Last edited: August 2018
In Tanzania, there are various channels regulating the energy market. The goal of such regulations is to improve the performance of the energy (including electricity) market. Renewable energy sources, too, among which solar power, are subject to government regulation. This concerns economic (market) regulation as well as technical regulation.
The implementation of energy market regulations came due to after the growth of the market since the 1990s. The growing market led not only to increased complexity, but also to a stronger dependence on reliable and affordable energy for socio-economic development in Tanzania. To ensure growth-stimulating and fair market conditions, which simultaneously ensure the quality of products, various pieces of legislation have been put into place. The updates done several times happened due to changes in the market. An example of such changes is the growing role of renewable energy sources.
While some legislation applies specifically to solar power or renewables, most of it sees to the regulation of the energy market in Tanzania in general.
The regulation of the energy mark is the responsibility of the Ministry of Energy and Minerals. This is including the supply of electricity and generating devices. The ministry oversees the National Energy Policy, implemented and 2003 and updated in 2015. Other key regulation acts are the Electricity Act of 2008, the Electricity Supply Industry Reform Strategy and Roadmap 2014 – 2025 (ESIR), the Rural Electricity Act of 2005 and the Electricity Sector Re-organisation Regulations (2016).
Find an overview of these energy policies here.
The National Energy Policy identifies and addresses the challenges facing the Tanzanian energy market. Challenges include first and foremost the still limited installed generating capacity. At the same time, there is a hamper of transmission and distribution of electricity, especially to rural communities. There are limitations to the availability of funding (both private and public). Also, it is not always the most cost-effective energy supply option that is adopted. Tanzania also suffers from limited local development of energy technologies. To address al such challenges, legislation and market support programs are in place.
Due to the vastness of energy regulation, the remainder of this text will focus on the effect of regulation on renewable energy sources, specifically solar power. See below for an overview of the most important laws and government programs.
While the national electricity grid operates within a monopoly state, the market for solar power is a more competitive market. The one operating company is the government-owned TENESCO. Since the Tanzanian government and TANESCO themselves have very limited means to expand the renewables and solar markets, they aim to stimulate such competition. Legislation is an important tool to achieve this and create an open market. This is due to the availability of government subsidies as long as (capital) barriers to entry exist. The solar market in Tanzania, growing as it is, can best be described as a market that is approaching monopolistic competition. This means various companies are active, selling solar products which tend to differ somewhat in technical aspects, price and, on a related note, quality.
To foster competition and increase efficiency, the Electricity Act was put into place. In addition, the ESIR outlines the specific steps in order to achieve the goals that were set. ESIR proposes the vertical unbundling of TANESCO into generation, transmission and distribution companies, in order to eliminate TANESCO’s monopoly power. This should pave the way for private sector companies to not only undertake off-grid energy projects, but also start feeding the national grid themselves. It is therefore a chance for solar companies to expand their operations.
Currently, the Rural Energy Agency (REA) of Tanzania is already implementing grid extension projects. Some of these run on solar power. The government has set up a framework for the development of “Small Power Projects” in Tanzania, focusing on renewable energy sources. The framework includes Standardized Power Purchase Agreement and Standard Tariff Methodology. Projects which are eligible to participate in the framework have a capacity ranging from 100 kW to 10 MW. Also, they utilize renewable energy source such as solar power. They should supply commercial electricity to the national grid.
ESIR also sets an explicit target for renewable energy sources, including solar. Solar is to grow to a capacity of 100 MW in 2025, which would amount to approximately 1% of the total energy capacity in 2025. Since the current solar capacity is at about 6 MW, there is plenty of room for growth, especially when considering that the estimated potential for grid-connected solar PV amounts to 800 MW by 2025, and the off-grid unused potential is still very high as well. Hence, solar is widely expected to contribute to much more than 1% of energy capacity in Tanzania in the future.
Subsidies to Foster Competition
In addition to the ESIR, the Electricity Sector Re-organisation Regulations specifically state that electricity retail activities are to be conducted in a competitive manner. This also goes for solar retailers. In theory, this legislation should lead to an open market with easy access for all suppliers and buyers. However, giving the frequent difficulties to obtain finance for solar products, the Tanzanian government implemented programs to subsidize energy projects. With the market disadvantages for renewable energy sources being especially high, the subsidies focus mostly on renewables. More on government subsidies, including capital grants, feed-in tariffs and VAT & import duties exemptions is available on our Solar Subsidies page.
Direct Price Regulation
As part of the price regulation of energy and generation equipment, the National Energy Policy does not only oversee competition regulation, but it also sets rules for price behaviour directly. This includes:
- Prices should be reflective of costs
- Prudently incurred costs, meaning these costs are of reasonable height.
- Reliability and quality of services in accordance with prices charged
- Fair return on invested capital
- Capacity allocation to the most valuable use
- Efficiency in production and consumption
Will follow soon.
Tanzania Bureau of Standards, http://www.tbs.go.tz/index.php
The Ministry of Energy and Minerals (MEM)
Tanzania Electric Supply Company Limited (TANESCO)
The Energy and Water Utilities Regulatory Authority (EWURA)
Tanzania Bureau of Standards
Rural Energy Agency (REA)
Tanzania Investment Center (TIC)
TIB Development Bank
Tanzania Revenue Authority
Independent Power Producers, Small Power Producers and Emergency Power Producers