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LEVERAGING COMMERCIAL INVESTMENTS
WHAT DOES IT TAKE?
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LESSONS LEARNED FROM
IMPLEMENTATION OF A SUCCESSFUL
PPP PROGRAM
The program is widely viewed as an emerging PPP success story, with Uganda now among
the top destinations for renewable Independent Power Producers (IPP) on the continent.
In this series of Lessons Learned brie ng notes, the implementation team re ects on
some of the practical challenges and key success factors associated with the program’s
design and implementation.
We strongly believe that the insights gained from implementation of the GET FiT Uganda
are relevant for implementation of other PPP infrastructure programs in Least-Developed
Countries (LDCs). This rst Lessons Learned brie ng note relates to leveraging investment
and working in partnership to achieve  nancial close on a portfolio of renewable IPPs.
Uganda was recently ranked #7 of 58 countries on Bloomberg’s Climate Scope 2016
ranking, beating its neighbour Kenya and the renewable energy heavy-weight Mexico
when it comes to the “conditions for renewable energy investment”. Besides South Africa,
it is the country in Africa with the most IPP plants being constructed – all of which are
renewable energy. Under GET FiT, some USD 428 million has been leveraged on USD 104
million of top-up grants, mostly via project nance. Perhaps more important, the program
has stimulated signi cant sector reform, reforms that have been truly market tested and
will have lasting impacts.
GET FiT Uganda is a Public-
Private Partnership (PPP)
program managed by KfW
in cooperation with the
Ugandan Government. The
program leverages commercial
investment in small-, and
medium sized Renewable
Energy (RE) projects in Uganda.
LEVERAGING COMMERCIAL INVESTMENTS
What does it take?
The GET FiT Program is a prototype for
a partnership between Government
and Development Partners: on
one hand a strong commitment
from the Government to get sector
policy and regulation right and
attract private investments; and
on the other, an impact-oriented
and cost-e cient synergy between
Development Partners.
WHEN IT COMES TO STIMULATING PRIVATE INVESTMENTS, GET FIT
UGANDA APPEARS TO HAVE PUSHED ALL THE RIGHT BUTTONS.
EU AMBASSADOR
Mr. Kristian Schmidt
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773
GW
6800
jobs
17
Pr jects
158 mw
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UNDER-CONSTUTION
6 Commissioned
The long term programmatic nature
of GET FiT Uganda has been key to
successfully financing a large RE
project portfolio.
The program has demonstrated the success
of simultaneously targeting the regulatory
framework, legal documentation and incentives
in a concerted e ort to pave the way for an
entire infrastructure portfolio. This is in contrast
to e orts to update just the policy framework
with no direct links to projects, an approach that
can lead to a duplication of e ort developing
transaction documents. We argue that the GET FiT
partnership is a living demonstration of what can
be achieved through an holistic, programmatic
approach coordinated between the Ugandan
Government and donors, with the resources and
staying power to see it through.
STATUS AS OF
JANUARY 2018
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A predictable and transparent path to
realizing projects.
A key characteristic of GET FiT is that during
the period of implementation, the program has
been truly inter-woven with the regulator’s (ERA)
own e orts to stimulate private investment in
renewables. The hybrid set-up combining Feed-
in Tari s for Renewable Energy (REFiT) with
competitively allocated grant top-ups by GET FiT
has proven highly e ective, giving con dence
to investors to put in the necessary high-risk
upfront development capital. The high degree
of consistency and trust between KfW, the GET
FiT Secretariat and domestic authorities provides
certainty to investors that a successful GET FiT
application will result in a signed Power Purchase
Agreement (PPA) and  nancial close.
HOW HAS GET FIT ACHIEVED THESE RESULTS?
Enabling RE project fi nance deals in
LDCs has required sustained efforts.
Achieving nancial close on a grid-connected
renewable energy portfolio is a case of preventing
any weak links in the chain of sector reform, tari
structures, contracts, approval procedures and
administrative capacity. This is work that requires
sustained and consistent e orts. For example,
drawing up bankable agreements that re ect
the nancial realities of both the o -taker and
government; a regulatory environment conducive
and supportive to investors; and, of course, the
nancial incentives that strike the appropriate
risk-reward balance.
3www.gett-uganda.org
KfW
Investment
Committee (IC)
Implementation
Consultant
GET FiT
Secretariat
Project selection and
payment commitment
decisions.
Appraisals,
recommendations,
supervision.
Staffing and day-to-day
management.
Developer follow-up, reporting
and communication, overall
program coordination.
KfW’s delegated authority from GoU and subsequent contractual
relationships underpins each layer of the governance structure.
ERA, MEMD
Facilitators
& Observers
Steering committee
GoU: MEMD,
MoFPED
Development Partners
(Norway, Germany, UK and EU)
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An exceptionally well-targeted and
designed subsidy mechanism.
Over the 20-yr PPA period, the GET FiT Payment
Premium Mechanism (GFPPM) accounts for 10-
15% of a typical project’s revenues. However,
this support is front-loaded, providing all of the
GFPPM revenues in the rst 5-years, adjusted to
actual production. This structure helps ensure
robust cash inows during early years, giving
particular comfort to lenders. As indicated in the
gure below, the tari top-up is estimated to have
improved the Financial Internal Rate of Return for
12 of 15 hydropower and biomass projects such
that they are now nancially viable. As with any
REFiT, the most attractive projects may get more
support than required to be viable. At the same
time, the GFPPM is results-based so a project
that fails to perform as expected will get less
support, which is a sound self-correcting feature
of GET FiT. All in all, the simple, predictable non-
discriminatory top-up approach has proven an
eective mechanism for attracting investors,
especially for small hydropower.
An eective implementation
structure.
Going from concept to nancial close has required
sustained eorts by a range of stakeholders. GET
FiT has committed signcant long-term nancial
and human resources into the implementation
structure, including signcant design activities,
targeted Technical Assistance, a long-term
implementation consultant, an Investment
Committee with extensive track-records and a
Steering Committee. The long-term commitment
and integrated team approach has allowed for
the building of trust and good cooperation, and
ensured sustained commitment from all the
stakeholders. The results-based nature of the
GFPPM has ensured that donors, in particular,
remain committed and proactive in finding
solutions.
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REALITY-CHECKS
Experience from implementation has revealed several reality-checks that
should inform future designs and implementation of PPP programs.
Leverage ratios are important KPIs but do not properly account for the value
of reform and lasting impacts.
On the face of it, the 4:1 leverage ratio achieved by GET FiT may be less than those reported by some programs/
investment vehicles, for example co-investment in a viable project in a middle-income country. The ratio must
be seen in the context of the country’s starting point, the relevant technologies and overall ambition levels of
the program in terms of lasting impacts. In implementing GET FiT, KfW has gone to work in a strong partnership
with the local authorities in a LDC, building the investment case of a portfolio of projects from the bottom-up –
stimulating reform, developing bankable documents and realizing viable taris. Decision makers must therefore
consider the achievable leverage ratio in light of the challenges the program has sought to overcome and the
transformational impacts it generates.
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Public sourced nance and Development Finance Institution (DFI) lending
will (and should) continue to play an important role in nancing renewables
particularly in LDCs.
We argue that the most important distinction is between capital reaping a fair return v. grants, rather than publically
v. privately sourced funds. It is important to appreciate that for renewable energy projects looking to achieve 10-
15% IRR, about half of the cost-reective tari stems from costs of capital (required rates of return). Thus, burdening
renewable projects in LDCs with high required rates of return will either make renewables a less attractive source
of power and/ or burden the population with higher sector costs. It is important to recognize that in developed
countries, public nance has always played a central role in building infrastructure.
Specically, for GET FiT Uganda:
I.
DFIshaveplayedacriticalroleduringthecourseoftheprogramandprovedtobethe“path-
breakers”asintendedbytheirmandates;
II.
DFI’slendingrates,tenorsandstructureoeracountrylowertarisforinfrastructureprojects
withsovereignrisksthanwouldbepossiblewithcommercialbanks,anditisquestionableLDCs
shouldbe“expected”tonancetheirinfrastructurewithloansfromprivatecommercialbanks;
III.
WhilecommerciallenderscouldhavepotentiallysteppedupintheabsenceofDFIs,theprojects
andultimatelyend-userswouldhavehadtoshoulderhighercostsofcapital;
IV.
Thesourcesofcapitalareincreasinglycomplexandintertwined,asarethepublicv.private
classications,thusblurringthelinesandusefulnessofclassications;
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5www.gett-uganda.org
International Environmental and Social standards and nancing are closely linked.
Experience from GET FiT Uganda is that developers perceive limited incentives to carry-out high quality E&S
documentation and preparations. In this regard, the GET FiT program has not only upheld IFC Performance Standards
as requirements but also eectively gave a nancial incentive in the form of the GFPPM. More generally, in terms
of expecting international E&S standards in LDCs, donors must be prepared to put in considerable eort and
cost-sharing resources – as these will not be fullled without such external support. Furthermore, as international
standards are ultimately “imposed” by the international community it is arguably a reasonable cost to be carried
by funders. Even with the DFI involvement in senior debt, the GET FiT implementation team had to be far more
involved in ensuring IFC Performance Standards were met than what was expected at the outset.
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No Short-cuts.
In terms of making infrastructure projects in LDCs
bankable and leaving a lasting impact, there are
no short cuts or innovative mechanisms that allow
development partners to avoid long-term commitment
or putting in place the right human resources.
Move from “private” investment to
a broader “commercial” investment
definition.
Especially in infrastructure in LDCs, goal hierarchies
which target private nancing are likely to be premature
and potentially costly for utilities and/or end-users.
Scalability of the GET FiT top-up
design.
The GFPPM mechanism has proven well designed and
targeted, and has been exibly applied to both REFiTs
and a solar auction. In terms of developed countries
shouldering some of the cost burden of renewables
and emission avoidance, this is a strong candidate-
model for scaling up climate nancing.
Development partners cannot be
spectators.
Successful investors recognize that they cannot simply
invest and await a return. Governments seeking
development support need to work closely with
prospective donors and donors should not expect
to simply grant, monitor and evaluate. A dening
aspect of GET FiT has been the active engagement of
donors in appreciating challenges and contributing to
solutions in a coordinated fashion under the umbrella
of the Steering Committee. In this manner, GET FiT has
ensured true sector coordination and a platform for
active donor participation.
KEY LESSONS
Concluding remarks to potential funders of future programmatic PPPs
targeting leverage and long-term policy impacts:
Additional specic nancial objectives will increase complexity.
In GET FiT Uganda, most nancial structures were quite similar involving private equity and a group of DFI lenders.
Objectives that go beyond a nancial package that oers the prospect of ecient achievement of nancial close will
not be realized unless specic conditions and resources are dedicated to them. Examples of alternative objectives
that were discussed by various GET FiT stakeholders included: ownership shares by local communities/ individuals;
general local content requirements; minimum commercial lending tranches; minimum local funding tranches (e.g.
pension funds); rural electrication near the project, and other CSR obligations. To realize any such ambitions the
program design must incorporate them from the beginning.
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7www.gett-uganda.orgwww.gett-uganda.org
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z
GET FiT Secretariat @ ERA House
Plot 15 Shimon Road, Nakasero | P.O. Box 10332| Kampala, Uganda
SUPPORTED BY
THE GET FiT
LESSONS LEARNED SERIES
program, which was jointly developed by the Government of Uganda, the Electricity
Regulatory Agency (ERA) and KfW was designed to leverage commercial investment
into renewable energy generation projects in Uganda. GET FiT is being supported
by the Governments of Norway, the United Kingdom and Germany as well as
EU through the EU Africa Infrastructure Fund. Multiconsult ASA of Norway is the
Implementation Consultant.
The main objective of GET FiT Uganda is to assist the country in pursuing a climate
resilient low-carbon development path resulting in growth, poverty reduction and
climate change mitigation. The program is fast-tracking a portfolio of 17 small-scale
renewable energy (RE) generation projects, promoted by private developers and
with a total installed capacity of 158 MW. This will yield approximately 770 GWh of
clean energy production per year and leverage close to MEUR 400 in investments
for RE generation projects with a limited amount of results-based grant funding.
A more comprehensive description of the tools and approaches applied by GET
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