, biomass, PV, wind turbines and small hydro.

Funding Windows

The following funding windows are currently available:
  • Matching grants The matching grants are typically not investment support but rather support to preparatory work and/or support to developing new and innovative approaches on a cost-share basis (co-financing) with a Project Developer. Indicative activities eligible:
    • Market development activities (e.g. market studies, promotion, education)
    • Business improvement (e.g. staff training, business plan preparation)
    • Product development activities (e.g. assembly optimization study, testing)
    • Pre-investment and preparation activities (e.g. preparation studies for licenses)
    • Market Entry (e.g. establishing new outlets and networks, demonstrations)
    • New initiatives (e.g. new alliances and partnerships, new territories)
  • Performance grants This comprises Investment support on a cost-sharing basis (co-financing) with a Project Developer. Financing or acquisition of existing assets (including land) or refinancing of existing debts or accrued interest is not eligible for performance grants.

Project Identification

Rural energy projects can be identified through a variety of means such as:
  • Requests for energy supply submitted to the Ministry of Energy and Minerals (MEM), the REA or a DNO from communities, social service centres and individuals.
  • The Government may indicate priority projects
  • The REA may, as part of its work, identify potential project
  • Projects identified by a DNO such as a transmission/distribution line extension project.

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The Project Developer submits a Concept Note to the REA in order to get a preliminary assessment of whether the planned project is eligible for support from the REA or not. The Concept note should, inter alia, include:

  • The background of the prospected project
  • Market assessment
  • Energy resource assessment
  • Technical assessment
  • Management & institutional aspects
  • Financial assessment
  • Environment and social assessment
  • Risk Analysis

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The Concept Note submitted is assessed by REA in order to ensure that it is aligned with the REA mandate and objectives and that it is eligible for support. REA will provide feedback to the Project Developer on the Concept note within one (1) month from the submission date.

The project will be categorized according to the same project sizes used by EWURA if applicable and in other cases by investment costs and technique.

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The Project developer prepares a pre-feasibility study and a draft business plan for the proposed project to determine the project’s technical, economic, financial, social, environmental and operational viability. It should be noted that only projects which are non-financially viable without capital support but otherwise viable shall be eligible to receive capital support from REA.

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  • The concept note for the project has been approved by REA
  • Only projects which are non-financially viable without capital support but otherwise viable shall be eligible to receive capital support from REA
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The project developer submits a Grant Application Form to the REA together with the pre-feasibility study and draft business plan in order to get a provisional reply from the REA on the indicative amount that the REA could make available for the project. These three documents comprise the project package submitted by the Project Developer in order to grant access to financial support by REA.

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  Prerequisites / Conditionalities: An application for grant may be submitted from a Project Developer meeting the following criteria:
  • The Project Developer could be a sole proprietorship, partnership, corporation, non-profit entity, cooperative, community based organization or a joint venture, legally registered, incorporated, or existing in accordance with the Laws of the United Republic of Tanzania;
  • The Project Developer should not have been “blacklisted” by the Government of the United Republic of Tanzania for any reason whatsoever; and
  • The Project Developer should not have been declared bankrupt and should not have a history of mediation, arbitration or litigation relating to fraudulent business transactions.
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The REA receives the project package, sends a letter of receipt to the Project Developer, separates the Grant Application form from the package and sends it to the Grant Award Committee whereas the pre-feasibility report and Draft Business Plan are sent to the designated Project manager.

The Project manager will be responsible for the appraisal of the Project pre-feasibility and the Draft Business plan using other REA or external experts as needed and he/she will submit the recommendations to Director General and the Grant Award Committee.

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Recommendations will be given by the Project Manager to support the project or, alternatively, to reject the project as not eligible for the REA.

  • If the recommendation is to reject the project, then the Grant Application form will be sent back to the Project developer together with a letter from the REA explaining the reasons behind the decision.
  • If the recommendation is to support the project, the Grant Award Committee will process the Grant Application and recommend the level of support that should be granted. A letter informing the project developer about the provisional acceptance and the indicative amount of the grant will be sent by the REA.

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After having received a provisional acceptance and indicative grant amount from the REA, the Project Developer can proceed with preparing the feasibility report. A feasibility study using the REA template is supposed to determine the project’s technical, economic, financial, social, environmental and operational viability. The feasibility study will delve into more detail compared to the pre-feasibility study and is expected to contain the detailed engineering designs and updated costing and financial information.

In preparing and undertaking the feasibility report the Project Developer should consider the following:

  • If the project is non-financially viable without grant support (i.e. having a Financial Internal Rate of Return (FIRR) less than the project’s WACC) but otherwise viable, the Project Developer may apply for a grant from the REA/REF.
  • A Project Developer can apply for grants for co-financing of the capital cost of a project (Performance Grant). In addition, the Project Developer may apply for a grant to co-finance the cost of preparation of a project (Matching Grant).

The Project Developer needs to update the Business Plan based on the feasibility study, once completed. The REA will only be able to give its final acceptance and the exact grant amount after it has received and appraised the feasibility and the final Business Plan.

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  Prerequisites / Conditionalities:The maximum amount that can be applied for is 80% of the capital cost of a project. In addition, the project developer may apply for a support of up to 50 % of project preparation costs but maximum USD 50,000), e.g. for taking a project from pre-feasibility to feasibility stage.
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Following the screening and ranking, the REA will summarise the results of the appraisal in a standard evaluation form and

  • Recommend to the Rural Energy Board (REB) if the project should be supported;
  • Recommend the level of grant.

If authorization for support to the project is obtained from the REB, this will be communicated to the Project Developer and information will also be published in newspapers and on REA’s website.

A document detailing the results of the financial, legal, economic, technical and environmental appraisal will form part of the contract between the REA and the project developer.

Following authorization for support to the project from the Board and signing of the contract, the REA will initiate preparation for performance grant disbursement.

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The guiding principle for performance grant disbursement will be “cash on delivery”, i.e. the payments are made on the basis of achievement of specific milestones in the contract. However, consideration will also be given to ''charging'' the equipment and machinery in the event of the latter not being possible, due to insufficient funds to purchase equipment at the start of implementation of the project. Any advance payments by REA to the Project Developer should be fully covered by suitable bank guarantees or other securities.

This means that each contract should specify the payment milestones and the documentary proof to be provided that the milestone has been accomplished. The REA will verify the documentation, and has the right to undertake or commission site inspections for verification purposes. A percentage of the payment may be withheld until final project completion and commissioning e.g. 15% of the amount granted. The time frame for disbursements will be specified in each individual contract.

The disbursement is executed by the Trust Agent. Investments in innovative pilot and demonstration projects and applications for renewable energy can be made when development partners make special purpose funds available for that purpose. In this particular case, the financier may choose between disbursement through the Trust Agent or directly through the REA.

The REA will monitor that the work by the Project Developer proceeds timely and on budget and that the resulting infrastructure is operated and maintained in a sustainable manner to meet the public good objectives.

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The Portal is maintained by a Working Group comprising representatives of Ministry of Energy and Minerals (MEM), Rural Energy Agency (REA), Energy and Water Utilities Regulatory Authority (EWURA), National Environment Management Council (NEMC), Tanzania Renewable Energy Association (TAREA), Tanzania Bureau of Standards (TBS) and Tanzania Electric Supply Company Limited (TANESCO).

 


The development of the Portal was supported by IFC / World Bank Group.

 

 

 

 

The development of the Portal was supported by IFC / World Bank.

Design and Implementation: Exergia S.A.