Energy for Rural Transformation Project (APL)

Annex 3
First Phase APL Pipeline Sample Sub-Project Investments
Location of some of Phase 1 independent grids and renewable energy power sites; the main grid power distribution and solar pv sub-components would be national in scope.
Introduction
The proposed Energy for Rural Transformation (ERT) program sub-projects can be broadly grouped in to four investment sub-components excluding capacity building and TA. These are:
Sub-component 1: Main grid related power distribution and generation. The power distribution would be to presently unserved rural areas that would be connected to the main grid, with the power supply to come from the large-scale hydropower plants. It is expected that the private sector distribution concession areas, arising from sector reforms, would be narrowly defined in terms of the physical distance from the existing grid. Thus, the extension of the main grid to rural areas and the consumers would be supported under this sub-component. In keeping with the objective of renewable energy development, there would be additional power generation from small, renewable energy resources, such as sugar mills, that are close, or already connected, to the main grid. In the long run, the sale of this power would be to third-party customers via wheeling through the main grid, i.e., in the long run, there would be no power purchase agreement between the generator and the main grid, which would merely serve, for a fee, as the highway over which power is transported from the generator to a third-party customer. However, in the short run until the Bujugali project comes online, there would likely be a power purchase agreement between the main grid and the renewable energy power generators; further, after Bujugali comes online, there would likely be a transition period during which the renewable energy generators would have some assurance of the sales of their power, after which the long run wheeling mechanism would be utilized. 
Sub-component 2: Independent grid systems for relatively concentrated isolated areas with a potential for the use of electricity by rural enterprises. This sub-component would support relatively larger systems that may require some transmission (such as in the West Nile region) and smaller systems, such as those located in rural trading centers that require only generation and distribution facilities. It is expected that a significant part of the power generation would be from renewable energy resources.
Sub-component 3: Individual/institutional solar PV systems, for relatively dispersed areas where even small independent grid systems are not viable.
Sub-component 4: Pilots for scale up in later tranches. In the first phase, this would include: (i) energy efficiency in use of traditional woodfuels by rural SMEs and public institutions for which a pilot would be prepared in conjunction with ongoing research sponsored by the U.K. Department for International Development (DFID), (ii) provision of telecommunications and connectivity, for which one pilot may be implemented outside this project, and one within the first tranche of this project, and (iii) low-cost household water disinfecting, which requires adequate supplies of electricity, based on a winning proposal in the Development Marketplace 2000 and/or other similar technologies.
The Governments goal of reaching 10% rural access in ten years via a combination of investment sub-components 1, 2 and 3 translates to approximately 450,000 new connections. Subject to further and more detailed analysis during project preparation, at this juncture this overall goal would be expected to breakdown by sub-component as follows: Sub-component 1: approximately 200 to 250 thousand connections, Sub-component 2: about 50 to 70 thousand connections, Sub-component 3, about 100 to 150 thousand connections. 
During the course of extensive field visits to date and local consultations with community members, local Government and civic leaders, and private sector, a number of sub-project opportunities have presented themselves. Additional sub-project prospects and proposals will be add to the first phase APL pipeline as preparation advances in the coming months. 
This annex describes a sample of the sub-project investment prospects in the first phase APL pipeline, and highlights their locations and some key characteristics. These sub-projects typify and illustrate a rich mix and broad range of contexts geographical, generation resources, initial scale, service providers , cost structures, and business and community contexts - prevailing in rural Uganda today; that are particularly relevant from the ERT program objective of scaling up access utilizing a private sector-led and commercially oriented business model for rural electrification. Key details on some of these sub-project are provided below based on the most recent mission to Uganda in January 2000.
Missing from the first phase pipeline so far are sub-projects in sub-component 1 for electricity distribution concessions and retailing off the main grid. Proposals for these type of sub-projects are expected only after the boundaries of the distribution concession areas are clearly demarcated and settled for the existing UEB distribution system.
Scale of independent grids and renewable energy power generation
Kakira Sugar Mill
The overall approach for the Kakira project would include the upgrade of the current cogeneration plant and the sale of surplus electricity to third party buyers through a wheeling arrangement with UEB. The initial customers are being identified (captive and third party), and their demand profiles will be assessed. Appropriate contract pricing and terms need to be developed for such a wheeling business and the project team will assist in these tasks. A UEB policy and pricing formula also needs to be developed.
Sugar mill power generation will increase the sales of small-lot farmers, who would supply 
 additional cane to the mill, and utilize the excess bagasse, which is now being burned in open fields. 
Project size and cost. Following a review of an initial expansion plan showing a single 30 MW capacity upgrade, mill owners are now considering phasing of the project in accord with the mills Agricultural Expansion Plan schedule. This will result in a smaller initial co-generation project of nominally 20 MW with perhaps 8-10 MW as surplus power for external sales in the initial phase. The initial estimated cost for such a first phase project would be about US$1.3 million per MW or US$26 million. New budget quotes will be obtained to construct an accurate revised project budget. The optimized first phase project could likely still include an oversized steam boiler (70 ton per hour more steam potential than needed for sugar processing) to enable a cost effective second phase when adequate cane is available to process at the rate of 5,000 tons of cane per day. While reducing the first phase boiler size is technically viable, the financial implications of purchasing a second boiler are likely to lead to a significant cost burden. 
Phase 1. The first phase would be comprised of the time it will take to fully implement the changes needed to increase cane processing from 3,000 to 5,000 tons per day. The first phase project would not utilize all of the surplus bagasse potential, but it will allow the overall commercial risk to be minimized without adversely impacting the sugar milling potential. Currently Kakira burns about 200 tons per day of surplus bagasse in open fields. 
Phase 2. The second phase could be commissioned roughly three years after the commissioning of the first phase power system. The second phase would consist of the installation of a nominal 10 MW condensing steam turbine generator with all of its necessary auxiliaries. The second phase would enable an almost full capture of the potential environmental benefits derived from productive use of all of the surplus bagasse, and would result in an almost maximum kWh production from the surplus bagasse. 
Risk. A major risk element (perceived risk) from the Kakira perspective is the potential for non-performance of the wheeling entity (UEB) resulting in contractual difficulties with the electricity buyers. The project team is developing, with Kakira and the government of Uganda, an approach to allocate this risk that could be acceptable and equitable to Kakira, to its electricity customers, and to the government. 
Sugar Corporation of Uganda (Lugazi Sugar Mill) A 7 MW (4 MW surplus) Co-generation project has been proposed by SCOUL at their Lugazi Sugar Mill. The proposal is for wheeling a large portion of the surplus power to other captive industries of the Mehta Group. A major difference in this case compared to the Kakira project is that most of the wheeling would be through inside the fence power lines owned by the Mehta Group, though a small portion of the surplus power will still have to be wheeled over UEB lines to third party customers. The mill owners are now preparing a detailed business plan. The customers would be defined and mapped with demand profiles constructed for energy delivery. With some electricity pricing assumptions made, the financial analysis will be run and the financial viability determined. 
The project at the SCOUL Sugar Mill will have a definite diesel displacement impact in its early years of operation, and will also make use of surplus bagasse that will otherwise be wasted. The more efficient operation of the SCOUL mill based on the improved reliability of the new energy system for both sugar making and surplus electricity production will realize both environmental (carbon offset and local emissions reduction) and economic (reduced sugar imports and more jobs) benefits. SCOUL will need the technical assistance of AFRREI to take the proposed project to implementation. The estimated total cost of the 7 MW Co-generation project at the SCOUL Lugazi sugar mill is US$9 million. 
Sub-component 2: Independent grid systems
West Nile Independent Grid System
Background
The West Nile Region comprises the districts of Nebbi, Arua, Moyo and Adjumani. At present, Arua has the largest population (estimated 850,000), followed by Nebbi (estimated 450,000 today), Moyo and Adjumani (estimated 110,000 each). Arua Municipality is the largest urban area in West Nile, and is one of Uganda's fastest growing urban areas. Paidha Municipality is the second largest urban area in West Nile Region, and the largest in Nebbi District, with an estimated population of 20,000 in 1999. Nebbi Municipality is the next largest urban area in the region, with an estimated population of 10,000.
The indicative plan calls for the development of the Paidha mini-hydro 
and construction of the Nebbi-Arua transmission line in Phase 1
The West Nile Region has the potential to be one of Ugandas more productive agricultural areas. Prior to 1979, it was one of the countrys most developed areas; it is now rapidly recovering from decades of turmoil and neglect. It has several agro-ecological zones, ranging from dryland savannah to highland tea and coffee zones. Historically coffee, tea, tobacco, cotton, groundnuts and sesame (simsim) were the most important cash crops; at present, coffee and tobacco production are up.
Arua Municipality, served today by less than 700 kW of unreliable UEB diesel electricity, is the largest town in Uganda not connected to the main grid. The lack of adequate and reliable electricity supply has seriously constrained the region's development, particularly in the agro-processing fields (e.g., coffee, cotton, tea, grain milling).
Energy Demand
The Netherlands Government-sponsored study entitled Feasibility Study of Power Supply to West Nile Region estimated total electricity demand in the four districts at approximately 9.8MW for 1998, with 3.6MW urban and 6.2MW rural. This estimate is not based on a cost-recovery tariff, nor does it take into account the costs and difficulties of supplying consumers who are in remote rural areas. However, the preliminary indications are that there is considerable unmet demand in this region from commercial/industrial users, even at cost-recovery based tariffs.
Arua municipality. UEB currently supplies some 950 customers in Arua municipality, split roughly equally between domestic and commercial/industrial consumers; power is available only for four hours, between 7-11 p.m., and even this supply is erratic. One component of the unmet demand is from the 722 registered business establishments in Arua municipality, making it by far the most important economic center in northern Uganda; the Arua Chamber of Commerce estimates over 200 private generator sets are in regular use in the municipality.
Paidha and Nebbi. UEB has a small, 200 kVA generator, located in Nebbi municipality, which is used to supply Nebbi municipality (about 50 customers) and Paidha municipality (via a transmission line). Paidha has: (i) three coffee mills currently in operation, with an installed capacity of 80 tonnes of coffee per day, and another large coffee mill is under construction with a design capacity of 30 tonnes per day, (iii) three maize mills in Paidha town, with another two located within five kilometres of the town center, (iv) several sawmills near Paidha, (v) several timber-based enterprises, and (vi) several garages and welding shops are located in Paidha. In Nebbi municipality, there are at least ten individual generators, with at least four welding shops, three carpentry shops, four grinding mills, one oil press, and over 100 retails and service shops. The current combined electricity load for both Paidha and Nebbi should be no less than 1 MW, and probably more when the institutional demands (hospitals and schools) are taken into consideration. 
Energy Resources
The West Nile Region is well-supplied with renewable energy resources: it has some of Ugandas most extensive small hydro resources. Although the region is not heavily forested, numerous small woodlots and plantations have been established by rural farmers and several rural enterprises. The region receives considerable sunshine and great scope exists for utilizing the regions solar resources for clinics, schools, hospitals and households both for water heating and for solar PV electric applications. 
Indicative Plan
The geographic proximity, the heavy population density, and the extent of the renewable energy resource base are such that a regional approach would provide least cost power delivery. The resources and demand data suggest MW size solutions are required and MW size resources are available. The electricity systems of the two districts of Arua and Nebbi particularly the load centres of Arua, Paidha and Nebbi Municipalities must be linked eventually, if economies of scale advantages are to be realized. 
An indicative plan for electricity development in the region is: 
A rapidly installed gas turbine (indicative size: 1.5 to 2 MW) located in Arua Municipality operating on diesel, kerosene or LPG (to be determined), and operating initially to provide immediate power to Arua town. Once mini-hydro capacity comes on line, this gas turbine would revert to its conventional role of providing peaking and back-up power for the hydro-based system;
A coffee husk gasifier (indicative size: 0.5-0.8 MW) located in Paidha, utilizing the residues from four mills in the immediate Paidha town region. This would be operated initially to meet Paidha and Nebbi Municipalities immediate demand, and would later revert to peaking and back-up status, as for the gas turbine in Arua;
 
Development of Nyagak as base generating plant for the Arua-Nebbi-Paidha West Nile regional system - civil work would commence on Nyagak when the ERT program becomes operational;
Transfer of transmission/distribution assets from UEB in accordance with the overall UEB restructuring strategy, and upgrading of that system where necessary, and interconnection by transmission line from Paidha to Nebbi using the existing transmission lines, and connection to Arua Municipality with a new transmission line via Nebbi along the Pakwach-Arua road, so as to serve both the districts; 
Later development of Olewa and other mini-hydro resources, as appropriate. 
The institutional aspects of this regional plan remain to be worked out, but the main principles are clear. First, the people and the leaders of the region want to have a stake in and are interested in making a financial contribution towards the provision of power supply. Since this would facilitate the development and operation of the power system, it should be provided for in formulating the institutional arrangements. Second, it is clear that there is a need for an experienced partner who is financially, technically and managerially strong, as the development of mini-hydro resources is new in Uganda and there is no experience in operating a power system independent of UEB. Third, the disposition of UEBs existing assets in this region should be in accordance with the overall power sector reform strategy in general, and the disposition of all of UEBs independent diesel systems in particular.
Kagadi Sub-County Independent Grid System
Background