Inadequate government support and limited financing from commercial banks, among others, are hindering the private sector from investing in renewable energy, a new report has revealed.
Renewable energy, often refers to as clean energy and comes from natural sources or processes that are constantly replenished such as solar energy and biogas.
Dubbed, ‘Financing Mechanisms for Private Sector Investment in Renewable Energy Access in Uganda,’ the report shows that renewable energy is a profitable venture for investors as well as saving the environment.
However, it indicates that the government does not provide the incentives in form of taxes, electricity subsidies and other sources of financing to attract the private sector to invest in renewable energy.
The report shows that 65 per cent of renewable energy companies in Kampala and 85 per cent of those upcountry do not know about any funding opportunities in Uganda. “…high and uncertain project development costs, lack of well-defined bankable projects, poor credit profile and financial records, unclear taxation and subsidies, low technology sales and fragmented funding landscape and a scattergun approach are a threat to private sector support,” reads the report commissioned by Environmental Alert, a civil society organisation, in partnership with Norwegian Agency for Development Cooperation (NORAD).
Ensuring the energy mix
The report shows that Uganda has found it challenging to utilise many of these renewable energy resources and to ensure the energy mix to accelerate energy access.
“Increasing access to electricity will require a sharp increase in energy access investments. Since public funds are limited, the necessary investments cannot be made by the government alone. Therefore, the mobilisation of private investment and finance is crucial,” the report adds.
While launching the report last Friday, Dr Joshua Zake, the executive director of Environmental Alert, revealed that apart from inadequate government support, private sector players face higher foreign exchange risks when sourcing international funds.
He added that despite availability of financial instruments to hedge the risk for commonly traded currencies, some borrowers are unwilling to provide the same instrument for currencies traded less frequently.
“The small scale renewable energy projects create significant problems in obtaining international private financing. The sums of finance often required by the projects in their start-up phase are often too small for mainstream investors and banks. The transaction costs of funding many small projects are high because of the due diligence and bureaucracy involved,” he quoted the report.
In response, Mr John Bosco Tumuhimbise, the assistant commissioner-in-charge of renewable energy at the Energy ministry, admitted that the barriers to investment in renewable energy.
“These barriers are financial, fiscal and socio-economic. Investment in renewable energy must compete for resources with other projects whose risks may be lower but also offer better returns on investment. Renewable energy tariffs usually do not factor in other non-monetary benefits such as improved health, reduction in harmful emissions, environmental sustainability and ecosystem services,” he said.
Mr Tumuhimbise revealed that government is reviewing the renewable energy policy to address a range of constraints that have hindered the development of the sector.
The report further revealed that inappropriate financing terms and conditions, limited awareness of energy financing opportunities are barriers to investment in renewable energy.