2019 A n n u a l Re p o r t
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Executive Summary Executive Summary GET FiT Zambia is pleased to present the first Annual Report since the start of implemen tation in 2018 GET FiT Zambia is the official implemen tation programme of Zambia s Renewable Energy Feed in Tariff Strategy the Government of Zambia s strategy for promotion of private re new able energy invest ments With GET FiT Zambia the German and Zambian Governments join efforts to spur economic growth and lead Zambia on a climate friendly and sustainable development path The Annual Report introduces the Programme and its theory of change and reports on key develop ments and challenges during implementation Improving the investment environment for inde pendent power producers GET FiT Zambia aims to improve the investment environment for private sector participation in on grid small scale renew able energy development The Programme s main vehicle for development is the support of pub lic procurement of renewable energy power gene ration capacity laying the basis for a favourable environ ment for such investments and a renew able future The new power generation facilities will also directly benefit the Zambian population through a power mix that is more technically and geographic ally diversified that will deliver clean re newable energy and reduce the power system s vulnera bility to climate variability Record breaking results in Solar PV Tender Since its start GET FiT Zambia has already made significant progress The Solar PV Tender set new benchmarks for solar energy in Africa with the lowest prices ever reached in a public auction and also being the largest to date of its kind in SubSaharan Africa outside South Africa In 2019 GET FiT awarded six 20 MWac Solar PV projects devel oped by three separate consortia The projects and their promoters are presented in Chapter 4 of this report 4 Diversification of hydropower resources through private investments Meanwhile expec tations are built as GET FiT Zambia gears up for the procure ment of small hydropower projects In 2019 the Ministry of Energy with the support of GET FiT implemented efficient procedures for pre qualifying companies to participate in the Small Hydro Tender Prequalified companies applied and 22 entities were awarded rights to conduct Feasibility Studies for their selected sites in anti cipation of the Request for Proposals for the first round of procure ment The Small Hydro Tender is expected to be launched in 2020 and award a total of 50 MW through several projects each up to a maximum of 20 MW in capacity Considering the current heavy dependence on large hydropower plants in the Southern regions of Zambia a geo graphic diversification through privately owned hydro power plants will contribute to the country s energy security Efficient and transparent processes through standardised documentation and procedures A key objective of the Programme is to establish standardised documentation for private power producers GET FiT s support to the Ministry of Energy during the prequalification and pro cess of issuing Feasibility Study Rights for pro spective small hydropower projects have already given valu able experiences and contributions in the form of predictable efficient and transparent procedures Through the tenders standardised legal and transaction documents are developed Further to this GET FiT initiated a cooperation with the EU supported IAEREP Improved Access to Electricity and Renewable Energy Programme to review and improve the licensing framework for Independent Power Producers This way GET FiT Zambia will leave tangible contributions to accom modate for develop ment of future projects after the Programme has concluded
GET FiT Zambia Annual Report 2019 A lasting impact through capacity building and sector cooperation GET FiT Zambia s goal is to ensure that the experience gained through these procurement processes create a lasting and robust basis for continued renewable energy develop ment Close involvement of sector stakeholders in the process and capacity strengthening within engineering financial commercial and environ mental and social fields are a must to achieve this GET FiT Zambia integrates capacity building as part of the implementation support and also pro vides for structured targeted technical assistance to develop standardised processes and commer cial frameworks Equally important is improving the capacity for grid operations in a future with more renewable diversified and partly variable energy sources Particularly the cooperation between GET FiT Zambia grid experts and ZESCO has cre ated new insight into opportunities and limitations related to integrating re newable energy sources to the ZESCO grid An exciting year ahead At the end of 2019 GET FiT Zambia is pleased to conclude that good pro gress has already been achieved GET FiT Zambia has established a close and good working relation ship with all the stakeholders starting with the Ministry of Energy its Department of Energy the Energy Regulation Board and ZESCO Similarly a regular and open relationship is esta blished with the representatives from the success ful consortia in the Solar PV programme and pro spective tender ers for the Small Hydro programme with prospec tive providers of debt financing and risk miti gation instru ments as well as with develop ment assi stance partners supporting the develop ment of the energy sector in Zambia We feel assured that this creates a solid platform for continued progress of GET FiT Zambia in 2020 Strong efforts will go to supporting the Solar PV projects toward Financial close and construction phase eyeing commission ing of 120 MWac of clean re new able solar power in 2021 implementing a competitive and efficient Small Hydro Tender and continue working closely with all stakeholders for a re new able and green Zambian future 5
Message from the Investment Committee Message from the Investment Committee It is a great pleasure that we present you the first Annual Progress Report for the GET FiT Zambia Programme which is being sponsored by the German Ministry for Economic Cooperation and Development BMZ Behind us lies an exciting period of programme initiation and implementation and we were over whelmed by the positive response from the private sector This has been possible thanks to the strong commitment and ownership of the Government of Zambia The good market perception of the GET FiT Zambia programme also proves that the combi nation of results based premium payments on the existing Renewable Energy Feed in Tariff with standardised well structured and bankable Power Purchase and Implementation Agreements as well as a liquidity risk mitigation facility from ATI have convinced international developers that Zambia s energy sector is a promising market and that well targeted support can attract private sec tor investments into the energy sector in develop ing countries We have experienced an exciting and eventful year 2019 with a successful conclusion of the 120 MWac Solar PV Tender where 6 promising projects were selected at an average tariff of 4 41 USDc per MWh The winning bid of 3 99 USDc per KWh was even 6 the lowest bid achieved in any Solar PV procure ment in sub Sahara Africa outside South Africa Besides the Solar PV Tender awards the prequali fication process for the first 50 MW Hydro win dow under GET FiT Zambia has been concluded followed by the issuance of exclusive Feasibility Study Rights by the Ministry of Energy to a total of 22 developers The adjacent GET FiT tender pro cess is expected to be launched during the first half of 2020 On behalf of the German Ministry for Economic Cooperation and Development BMZ KfW is working together with all stakeholders to strive for financial close of the awarded 120 MWac Solar PV projects timely financial close and to support the further project development We are delighted that we have sourced additional funding from the German Government and from the UK to continue with the second round of the Programme a 50 MW Small Hydro window and to also develop the Solar Microgeneration component which aims for increased participation of Zambian Solar PV devel opers Financing Agreements with the Government of Zambia are projected to be signed in 2020 The Energy Regulation Board s long awaited approval of a tariff increase at the end of 2019 is expected to contribute to an improved financial
GET FiT Zambia Annual Report 2019 Dr Thomas Duve Chair of GET FiT Zambia Investment Committee sustain ability of the sector particularly ZESCO the state owned utility which acts as the central power off taker for the GET FiT projects This is one of several necessary actions to address the concerns of private developers and their financiers and to pave the way for the implementation of awarded Solar PV projects Despite the challenging fiscal environment the market interest in GET FiT Zambia remains high which could be witnessed through the high number of developers interested in the upcoming 50 MW Small Hydro Tender as well as continued inquiries about the Programme by developers 2019 has marked the successful start of the GET FiT Zambia Programme implementation but still a lot of work lies ahead of all stakeholders involved At KfW we remain committed to ensuring quality and progress of the Programme Dr Thomas Duve Chair of GET FiT Zambia Investment Committee Nevertheless to make the Programme a suc cess in terms of implemented renewable genera tion capacity it is critical that financiers will be able to build up a higher level of comfort especially regarding the off taker risk to support the imple mentation of the individual projects that have and will be awarded under the GET Fit framework To that end we encourage the Government of Zambia to continue seeking solutions to overcome the pertaining fiscal and energy sector related chal lenges to further establish and grow Zambia s rep utation as a reliable basis for private sector invest ment 7
Message from Ministry of Energy Message from Ministry of Energy The Government of Zambia aims to establish itself as a true market leader in Africa when it comes to pursuing a clean energy development path through the Energy Sector Vision Universal access to clean reliable and affordable energy at the low est total economic financial social and environ mental cost as highlighted in the Seventh National Development Plan 7NDP and Vision 2030 In its pursuit of this vision the Renewable feed In tar iff REFiT Strategy was developed and approved by the Cabinet in 2017 and the Ministry of Energy in partnership with KfW launched GET FiT Zambia as the implementation programme for the REFiT Strategy The objective of the Strategy is to diver sify the generation mix and increase access to clean energy sources through accelerating pri vate sector investment in small and medium sized renew able energy projects of up to 20 MW As Minister of Energy I am pleased to note that GET FiT made noteworthy progress in 2019 The successful conclusion of the Solar PV Tender was at the time the largest single Solar PV Tender imple mented in Sub Saharan Africa SSA outside of South Africa and it achieved some of the low est per kWh prices ever achieved in the market To take advantage of these low prices the Ministry increased the programme size to 120 MWac 8 We also have high expectations of contributing to increased access from the Small Hydro pro gramme The prequalification process completed in 2019 saw widespread interest and resulted in thirty 30 prequalified local and international enti ties The programme is expected to unlock small to medium scale generation across various provin ces of Zambia and further contribute towards the Government objectives of having a dispersed and diversified power generation mix that provides flexi bility to cope with the impacts of climate change The cost effective grid integration of all these pro jects will be made possible through a Grid Facility that will also be provided under the GET FiT Zambia Programme We believe this will allow these pro jects to act as catalyst for the expansion of the grid and increased electrification rates stimulating economic growth and job creation During 2019 the Government has been actively working towards creating an investor friendly and sustainable sector aiming at alleviating the fis cal and financial sustainability concerns raised by investors which has also impacted the pro gramme progress The progressive sector reform agenda promoted through these efforts culminated in the revised Electricity and Energy Regulation
GET FiT Zambia Annual Report 2019 Matthew Nkhuwa MP Minister of Energy Bills which were approved by Parliament in 2019 The upward tariff adjustments approved by the Energy Regulator is another bold but necessary step towards our goal of cost reflectivity This together with the Cost of Services Study launched in December 2019 is expected to ensure a tran sparent and fair process for determining the cor rect tariff levels for Zambia and in turn contribute to a more sustain able sector Ultimately GET FiT Zambia s success will be meas ured by the completion of these solar and hydro projects and their contribution to a diversified energy mix increased access to electricity and a more climate resilient Zambia The Government is looking forward to cooperating with Government of Germany through its Federal Ministry of Economic Cooperation and Development BMZ and KfW on the GET FiT Zambia programme in 2020 and beyond to ensure progress towards financial close and commercial operation for the whole portfolio Matthew Nkhuwa MP Minister of Energy 9
Table of Contents Executive Summary Message from KfW Message from Ministry of Energy 4 6 8 1 About GET FiT Zambia 13 2 Solar PV Tender 19 3 Hydro Tender 25 4 Portfolio 29 5 Stakeholders 35 6 A Sector wide Approach 39 7 Building on Lessons Learned 43 8 Financial Status 51 9 Programme Monitoring Risk Management 53 10 Outlook 63
Contributing to a climate friendly development path and sustainable growth in Zambia Impact Statement Photo AJ_Watt Getty Images
GET FiT Zambia Annual Report 2019 1 About GET FiT Zambia GET FiT Zambia is the official implementation programme of the Government of Zambia s Renewable Energy Feed in Tariff REFiT Strategy that seeks to contribute to a climate friendly development path and sustainable growth in Zambia The German funded GET FiT Global Energy Transfer Feed in Tariff programme is motivated by the acknowledgement of the wide range of pos itive sustainable effects that the develop ment of Renewable Energy RE projects can have for eco nomic and social development and the strong potential for such projects in Zambia Procurement and support of up to 205 MW of renewable energy capacity are at the heart of the Zambian REFiT strategy Additionally GET FiT Zambia aims to boost institutional capacity and improve the invest ment framework for private sector participation in the Zambian power sector It seeks to ensure trans parency in regulatory and commercial processes and strengthen power grid operations as a basis for integration of even more renewable energy into the future The Zambian Ministry of Energy in close co operation with KfW acting as the implementa tion agent is responsible for the implementation of GET FiT Zambia Within the Ministry of Energy the Department of Energy has been designated to overseeing the Programme and coordinate with ZESCO Limited as the off taker and the Energy Regulation Board as the issuer of the generation licenses GET FiT Zambia is the second roll out of the GET FiT concept successfully piloted in Uganda where it achieved approximately 160 MW of installed renewable energy capa city via 17 projects This way GET FiT Uganda established a track record for private sector partici pation and helped transform the Ugandan energy regulator into a role model in Africa GET FiT Zambia has been designed based on a variety of lessons learned and on the ground experience in Uganda while considering the country specific circum stances and barriers for private sector involve ment The objectives of GET FiT Zambia are Procurement of up to 205 MW of renewable energy capacity as GET FiT Zambia has become the official implementation programme for the Zambian REFiT strategy Contribution to diversify Zambia s power mix while ensuring cost effective and environmentally and socially sustainable projects to maximize value for Zambian end users Introduction of standardised legal documentation for Independent Power Producers IPPs in Zambia and improving regulatory licensing procedures Successful integration of the procured renewable energy into the national grid Promotion of competition and private sector participation in the Zambian power sector 13
About GET FiT Zambia Addressing Challenges in the Zambian Power Sector GET FiT is designed to address challenges and priorities of Zambia s power sector to establish a conducive investment framework for small scale renewables The Zambian power sector is currently facing a vari ety of challenges including load shedding after recur rent droughts in recent years weigh on the eco nomic development and the financial sustain ability of the sector especially with the national electricity utility ZESCO as single off taker The energy sector reforms introduced at the end of the year with the introduction of a revised Electricty Act and Energy Regulation Act is expected to increase the sector efficiency and improve the overall financial viablil ity Commitment to ensure the effec tive and expidi ent implementation of the new legislation together with continued private sector engagement is how ever needed to move the sector forward Any lack of predictability and transparency in how the sec tor finanical viability will be addres sed will contrib ute to an already challenging situation in the sec tor and may discourage potential private investors and lenders The figure on the following page illustrates how GET FiT Zambia specifically aims to assist the Government of Zambia s efforts to address the 14 challenges and priorities in the power sector con text and enable the sector to respond to the coun try s urgent needs for more sustainable power A robust results framework for GET FiT Zambia has been developed to ensure focus on the pro gramme objectives and effectively respond to the challenges in the sector The results framework illu strates the linkages from inputs and activities to the intended outputs outcomes and impact of the Programme Aiming at improving the framework conditions for private investments in on grid renewable energies the Programme goes beyond the implementation of 205 MW Through establish ing a track record of successful projects and tar geted Technical Assistance TA activities that will facilitate processes at key institutions for f uture IPPs GET FiT Zambia shall contribute to a strong and enabling investment environment and ulti mately achieve the intended impact contribute to climate friendly development and sustainable growth in Zambia
GET FiT Zambia Annual Report 2019 Zambian Context and Priorities Diversified generation mix Heavily dependent on large hydro on Zambezi Land locked with limited options Low cost generation expansion Politically charged sector policy environment Lack of IRP and uncertain expansion path Decentralised power system Large and dispersed country Expansion to benefit from dispersed generation Consistent long term planning Avoid cyclical investment planning that can lead to repeated power shortages Risk mitigation A need to diversity current and planned new sources Future developments uncertain GET FiT Contribution 205 MWs functioning IPP framework Solar and small run of river Tested framework to benefit country for years to come Solar and hydro a part of least cost mix Reverse auction for solar PV and fair pricing for small hydro through REFiT levels Geographically dispersed portfolio Up to 15 projects to be implementation of the portfolio A framework and competence for the future Gradual improvement and long term benefits Several years for implementation of the portfolio A framework and competence for the future A small portfolio with large potential Alternatives to risky large scale hydro Small scale IPP programs can be rapidly scaled up or down 15
About GET FiT Zambia Approach to Results Improved framework conditions for private investments in on grid renewable energies up to 20 MW ACTIVITIES OUTPUT Sphere of Control OUTCOME IMPACT Sphere of Interest Contributing to a climate friendly development path and sustainable growth in Zambia Sphere of Influence GET FiT aims to contribute to positive national development by improving the conditions for private investments in renewable energies 16 Increased small scale on grid RE at competitive cost PROCUREMENT TRANSACTIONS Avoided GHG emissions DEBT RISK MITIGATION FACILITY Effective grid integration of GET FiT portfolio VIABILITY GAP FUNDING Finance mobilised for the GET FiT portfolio GRID FACILITY E S sustainability and compliance ensured TECHNICAL ASSISTANCE
GET FiT Zambia Annual Report 2019 Addressing Barriers for Private Investments GET FiT s Toolbox is developed with the intended outcome of improved conditions for private investments in mind To ensure successful implementation of the 205 MW renewable energy portfolio and achieve the objectives of the Programme GET FiT has desig ned a set of tools in the results framework referred to as activities to address the barriers for private sector involvement Some of the key bar riers are highlighted in the following section fol low ed by a description of the tools designed to address them Lack of transparent and credible procurement efforts amongst investors The Zambian power sector has limited experi ence in procuring generation capacity that involves private actors The ability of the main power offtaker ZESCO to enter into long term power pur chase agreement is also seen as an uncertainty for potential early movers in this largely untested mar ket Through transparent and efficient procurement processes GET FiT will establish a strong port folio of privately financed renewable energy pro jects and build a track record of successful IPPs in Zambia to increase confidence in the market Inability of individual small projects to mobilize financial resources Going through the process of due diligence and obtaining financing for a small project in a new market can be a difficult undertaking particularly considering the financial situation of the energy off taker GET FiT provides support in the dialogue with lenders and facilitates risk mitigation instru ments to link available financing with bankable pro jects High cost of capital for renewable transition and a new and untested REFiT regime In a new market with significant perceived risks the cost of capital is high REFiTs have been imple mented but are still untested and there is uncer tainty as to whether the tariffs will satisfy devel opers required rate of return GET FiT s Viability Gap Funding for small hydro projects targets this uncertainty Through awarding projects based on develo pers bids GET FiT introduces a competitive element in the Viability Gap Funding Developers individual required subsidy levels will be a criterion in the project evaluation Capacity constraints for integration and operation of decentralised intermittent RE ZESCO has limited experience with the inte gration of intermittent renewable energy In addition the connection of the GET FiT projects to the grid will require additional financing beyond ZESCO s means GET FiT provides technical assistance to ZESCO to ensure a successful integration of the portfolio through the GET FiT Grid Facility which also reserves funds to close eventual funding gaps for grid connections Skills gaps and capacity constraints in becoming a credible counterpart to investors Without standardised practices documents or proce dures in place IPPs lack oversight and predict ability of the develop ment processes GET FiT works closely together with the authorities to establish clear and transparent processes and standardised IPP documentation and provides structured capacity building and technical assis tance for key stakeholders 17
About GET FiT Zambia The GET FiT Toolbox GET FiT Zambia s tools are tailored towards current barriers in the Zambian power sector Barriers Lack of credibility amongst investors that procurement efforts will result in execution Individual small projects unable to attract appropriate financing and assosiated DD High cost of capital for renewable transition and new REFiTs yet untested Capacity constraints for integration and operation of decentralised intermittent RE Skills gaps and capacity constraints in becoming credible counterpart to investors 18 GET FiT Tools PROCUREMENT TRANSACTIONS DEBT RISK MITIGATION FACILITY VIABILITY GAP FUNDING PROCUREMENT TRANSACTION The GET FiT Programme is tasked with the procure ment of new renewable generation capa city The Solar PV Tender successfully concluded in April 2019 with award of a total of 120 MW while a tender for small hydropower projects is planned for 2020 DEBT RISK MITIGATION FACILITY The Risk Mitigation Facility will be implemented in close collaboration with African Trade Insurance ATI as an option for developers and financiers It combines ATI s existing Termination Guarantee i nsurance with a new short term liquidity product Regional Liquidity Support Facility which was jointly developed by ATI and KfW VIABILITY GAP FUNDING GET FiT offers performance based tariff support for a limited portfolio of qualifying REFiT projects In effect Viability Gap Funding facilitates the entry of early movers from the private sector into the nascent renewable energy market in Zambia GET FiT Zambia has not applied Viability Gap Funding toward solar PV projects GRID FACILITY GRID FACILITY The Grid Integration Component of the GET FiT Program consists of two different elements GET FiT has provided advisory support to ZESCO regarding grid integration of solar PV into Zambia s national grid GET FiT will also provide financing for grid integration for select technologies such as hydro TECHNICAL ASSISTANCE TECHNICAL ASSISTANCE GET FiT is providing capacity building programmes for key sector stakeholders as part of the Technical Assistance facility Particular focus points of these programmes are project support for the small hydro portfolio as well as grid integration of renewable energy into the Zambian grid
GET FiT Zambia Annual Report 2019 2 Solar PV Tender At the time of award of six Solar PV projects with a combined 120 MWac capacity in April 2019 the GET FiT Zambia Solar PV Tender was the largest single Solar Photovoltaic PV tender implemented in Sub Saharan Africa SSA outside of South Africa and the first public tender in SSA to achieve a tariff below 4 USDc kWh The procurement of Solar PV projects was the first stage of implementation of the REFiT Strategy The Solar PV Tender aimed at procuring up to 100 MWac of grid connected solar PV at competi tive prices and with acceptable technical stand ards Successful completion of this procurement would create a valuable precedent for procurement of new renewable investments under the REFiT Strategy and make a timely contribution to meet ing growing energy demand in Zambia Developers and investors were allowed to participate in the tender with a maximum of two projects each with a maximum size of 20 MWac The Solar PV Tender was designed to deliver least cost electricity for Zambian consumers while contri buting to the diversification of Zambia s power mix and ensuring cost reflective tariffs for Zambian end users It was run as a reverse bid auction with ZESCO as the off taker selecting pro jects based on price competition among techni cally sound projects The tender had a target outcome of a total of 100 MWac but due to the favourable results and the GET FiT Investment Committee s IC recommen dation the Government of Zambia GRZ allow ed an additional 20 MWac At a press briefing in Lusaka on 5th April 2019 the Ministry of Energy s Permanent Secretary thus announced the award of six Solar PV IPPs projects totalling 120 MWac under the GET FiT Zambia Solar PV Tender 19
Solar PV Tender Solar Tender Process 2018 April RfQ Phase Request for Prequalification launched June Appraisal 27 Submissions received June 10 Firms Shortlisted IRGA Interim Rapid Grid Assessments carried out on proposed sites August RfP Phase Request for Proposals issued 10 Shortlisted Firms invited to submit proposals November Bid Appraisal 8 Consortia submit proposals for 15 Projects 2019 April Award 6 solar PV IPP projects totalling 120 MWac are awarded to 3 Consortia 2 consortia awarded Reserve status 20 March IC Meeting IC selects projects to be awarded
GET FiT Zambia Annual Report 2019 The MoE Permanent Secretary announcing the results for the solar tender during a press conference held to announce the results In attendance was the German Ambassador the KfW Country Director Journalists and representatives of the consortia that had submitted bids Record Setting Results A range of factors contributed to the record setting GET FiT Zambia Solar PV Tender the first to achieve a tariff below 4 USDc in SSA Competitive Tender Process The Solar PV Tender was run as an international competitive bidding procedure pursuant to KfW Guidelines for Procurement of Goods Works and Associated Services in Financial Cooperation with Partner Countries August 2016 The effectively run tender process commenced with a Request for Qualification RfQ Following 23 RfQ submissions the GET FiT Secretariat asses sed the qualifications and conducted pre liminary Interim Rapid Grid Assessments IRGA 10 con sortia were invited to submit up to two project pro posals at the Request for Proposal RfP stage 8 consortia delivered proposals for 15 projects All 15 project submissions were subject to detailed evaluation including site visits to confirm high tech nical standards 11 of the 15 sub missions passed all minimum technical criteria Both the technical and financial scoring were presented to the GET FiT Zambia Investment Committee consist ing of 5 inde pendent regional experts Through the efficient implementation of the ten der ensuring a timely process full transparency and high level of predictability for bidders GET FiT reduced the cost and risk for participation which translated into record breaking prices that will benefit the sector and Zambian stakeholders The lowest successful bid came in at 3 999 USDc kWh with the weighted average of all six successful pro jects at 4 41 USDc kWh 21
Solar PV Tender High Standard of Projects and Consortia An important aspect of the tender design was to ensure compliance with technical requirements and the International Finance Corporation IFC Environ mental and Social E S Performance Standards Bidders were also required to propose capacity building programmes for knowledge transfer These elements were included in the tech nical evaluation criteria and ensured a high stand ard of projects and developers with strong imple mentation capacity The awarded consortia all consist of reputable companies with Solar PV track record in Africa with each of the successful consortia having passed in the highly competitive pre qualification process of which they were among ten shortlisted consortia that were invited to submit comprehensive techni cal and financial proposals In addition to the successful bidders two con sortia which had also submitted bids for two pro jects with a total of 40 MWac each were awarded Reserve Bidder status These consortia can be called upon to develop their projects should any of the awarded consortia not be able to meet the require ments for the post award stage Project Site Selection In the GET FiT Solar PV Tender bidders were free to select project sites that were presented at the RfP stage The self selection of project sites gave bidders an opportunity to choose sites which they determined had the best factors that they could optimise to obtain more energy as well as reduce their initial investment and operation costs Expected Outcomes Benefits Contributing to Affordable Clean Power in Zambia The GET FiT Zambia Solar PV project portfo lio will once realised support the ambitions of the Zambian Government s Vision 2030 making a valu able contri bution to the efforts of expand ing access to affordable reliable and clean power while also diversifying the power generation mix The GET FiT Solar PV projects will especially rep resent a cheap source of energy for ZESCO and contribute to narrowing their revenue gap Combined with the Scaling Solar projects the GET FiT Zambia Solar PV Tender results solidify Zambia as a true market leader in Africa when it comes to pursuing a clean energy development path Local Capacity Building and Training All the successful bidders in the Solar PV Tender have committed to local capacity building pro 22 grammes in the field of solar PV project develop ment and plant operations and mainten ance Developers will develop and run training pro grammes for Zambian graduates and will host a series of training workshops with local universities They will also be required to train unskilled work ers from villages settlements near the Project Site in O M of solar PV projects Where are we now All projects in the Solar project portfolio are required to comply with requirements that were given to the consortia The post award requirements and mile stones have been laid out for the process to ward construction start aiming at the completion of all projects in 2021 The portfolio section of this report provides more information on the projects in the GET FiT Zambia Solar PV portfolio
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GET FiT Zambia Annual Report 2019 3 Small Hydro Tender After the successful Solar PV Tender the second procurement round of GET FiT Zambia the Small Hydro Tender will target development of hydropower projects up to 20 MW The Small Hydro Tender is prepared in close collab oration with the Ministry of Energy MoE Similar to the Solar PV Tender the small hydro component will also be implemented through public tender processes but instead of the price being deter mined through a reverse auction it will be based on the REFiTs determined by the Zambia Energy Regulation Board and the bidders required tariff top up Through successive RfP windows in 2020 and 2021 GET FiT aims to award successful bidders the right to develop projects and to access GET FiT Viability Gap Funding support and Shallow Grid Connection compensation Through the realisation of these projects GET FiT will contribute further to diversifying Zambia s power generation port folio reduced hydrological vulnerability through geographical decentralisation of plants leverag ing private finance into the hydropower sector and ultimately provide affordable clean and reliable energy to the population Standardisation of Documentation The REFiT Strategy is envisaged to expand the renewable energy deployment by creating a plat form to remove barriers and provide effective processes for licensing and technology based standardised PPAs to increase private sector involvement in power generation GET FiT Zambia is thus designed to be the pioneer in realising a first group of renewable IPPs One of the means for achieving this is by the development of standard ised transaction documents and standardised pro cesses Prequalification The initial step in the Small Hydro Tender process was the prequalification procedure which was launched in January 2019 with a submission dead line in February 2019 30 entities were pre qualified on the basis of passing minimum technical and financial criteria Successful prequalified develop ers were thereafter eligible to apply for Feasibility Study Rights FSR from MoE If granted FSR by the MoE the FSR would form the basis for the entities to subsequently participate in the GET FiT Zambia Small Hydro Tender RfP Additional prequalification rounds may be implemented as required Feasibility Study Rights Process As with the Solar PV Tender prequalified devel opers were expected to find their own sites Prequalified developers require FSR to carry out studies to determine the capacity of the project that can be developed at their chosen site the pro ject area that will be required and the optimal tech nology design that will best suit the location All these elements are essential to support the devel opers in determining the expected project costs as well as determining the hydrological potential and resource availability to determine if the project would be feasible 25
Small Hydro Tender Tanzania Democratic Republic of the Congo Angola Kasama Chinsali Mansa Solwezi Ndola Chipata Kabwe Mongu Lusaka Choma Zimbabwe Namibia The MoE put a Moratorium for Feasibility Study Rights FSR for Small Hydropower Projects SHP of up to 20 MW in September 2018 This was done to ensure that as the REFiT Strategy is being imple mented SHP of up to 20 MW would thereafter fol low a standardised process with standardised documentation In May 2019 the Moratorium was lifted and enti ties that had pre qualified for the GET FiT Zambia Small Hydro Tender were invited to apply for FSR All prequalified developers including those that already held FSR issued by MoE were expected to resubmit an FSR application for their preferred pro ject site s in order to be issued with revised stand ardised documents This process ensured that all developers that intended to participate in the GFZ 26 Site with allocated FSR Small Hydro Tender were issued with the same standardised FSR Approval Letter and terms and conditions by the MoE Through this process the MoE and the GET FiT Zambia Secretariat have col laborated to establish standardised trans parent and efficient procedures which will be adapted for future FSR processes It should be noted that the FSR process for projects up to 20 MW does not apply only for the GET FiT Zambia SHP partici pants The GET FiT process will pioneer the new standardised FSR process and documentation and contribute to establish processes that will be required under the new Electricity Act In September 2019 24 entities applied for FSR and the MoE allocated FSR for 39 sites to 22 success ful entities
GET FiT Zambia Annual Report 2019 Small Hydro Tender Process 2019 January PQ Phase Request for Prequalification launched May Appraisal May 30 Entities prequalified FSR Process MoE commences process for applications for Feasibility Study Rights from prequalified firms November FSR Granted November MoE Grants 22 Entities FSR IRGA Interim Rapid Grid Assessments carried out 2020 First half RfP Launch Request for Proposals to be issued to prequalified bidders 27
Small Hydro Tender Interim Rapid Grid Assessments IRGA One of the key conclusions from the from the GET FiT Zambia Solar PV Tender was the importance of carrying out Interim Rapid Grid Assessment IRGA The IRGA is an important tool to ensure that pro jects that have been selected can be integrated into the ZESCO grid and that the power generated can be economically evacuated in some instances from remote locations which require long connec tions to the grid The IRGAs are high level screen ings carried out for all project sites to assess and identify the obvious limitations in the grid that may prevent safe integration of the various projects due to their site location and the grid availability In August 2019 the GET FiT Zambia Secretariat in close cooperation with ZESCO Transmission and Distribution staff carried out an IRGA on the pro ject sites that were granted FSR by the MoE The key output of the IRGA is to provide develop ers with information on the feasibility of connect ing their projects to the ZESCO grid based on the relevant minimum technical and grid code require ments for the connection This includes a high level economic viability assessment taking into account the potential costs and line losses given the project site distance from the grid The IRGA will thus ena ble developers to decide whether it is recommend able to proceed with the development of their pro jects from a grid connection viewpoint GET FiT Zambia Small Hydro Tendering Process Structure and Design The first hydropower RfP round will be referred to as RfP 1 which will have a total combined capacity of up to 50 MW RfP 1 shall comprise two separate Tender Pools which will be referred to as Tender Pool 1 and Tender Pool 2 GET FiT Zambia will allocate a combined installed capacity of up 28 to 5 MW for Tender Pool 1 and up to 45 MW for Tender Pool 2 Bidders will be allowed to submit only one 1 Proposal for either Tender Pool 1 or Tender Pool 2 Unlike the Solar PV Tender tariffs for the hydro tender have already been established The REFiTs for small hydro projects were developed by ERB with support from Power Africa s Southern Africa Energy Programme and GET FiT Zambia These REFiTs will be the base tariff used in PPAs for pro jects supported under the GET FiT Small Hydro Tender GET FiT Zambia will provide premium payments covering eventual gaps between the REFIT and the computed generation tariff The premium pay ments are referred to as the Viability Gap Funding All the submitted project proposals will be required to comply with minimum Technical and E S Requirements including both national and IFC Performance Standards The selection of projects will be subject to a comprehensive assessment of technical environmental and social and finan cial viability and will be considered by the GET FiT Investment Committee which consists of four independent experts GET FiT will continue to fol low the project development process post award with a special focus on continued environ mental and social compliance GET FiT will continue to follow up the portfolio of awarded projects to ensure compliance with post award requirements and milestones laid out for the process toward financial close and construction start Through active portfolio management and effective implementation processes the ambition is to achieve completion of all projects by 2023 2024
GET FiT Zambia Annual Report 2019 4 Awarded Project Portfolio In 2019 GET FiT Zambia awarded six Solar PV projects to three consortia who were awarded two projects of 20 MWac each representing a total of 120 MWac These projects will contribute to geographical and technological diversification in the Zambian energy mix and are presented in this section GARNETON North South Democratic Republic of the Congo Tanzania Developer InnoVent CEC Region Copperbelt Size 40 MWac Generation 113 GWh yea r Tariff 4 80 USDc Mansa Chinsali Solwezi Angola Kafue Ndola Zambia SOLA 1 2 Malawi Kabwe Developer Globeleq SOLA Region Kafue Size 40 MWac Generation 120 GWh year Tariff 4 52 USDc Lusaka BULEMU West East Choma Botswana Chipata Developer Building Energy Region Kabwe Size 40 MWac Generation 126 GWh year Tariff 3 99 USDc Zimbabwe 29
Awarded Project Portfolio Building Energy PGE Bulemu West East Record low solar PV tariff of 3 999 USDc kWh achieved through a public tender in Sub Saharan Africa The Project is promoted by Building Energy South Africa Pty and Pele Green Energy Pty Ltd through their respec tive subsidiaries The Bulemu West and Bulemu East Solar PV Projects will be located near the Bulemu Village in the Chisamba District Central Province The Project site is 130 hectares ha of customary land and falls under the owner ship of Bulemu Village An option to lease has been signed between Building Energy the Bidder and the local Chief Bulemu REGION CAPACITY in MWac PLANNED GENERATION in GWh year TARIFF in USDc Kabwe 40 126 3 99 The envisioned projects are two 20 MWac 28 6 MWp solar PV plants with an estimated annual generation of 126 GWh The projects will utilize high power bifacial modules mounted on a horizontal single axis tracking solution The power will be evacuated via a 1 5 km 88kV transmission line feeding to the Kabwe substation The project site currently contains a few households and agri cultural fields and thus the developers are working with authorities to ensure that the impact of displacement is mini mised and in line with local regulations and IFC performance standards The scheduled commercial operation will be rea lised six 6 Months after the Effective Date of the PPA Building Energy S p A is an independent power producer that develops and invests into renewable energy genera tion projects globally with the majority of operational assets being located in the home market and the US Through its South Africa subsidiary Building Energy South Africa Pty Ltd Building Energy has a growing portfolio in Sub Saharan Africa including operational wind and solar PV projects in South Africa and Uganda and projects in late planning stages in Mali and Cameroon South African Pele Green Energy Pty Ltd is an independent power producer with an operational solar PV project with 36 MWac installed capacity in South Africa and a small number of projects with less than 5 MWac capacity
GET FiT Zambia Annual Report 2019 Globeleq SOLA Sola 1 2 Maximizing solar yield gain through bifacial modules The Project is promoted by a Consortium consisting of Globeleq Africa Holdings Ltd through its subsidiary Globeleq Holdings Zambia Ltd with a 51 ownership and SOLA Assets Pty Ltd previously Aurora Power Solutions Pty Ltd and part of the SOLA Group with 49 ownership of the consor tium Sola REGION CAPACITY in MWac PLANNED GENERATION in GWh year TARIFF in USDc Kafue 40 120 4 52 The Sola One and Sola Two Solar PV Plants are located 5 km north west of Kafue Town in Kafue District of Zambia s Lusaka Province approximately 40 km south west of Lusaka The project feasibility area covers a total area of 246 hectares ha of which up to 140 ha will be required The Project consists of 2 x 20 MW solar PV Plants with a combined estimated annual generation of 120 GWh A 4 km long 33 kV power evacu ation line will connect the Project site to the ZESCO owned Kafue Town Substation Globeleq is an IPP that develops owns and operates power plants utilising various technologies across the African conti nent Globeleq s portfolio consists of 13 operational projects in 5 different African countries totaling more than 1400 MW and more than 2000 MW in the development pipeline SOLA Assets is the utility scale solar development arm of the SOLA Group and was one of the first solar PV developers in South Africa in 2008 when they were established as Aurora Power Solutions SOLA Assets has successfully developed more than 313 MW of solar PV projects and is also active in the corporate PPA market The Consortium has secured its rights to the under a full Lease Option Agreement between the landowner and the Bidder The site is flat and with good geotechnical conditions The site has been leasehold land for a number of years and the area consists of a few open areas alternating with woodland used occasionally for livestock grazing by the landowner The proposed substation enables the generated solar power to be supplied to the main north south high voltage backbone of the Zambian grid The scheduled commercial operation will be realised seven months after the Effective Date of the PPA 31
Awarded Project Portfolio InnoVent CEC Garneton North South 50 MWp of Solar PV squeezing into a long and narrow wayleave corridor The Garneton Projects are promoted by a Consortium consist ing of InnoVent Renewable Energy Zambia Ltd and Copperbelt Energy Corporation Ltd CEC The two projects under develop ment Garneton North Solar and Garneton South Solar are located near Kitwe in the Copperbelt province Zambia The pro jects will each be rated for 20 MWac and will consist of 25 MWp of state of the art bifacial PV modules mounted on a single axis tracking system The projects will have an estimated combined annual generation of 113 GWh and the energy will be evacuated via a 10 km 33 kV powerline connected to the ZESCO grid The project sites are located within a long and thin wayleave corridor with a North South orientation a rather novel layout exempli fying the adaptability of the technology Garneton REGION CAPACITY in MWac PLANNED GENERATION in GWh year TARIFF in USDc Copperbelt 40 113 4 80 InnoVent SAS the mother company of InnoVent Renewable Energy Zambia Ltd is a French developer of wind and solar projects Currently the group has operational power plants in France and Africa with a total capacity of 516 MW The Copperbelt Energy Corporation Plc is a Zambian incorpo rated power transmission generation and distribution com pany and a developer of energy infrastructure The company owns operates and maintains power transmission generation total 80 MW energy power generation capacity and distri bution assets servicing customers in Zambia and the Democratic Republic of Congo Since CEC is the owner of the land it is leasing the portion of land to the SPVs Land Lease Agreements have been signed between the Bidders and the Owner The project sites cover a total area of 105 hectares ha Despite this pre existing land owner ship parts of the land have still been used by locals for subsistence crop farming and InnoVent CEC has been working with authorities to ensure that effects on these people are mini mised and in line with local regulations and IFC performance standards The scheduled commercial operation will be realised seven 7 Months after the Effective Date of the PPA
Garneton Solar Site Photo CEC Innovent
Photo PobladuraFCG Getty Images
GET FiT Zambia Annual Report 2019 5 Stakeholders In partnering with Zambian stakeholders GET FiT Zambia also strives to boost institutional capacity and strengthen the policy and regulatory frame work for renewable energy IPPs in Zambia The GET FiT Zambia Programme is implemented by the German Government through KfW and the MOE as Executing Agency Funding of the Programme is provided by the German govern ment In addition a multitude of Zambian stake holders such as the Energy Regulation Board ERB ZESCO and Office for Promoting Private Power Investment OPPPI under the MoE are involved in the Programme as well as other coop erating inter national organi sations including the African Trade Insurance Agency ATI The main stakeholders of the Programme are presented on the following page 35
Stakeholders Role of Main Stakeholders MINISTRY OF ENERGY GET FiT Zambia is a partnership between the Government of the Republic of Zambia and the Federal Republic of Germany The MoE is responsible for executing the Programme on behalf of the Government of Zambia The Department of Energy plays a key role in working with the GET FiT Secretariat and facilitates stakeholder engagement KFW KfW s funding to the Zambian energy sector aims to expand and improve infrastructure for electricity generation KfW has been helping the German Federal Government to achieve its goals in development policy and international development cooperation for more than 50 years Strengthening the development capacity of African states and mitigating climate change worldwide are both priorities for German Development Cooperation KfW in close cooperation with the Zambian Ministry of Energy is responsible for the implementation of GET FiT Zambia GERMAN COOPERATION The German Federal Government and primarily the Federal Ministry for Economic Cooperation and Development BMZ facilitate programmes and projects in developing countries and emerging economies from their conception and execution to monitoring their success Many of these programmes and projects are financed and supported through KfW The BMZ is currently supporting projects in 42 partner countries that are designed to disseminate renewable energies ENERGY REGULATION BOARD ERB has the responsibility to ensure that utilities earn a reasonable rate of return on their investments that is necessary to provide a quality service at affordable prices to the consumer In order to carry out this role the ERB among other functions ensures that all energy utilities in the sector are licensed monitors levels and structures of competition investigates and remedies consumer complaints The ERB was tasked with the responsibility to determine REFiTs to be used in the Programme and is responsible for issuing of the generation licenses ZESCO ZESCO Limited is a vertically integrated electricity utility which generates transmits distributes and supplies electricity in Zambia It is a public utility with the Government of the Republic of Zambia being a sole shareholder ZESCO will be the main off taker of energy delivered from GET FiT Zambia projects AFRICAN TRADE INSURANCE AGENCY With the support of KfW ATI developed the Regional Liquidity Support Facility RLSF The RLSF is designed to help IPPs developing renewable energy projects in Africa to obtain the liquidity they need in the event that their off taker delays payment 36
GET FiT Zambia Annual Report 2019 Programme Governance GET FiT Zambia is managed by the GET FiT Secretariat in Lusaka guided by an Investment Committee and overseen by the German and Zambian Government Financiers Investment Credit Insurance Liquidity Support Termination Guarantee Debt Equity Implementation Agreement Projects Developers ZESCO PPA Ministry of Energy Ministry of Finance Government of Zambia Financing Separate Agreement GET FiT Secretariat Financing Separate Agreement Implementation Support Tender Agent KfW Procurement Advisory GET FiT Investment Committee Cooperation Agreement BMZ Donor Programme Entities Other Stakeholder 37
Stakeholders The Secretariat Office at ERB s facilities in Lusaka GET FiT Investment Committee The GET FiT Zambia Investment Committee IC guided the implementation of the Solar PV Tender and an IC has also been appointed for the imple mentation of the Small Hydropower tender The purpose and role of the members of the Investment Committee is to appraise the propos als for GET FiT projects that are submitted under the GET FiT Zambia tenders in accordance with the applicable guidelines The IC also assists the GET FiT Secretariat from time to time by provid ing general policy guidance to programme stake holders including preparation of the tender docu mentation and design of evaluation criteria for the programme s tenders In accordance with the GFZ Operational Guidelines the IC is comprised of five independent experts with backgrounds in renewable energy and project finance in Sub Sahara Africa 38 The GET FiT Zambia Secretariat The GET FiT Secretariat is responsible for the dayto day operations of the GET FiT process The Secretariat is located at the ERB s f acilities in Lusaka and managed by the GET FiT Zambia Pro gramme Implementation Consultant Multiconsult Norge AS The Secretariat ensures timely and efficient imple mentation of the Programme serving as the main point of contact for all stakeholders The Secretariat provides comprehensive commercial technical and administrative support in the effort to realize GET FiT s portfolio of small to medium scale renewable projects A range of capacity building activities are undertaken as an integrated part of the Secretariat s activities in addition to the management of the Technical Assistance Facility Two full time employees are in charge of the dayto day Secretariat management supported by the Programme Implementation Consultant s broad team of experts The Secretariat works closely with the Department of Energy in the execution of its activities
GET FiT Zambia Annual Report 2019 6 A Sector Wide Approach With the objective of improving the investment framework for private sector investments in small renewable energy at large GET FiT Zambia is more than a renewable energy promotion programme GET FiT has a strong focus on activities that go beyond the implementation of the tender aiming at leaving capacity to continue on the climate friendly path toward a sustainable energy future GET FiT works closely with stakeholders across the sector to identify opportunities for improvement of capac ity and procedures synergies with other activities and to spread knowledge about best practice in renewable energy procurement Some of the sec tor wide activities of GET FiT Zambia are high lighted below Strengthening capacity for Renewable Energy Development The GET FiT Zambia Technical Assistance Facility provides for targeted capacity building designed to support GRZ and other Zambian GET FiT stake holders in the operationalisation of the regulatory and administrative environment for private sector investment in small scale re newables and to ramp up required technical skills A central topic for the Technical Assistance Facility is effective grid inte gration to ensure efficient power system operations The Secretariat s close cooperation with ZESCO in planning for grid integration of GET FiT projects combined with various studies and other technical assistance will ensure future efficient management of a power generation portfolio characterised by an increasing number of small independent renewable energy power producers Capacity building is provided as an integrated part of the Programme Implementation Consultant s daily activities Various experts within engineering finance procurement and other fields relevant for renewable energy development that are involved in the implementation work closely with Programme stakeholders to ensure that the GET FiT process is safely embedded among capable and knowledge able actors and leaves a trail of replic able and standardised processes for future renewable energy development Furthermore the Secretariat also manages Programme funds for Technical Assistance identi fying relevant topics for assignments and studies to be outsourced to specialized experts 39
A Sector Wide Approach E S Capacity Building GET FiT Zambia places strong emphasis on envi ronmental and social sustainability and compli ance of projects with IFC Performance Standards The experience from GET FiT Uganda has shown that early interventions to support developers and strengthen E S capacity has positive effect on project compliance throughout development and implementation of the projects Observed bene fits include reduced project implementation time lines and improved prospects for reaching finan cial close In November 2018 more than 100 participants attended a workshop hosted by the GET FiT Secretariat on compliance to IFC Performance Standards The positive turnout to this event under scores a high level of awareness around this topic and the market s interest in GET FiT and its capac ity building programmes Improving the Zambian IPP Licensing Framework Partnership With IAREP GRZ with the support of the European Union EU is implementing the Increased Access to Electricity and Renewable Energy Production project IAEREP TA1 whose overall objective is to increase access to clean reliable and affordable energy and promote renewable energy produc tion and energy efficiency across Zambia GET FiT Zambia and IAREP have identified areas of syn ergy given some of their common objectives and in early 2019 agreed to cooperate to support GRZ in its endeavour to strengthen the IPP licensing framework including recommending revisions to and greater alignment between existing regulatory licensing and permitting processes Based on consultations with developers financiers and development institutions as well as desk stud ies on regional licensing best practices the team of consultants have collected inputs concerns and recommendations for an initial analysis of the existing regulatory process The IPP Frame work will also take into account the Electricity Act No 11 of 2019 and Energy Regulation Act No 12 of 2019 approved by Parliament in December and effected into law in early 2020 Workshops with government stakeholders were held in December to present and discuss the con sultants recommendations for improvements to the ERB s regulatory licensing process as well as OPPPI s Power Sector Development Framework EU ERB MoE IAREP and GET FiT Zambia representatives after workshops with government stakeholders were held in December to discuss consultants recommendations for improvements to the ERB s regulatory licensing process 40
GET FiT Zambia Annual Report 2019 IPP Framework The outcome should be more streamlined and bankable licensing processes and appropriate guidance to private sector entities seeking to invest in the power sector in Zambia on all the required regulatory and legislative process to follow GET FiT Zambia Knowledge Sharing GET FiT shares experiences and knowledge about best practice in renewable energy procure ment and strengthening investment conditions at various national and international sector related events The Programme continues to get positive attention by policy makers and investors as a suc cessful example of small scale renewable energy pro motion in Africa In 2019 GET FiT Zambia was represented at several conferences some of which are described below GET FiT Zambia at African Energy Forum AEF 2019 GET FiT Zambia hosted a panel discussion at the AEF the global investment meeting for Africa s power energy infrastructure sectors which was held 11 14 June 2019 in Lisbon The panel session on Realising Renewable Investments in Zambia covered a range of top ics including the current state of the power sec tor in Zambia the outcome of the record breaking GET FiT Solar PV Tender and the challenging path ahead to execute the solar projects The panellists provided their insights as to key issues that need to be addressed in the sector as well as offered advice as to achieving financial close on the GET FiT solar projects These discus sions drew upon the country and transaction ex perience of the distinguished panel It was clear that Zambia is an interesting market when it comes to re new ables however while developers are com mitted to realizing the projects lenders remain con cerned about the sector sustainability and wish The panel session on Realising Renewable Investments in Zambia was moderated by GET FiT Zambia Director Ms Judith Raphael and panellists included Dr Jan Martin Witte Director KfW to the right and other representatives of various stakeholders 41
A Sector Wide Approach for key funda mentals to be addressed to ensure success ful outcomes for the projects On the one hand the GET FiT approach including the development of bankable standardised pro ject agreements continues to receive praise from sector actors On the other hand the session con firmed the Secretariat s expectation that achiev ing financial close and realizing the 120 MWac of approved solar projects in a timely manner will undoubtedly be challenging and will require dedi cated efforts from all stakeholders particularly the Government of Zambia Future Energy East Africa Conference In September 2019 the Future Energy East Africa conference and exhibition in Nairobi Kenya the largest and longest running regional power con ference and exhibition in East Africa brought together leaders from the regional and international power and energy community to discuss the sta tus of critical projects spot attractive oppor tunities and share best practice GET FiT partici pated at the exhibition and ex changed with a range of industry leaders and sector officials in the regional and international power sector community provid ing updates on GET FiT Zambia the result and pro gress of the Solar PV Tender and the plans for the Small Hydro Tender The 5th Annual Southern Africa Power Summit 2019 Secretariat representatives attended the 5th Annual Southern Africa Power Summit 2019 in Cape Town South Africa from 29th 31st October 2019 GET FiT Zambia Project Director Ms Judy Raphael elaborated on the success of the GET FiT Zambia Solar PV Tender and gave updates on the up coming Small Hydro Tender during the panel dis cussion on the 3 Pillars of Achieving Sustainable Energy Development in Southern Africa Regulation Financing and Technology Microgeneration The REFiT Strategy provides for an initial 3 year REFiT microgeneration allocation of 5 MW This is in response to the feedback received from Zambian private sector stakeholders during the REFiT consultations Zambian developers were concerned about their competitiveness if partici pating in procurement programmes such as GET FiT and Scaling Solar on equal basis as more expe rienced international companies 42 In 2019 funding for a full feasibility study and design of the concept was confirmed and the Secretariat collaborated with DoE to prepare for the study The feasibility study is scheduled to be concluded by the end of 2020 and shall develop guidelines rules and eligibility criteria as basis for implementation of the Microgeneration component from 2021
GET FiT Zambia Annual Report 2019 7 Building on Lessons Learned GET FiT Zambia s design is based on a variety of lessons learned from other donor funded private sector development programmes This section elaborates on some of these learnings and how they influenced the implementation of GET FiT Zambia GET FiT Zambia benefits from access to a wide experience from six years of implementation of the GET FiT pilot in Uganda Two key lessons from GET FiT Uganda that have been given particular atten tion in the Programme design of GET FiT Zambia are described under the following Efficient use of donor funds Ensuring effective grid integration A range of other lessons learned in GET FiT Uganda are published in the GET FiT Uganda Lessons Learned briefing notes An overview is provided at the end of this section In the same spirit GET FiT Zambia is dedicated to sharing lessons learned from its implementation to benefit other private sec tor development and private public partnership pro grammes Lessons from GET FiT Zambia will be elaborated on in later Annual Reports 43
Building on Lessons Learned Efficient Use of Donor Funds Learning from GET FiT Uganda How can GET FiT Zambia use donor funding efficiently to help developers over the hurdle GET FiT aims at improving the framework condi tions for renewable energy investments in Zambia One of the barriers to such investments is a high perceived risk of investment leading to high return requirements GET FiT addresses this barrier from two angles i lowering the return required by potential renewable energy developers in the mar ket and ii improving the return on investments in renewable energy projects On the one hand GET FiT Zambia works closely with regulators and the governments in order to improve the investment environment It establishes a track record of successful private participation in the renewable energy market and provides ded icated Technical Assistance to key sector stake holders The objective of these interventions is to improve confidence in the market and thus lower the required return for developers to participate in the market On the other hand the Programme provides tan gible support for individual projects in the form of a fixed subsidy per kWh for the duration of the PPA The subsidies increase the project revenues and thus increase the rate of return of a potential investment Ideally this will ensure that the inves tor achieves the required rate of return and makes an investment decision KfW has commissioned a study in cooperation with Centre of the Environment Energy and Natural Resource Governance C EENRG of the University of Cambridge to better understand the impact of GET FiT Uganda One of the research questions was to what extent the GET FiT Programme had unlocked private investments that would not have happened otherwise This question is also of great interest for GET FiT Zambia which targets private 44 investment promotion and improvement of frame work conditions for private sector participation as a key objective The study used a threshold approach comparing the IRR of GET FiT projects against the project with the lowest IRR that was realised without support after being rejected from GET FiT participation see graph to the right This counterfactual rate is considered the Required Return on Equity hurdle rate for projects to be commercially viable at that point in time This threshold approach was applied for the results from the first two RfP rounds and a new counterfactual rate was found for the third procurement round The study made two observations in that regard First there is evidence that the GET FiT inter vention successfully lowered the required rate of return between the implementation of the consec utive rounds an indication for an improved invest ment environment and a great accomplishment for the Programme Secondly not all subsidies provided in the last pro curement round appeared to have been strictly required to enable the investments Specifically in the first and second round seven out of eight projects would probably not have been built if not receiving the subsidies and support by GET FiT In contrast four out of six projects that were awarded GET FiT subsidies in the third round could poten tially have been realised without the subsidy From GET FiT Uganda to GET FiT Zambia The observations from the study show that GET FiT Uganda effectively enabled investments but that by the third round the subsidy was less required and it was time for donor funding exit
GET FiT Zambia Annual Report 2019 IRR SMALL HYDRO PROJECTS ROUND 1 2 IRR SMALL HYDRO PROJECTS ROUND 3 20 15 10 5 0 Counterfactual IRR Counterfactual IRR range In the interest of efficient allocation of donor funds the aim should be to support only those projects that would otherwise not be realised A fixed sub sidy amount for all projects in a portfolio will inevi tably come with inefficiencies in subsidy allocation as one will also be paying subsidies to projects that would have been viable in any case or with a lower subsidy amount However it is challenging to determine the exact subsidy level needed for individual projects to be IRR without top up IRR with top up financially viable This has been an important sub ject when developing the GET FiT Zambia tender strategy The introduction of a competitive ele ment to allocate subsidies is an attempt to allocate only the amount required to fill the gap between expected return and the required return This is achieved by letting developers bid for their required subsidy in the procurement process which will be considered in the scoring and project selection With this the Programme aims to mini mize the risk of subsidies creating windfall profits 45
Building on Lessons Learned Ensuring Effective Grid Integration Ensuring timely grid integration for GET FiT projects turned out to be a major obstacle for the success of GET FiT Uganda To address this GET FiT Zambia includes a dedicated programme component to support efficient grid integration of the portfolio The GET FiT pilot in Uganda faced a variety of chal lenges In addition to construction delays environ mental and social compliance issues and others one of the key challenges was and continues to be the full evacuation of power In particular two issues provide important lessons for GET FiT Zambia i delays in constructing the connection infrastructure and ii insufficient grid capacity to fully evacuate power from GET FiT projects Timely and appropriate grid connection was identi fied as a potential challenge early on in the imple mentation of GET FiT Uganda and an additional donor contribution to ensure grid infrastructure for GET FiT projects amounting to circa 20 million EUR was secured from the Government of the United Kingdom Despite this the Programme experi ences high levels of deemed energy1 and sev eral projects lack connection infrastructure at the date of commissioning This has resulted in multi ple events of deemed commissioning2 More than 20 of the produced energy from the whole port folio was deemed in 2019 This represents about 90 GWh deemed energy associated with approx imately 8 5 million USD in costs for the utility In GET FiT Uganda projects were not responsible for their own connection infrastructure and had to rely on Ugandan authorities to provide it However numerous challenges were encountered such as funding shortfall and resulted in substantial delays in construction Learning from these challenges GET FiT Zambia integrated a grid connection component into the Programme the Grid Facility The component includes various measures to mitigate the risks relating to grid connection as illustrated in the fig ure on the following page In GET FiT Zambia developers must plan and build the connection infrastructure themselves The assets will be handed over to ZESCO at the com missioning of the plant Through GET FiT devel opers will be compensated for infrastructure costs that cannot be recovered through the REFiTs This is addressing the first issue by reducing the risk of delays in providing connection infrastructure Interim Rapid Grid Assessment To address the second issue insufficient grid capacity to evacuate power from GET FiT pro jects GET FiT Zambia has implemented multi ple measures At an early stage in the tender pro cess GET FiT supports the Zambian authorities to assess grid connection options and connec tion costs for all projects through an Interim Rapid Grid Assessment IRGA The IRGA identifies potential constraints in the grid which might hin der integration and evacuation of power from the project Additionally the grid connection solution is a project evaluation criteria in the tender Finally a Congestion Assessment will be performed as a final step of the evaluation process to identify 1 Deemed energy is defined as energy that could not be delivered to the buyer due to grid failures or constrained power evacuation The standardised Power Purchase Agreements PPAs include deemed energy clauses to protect investors from the risk of the off taker s inability to evacuate the power produced 2 Deemed commissioning refers to the commissioning of a plant before the grid connection infrastructure and or sufficient evacuation capacity is in place 46
GET FiT Zambia Annual Report 2019 eventual bottlenecks that may hinder the evacua tion of power from the awarded projects by consid ering the cumulative impact of generation from the entire portfolio This process allows for the initial elimination of those projects that will not be able to evacuate power due to congestion in the grid and ensures that only the projects that are capable of feasibly being integrated to the grid being granted an award Technical Assistance for Improved Grid Management GET FiT Zambia s pro activity on this issue goes further to improve Zambia s capacity for grid inte gration of renewable energy capacity and oper ations The Programme s Technical Assistance Facility provides funding for grid related studies as well as Technical Assistance workshops and capacity building for relevant sector institutions Particularly the identification of areas within the grid that require integration support of intermit tent renewable energy Solar PV into the grid and its implications for hydropower operations was requested by local stakeholders and will be imple mented in 2020 and the following years Through these measures GET FiT Zambia aims at minimizing the grid related risk for both developers and the off taker and ensuring successful evacua tion of the produced energy The inclusion of suc cessful grid connection and power evacuation in the GET FiT Zambia results framework emphasises the importance of grid connection in the course of implementation see Chapter 7 Mitigating challenges experienced in GET FiT Uganda through tailored activities of the GET FiT Toolbox GRID CONNECTION AS PART OF PROJECT Developers responsible for financing and con struction of connection infrastructure PROCUREMENT TRANSACTIONS GRID CONNECTION ASSESSMENT PROCUREMENT TRANSACTIONS GRID FACILITY Cooperation with grid operator ZESCO to con duct pre bid assessment of grid connec tion of potential bidders an Interim Rapid Grid Assessment and a congestion assessment as part of evaluation TA AND GRID STUDIES GRID FACILITY TECHNICAL ASSISTANCE Dedicated funding for Technical Assistance addi tional grid studies capacity building and support GRID CONNECTION CHALLENGES IN GET FIT UGANDA Severe delays in construction of connection infrastructure and grid infrastructure at some projects not robust enough to evacuate the full capacity of projects High levels of deemed energy at multiple projects In 2019 20 of the total potential energy of the portfolio could not be deliv ered to the grid This signifies a heavy burden and unnecessary cost for the off taker that also has to compensate for deemed energy FUNDING SUPPORT GRID FACILITY Funds dedicated to support connection costs and eventual necessary deep grid integration measures 47
Building on Lessons Learned Lessons Learned Briefing Notes GET FiT Uganda has published seven Lessons Learned briefing notes which describe the challenges experienced and solutions relevant for similar programmes These have provided valuable contributions to the design of GET FiT Zambia In 2018 GET FiT Uganda undertook a compre hensive effort to map out elaborate and pres ent key lessons learned from seven main areas of Programme implementation All briefing notes have been published in World Bank PPP knowledge lab contri buting to providing important insights for future similar programmes also for GET FiT Zambia The lessons learned briefing notes are accessible on www getfit uganda org The follow ing topics are presented in the briefing notes Leveraging Commercial Investments reflects over GET FiT s role in leveraging capital for renewable projects and concludes that long term commitments are important Setting the Stage outlays the factors that are important before initiating a GET FiT Programme At implementation initial open discussions and enabling framework is important Programme Implementation underlines the importance of flexibility in design and implementation fostering effective coordination and ensuring integrity of award process Developers Engagement describes the importance of a transparent selection process where selection criteria and technical requirements are communicated clearly Complying with E S Performance Standards presents the importance of guidance on E S issues along with having clear incentives and disincentives to comply with E S requirements and standards 48 Making the Impact Stick state the importance of TA and infrastructure development Monitoring for Results notes the importance of also measuring soft results such as institutional capacity building and working smarter not harder to achieve results The Lessons Learned briefing notes have provided valuable inputs to the Programme design and are a continuous resource for Programme activities Particularly the IPP selection criteria and t echnical requirements as well as the inclusion of a dedi cated Technical Assistance facility at the outset of the Programme were influenced by lessons learned during the GET FiT implementation in Uganda This will contribute to mitigating risks for local stakeholders and developers respectively Another major focus of GET FiT Zambia will be environ mental and social safeguarding Injuries resettlements and land effected by supported pro jects are diligently monitored throughout the imple mentation period Furthermore a mechanism to ensure compliance with environmental and social guidelines was put in place As described in the sections above GET FiT Zambia will also use a competitive approach for allocating top up subsidies to ensure efficient use of donor funds Further learning from grid related challenges in Uganda the results monitoring framework in GET FiT Zambia includes a separate section to track the successful grid integration and power evacuation All these measures based on the Lessons Learned from GET FiT Uganda will make the Programme robust and will ultimately contribute to a successful implementation
GET FiT Zambia Annual Report 2019 LESSONS LEARNED FROM IMPLEMENTATION OF A SUCCESSFUL PPP PROGRAMME 1 LEVERAGING COMMERCIAL INVESTMENTS WHAT DOES IT TAKE LESSONS LEARNED FROM LESSONS LEARNED FROM IMPLEMENTATION OF A SUCCESSFUL PPP PROGRAMME IMPLEMENTATION OF A SUCCESSFUL PPP PROGRAMME 2 3 SETTING THE STAGE THE BUILDING BLOCKS OF A SUCCESSFUL PPP PROGRAMME PROGRAMME IMPLEMENTATION HOW DO YOU MAKE IT WORK 49
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GET FiT Zambia Annual Report 2019 8 Financial Status GET FiT Zambia has received significant contributions from the German Government that will ensure the successful implementation of the first phases of the Programme To date the German Government has commit ted 41 million EUR to the Zambian Government for the implementation of GET FiT Zambia The commit ment is embedded in Financial Agreements between KfW and the Ministry of Finance of Zambia Depending on needs and interest funding oppor tunities through other donors may allow for poten tial extensions and add ons to the Programme The funding available for GET FT Zambia will have four main purposes Project subsidies Grid integration support Technical Assistance Consulting services The largest share of the funds approximately 70 will be used for project subsidies for small hydro power projects In the GET FiT Zambia context such subsidies are referred to as Viability Gap Funding VGF designed to close the gap between the offered power tariffs and the tariff necessary for investors to achieve the required rate of return on investments This way the Viability Gap Funding can leverage substantial amounts of private capi tal to the Zambian power sector The VGF will be front loaded and performance based with 50 of the subsidy disbursed at the time of commis sioning and the rest paid over the two first years of operation The subsidy amount will be determined as a function of energy supply estimates and as mentioned before in Zambia this amount will be based on the USDc KWh bid received from the developer 51
Financial Status PROCUREMENT TRANSACTIONS DEBT RISK MITIGATION FACILITY VIABILITY GAP FUNDING GRID FACILITY TECHNICAL ASSISTANCE Consultancy Services 13 Technical Assistance 4 Project Subsidies 59 Grid Integration Support 24 Since subsidies will be allocated to the projects as a competitive element in the Small Hydro Tender it is difficult to estimate the exact amount required to achieve the REFiT Strategy targets While the German committed funds are likely to be sufficient for the first small hydropower procurement round of 50 MW implementation of subsequent rounds will depend on remaining available funds Another large share of the funds will likely be required to secure the grid connection of GET FiT projects Developers will be responsible for plan ning and construction of shallow grid connec tion infrastructure to be handed over to ZESCO at commissioning GET FiT will close eventual fund ing gaps through compensating developers for the infrastructure costs Funds reserved for the TA Facility will provide for relevant studies and technical assistance sourced externally in addition to the structured capacity 52 building programmes provided by the Programme Implementation Consultant Finally the contribution covers the cost of the Programme Implementation Consultant who manages the GET FiT Secretariat in Lusaka The Programme Implementation Consultant is respon sible for collaboration with and support to the key sector institutions to implement the renewable energy tenders and all other Programme activi ties including monitoring evaluation financing funding mobilisation support TA coordination and integrated capacity building activities The actual allocation of funds to the different components purposes is unknown as the exact required amounts will only be known after com pleted procurement rounds The chart above illus trates an indicative distribution of Programme funds based on simulation of possible small hydro power portfolios
GET FiT Zambia Annual Report 2019 9 Programme Monitoring Risk Management GET FiT Zambia s aims to achieve lasting and transformative results for Zambia The Monitoring Evaluation M E framework is the tool to monitor to what extent the Programme s long term objectives are achieved The M E framework enables stakeholders to main tain focus on the intended long term effects of the Programme and can be a deciding factor for suc cess or failure It also enables GET FiT to bring transparency on how funds are deployed and to showcase good results beyond a successful pro curement of renewable energy This is particularly important for donor financed programmes The M E framework enables GET FiT to learn from experience and apply lessons for continu ous improvement throughout the implementa tion as well as provide lessons for other private sector development programmes The framework includes a risk management system that allows early identification and registration of key develop ments and risks so that challenges can be effec tively addressed by adjusting interventions and implementing mitigation measures This chapter presents the Monitoring Evaluation framework reports on monitoring results for 2019 and risk management and discusses how the Programme produces Value for Money for the donor funds 53
Programme Monitoring Risk Management The Monitoring Evaluation Framework GET FiT Zambia s Monitoring Evaluation framework is designed as a robust tool for monitoring results unexpected developments and risks and is a basis for evaluation of the Programme s long term impact The M E framework includes Outputs Outcome and Impact in a hierarchical structure Results on one level is logically linked to progress on the lower level The Programme s activity in the GET FiT Zambia context termed Toolbox produces the Outputs defined to be within the Programme s Sphere of Control While the Outputs influence the achievement of the Outcome this level is also influenced by other activities and is defined to be within the Sphere of Influence Achieving the Outcome will contribute to the intended Impact the Sphere of Interest of the Programme The M E framework also called results framework is shown on the next page GET FiT Zambia s five Outputs are Increased small scale on grid renewable energy at competitive cost Avoided Greenhouse Gas GHG emissions 54 Effective grid integration of the GET FiT portfolio Finance mobilised for the GET FiT portfolio and E S sustainability and compliance ensured Achieving these Outputs contributes to improv ing framework conditions for private investments in on grid renewable energies up to 20 MW the Outcome With this as result GET FiT Zambia will likely have contributed to the overall Impact a cli mate friendly development path and sustainable growth in Zambia Programme performance toward these objec tives is based on reporting from key stakeholders Reported values of indicators associated with each of the Outputs and Outcome determined together with stakeholders are compared to baseline val ues and target values
GET FiT Zambia Annual Report 2019 The Results Framework Improved framework conditions for private investments in on grid renewa ble energies up to 20 MW INPUTS ACTIVITIES OUTPUT Sphere of Control OUTCOME IMPACT Sphere of Interest Contributing to a climate friendly development path and sustainable growth in Zambia Sphere of Influence Through the GET FiT Toolbox the Programme will have a direct effect on the sector in terms of increasing climate friendly renewable energy capacity at competitive costs and leveraging private capital for the energy sector to improve the investment framework and ultimately contributing to sustainable growth in Zambia Increased small scale on grid RE at competitive cost PROCUREMENT TRANSACTIONS MoE ERB OPPPI Avoided GHG emissions Effective grid integration of GET FiT port folio DEBT RISK MITIGATION FACILITY KfW VIABILITY GAP FUNDING BMZ Germany Funds Finance mobilised for the GET FiT portfolio E S sustainability and compliance ensured GRID FACILITY TECHNICAL ASSISTANCE Implementation Consultant Other Consulting Services 55
Programme Monitoring Risk Management Monitoring Results After its first full year of implementation GET FiT shows good progress The developers of awarded Solar PV projects are actively engaging with potential lenders in preparation for construction start while the launch of the first RfP for the Small Hydro Tender is under preparation 2019 is the first round of structured monitoring since the Programme s inception in mid 2018 The performance of the Programme will be reported on an annual basis The overview on the next pages shows the progress toward achieving the Outputs Outcomes and Impacts as measured by the core indicators of the Programme A range of other sector level indicators will be tracked during Programme monitoring and notable developments will be reported The current Programme targets are set based on a 150 MW portfolio to reflect the current funding situation Targets will be reviewed as and when funding for the full 205 MW allocated by the REFiT Strategy is committed While the Programme is progressing well tangi ble effects are expected to take several years to materialize Since the results to report on the M E Framework after only one year of implementation are limited the following section will provide addi tional context and expected developments in the following years of implementation Results are presented in the form of a logical framework log frame including a list of indicators their target value value in the reporting period and comments Outputs Output 1 refers to increased capacity at an afford able price which includes capacity of generation from and average price of GET FiT projects As noted earlier the current targets are set based on a 150 MW portfolio With the award of 120 MWac in Solar PV capacity the Programme is already well on track However formalisation of these pro jects through PPA s and Financial Close is required before the results can be reflected in the logframe The year 2020 will provide more clarity with regard 56 to expectations for the hydropower capacity pro cured with current funding The Programme aims to offset 500 000 tons of GHG emissions every year Avoided GHG emissions will be calculated based on the established grid emissions factors methodology for the respective technologies recently updated by UNFCCC Deemed energy and deemed commissioning will be reported under a separate Output considering the challenges that were experienced in GET FiT Uganda Particularly the number of months with constrained evacuation grid unable to take more than 90 of the energy generated and deemed commissioning days of operations under insuffi cient grid infrastructure will be considered Leveraging private investments is a key objective of the Programme In total the Programme aims to attract 250 million USD in investments from IPPs generating a leverage ratio of 4 1 Since the Programme already awarded projects representing investments for 120 MWac of Solar PV capacity it is well on track to achieve these targets It should be noted that a project is only considered in these indicators once it has achieved Financial Close Finally an important factor to consider in the develop ment of projects under GET FiT is compli ance with environmental social standards GET FiT will track a selected range of indicators covering inju ries during construction required resettlements and affected land GET FiT acknowledges that environmental and social safe guarding is a crucial element of the Programme and therefore monitors developments rigorously
GET FiT Zambia Annual Report 2019 Output Indicator Output 1 Target3 Comment Increased small scale on grid renewable energy capacity at competitive cost Output Indicator 1 1 Financial close achieved in MW 150 0 No project has achieved Financial Close yet Output Indicator 1 2 Commissioned capacity of GET FiT projects in MW 150 0 No project has commissioned yet Output Indicator 1 3 Electricity delivered from GET FiT projects in GWh year 500 0 No project has started generation yet Output Indicator 1 4 Weighted average per PPA price in USDc kWh 8 5 0 Projects are considered once the PPA is signed No project has signed a PPA yet 0 No project has started generation yet Output 2 Avoided GHG emissions Output Indicator 2 1 Net change in GHG emissions from GFZ projects in tCO2e year Output 3 500 000 Effective grid integration of the GFZ portfolio Output Indicator 3 1 Days of deemed commissioning of GET FiT projects number of days 0 0 No project has reached commissioning or deemed commissioning yet Output Indicator 3 2 Months of constrained evacuation of GET FiT projects number of months 0 0 No project has started generation yet Output 4 Finance mobilised for the GFZ portfolio Output Indicator 4 1 Financing mobilised for GET FiT projects in MUSD 250 0 Financing is only considered to be mobilised once a project has achieved Financial Close Output Indicator 4 2 Leverage ratio of GET FiT Programme ratio 4 1 n a Private investments are only considered as leveraged once a project has reached Financial Close Output 5 E S sustainability and compliance ensured Output Indicator 5 1 Fatalities or serious injuries related to the GET FiT portfolio number of incidents Minimal 0 Project construction has not started yet Output Indicator 5 2 Displaced people due to GFZ projects number of persons Minimal 0 Displaced people are considered once a project has started construction No project has started construction yet 0 A maximum of one hydropower project should affect a protected land Projects will only be considered once construction has started Output Indicator 5 3 Affected protected land areas by GFZ projects number of projects 3 2019 1 Targets for the year 2024 based on portfolio size of 150 MW 100 MWac solar and 50 MW hydro corresponding to the current donor funding commitments 57
Programme Monitoring Risk Management Outcomes basis for further private investment in such projects beyond the GET FiT implementation Similarly to the Outputs tangible results did not yet to materialize on the Outcome level The Outcome is measured by means of five separate indicators These indicators assess to what extent the frame work conditions for private investments in on grid renewable energies up to 20 MW were improved Further to the increased capacity and generation the number of projects that are using standardised documentation developed under GET FiT is used as an indication of the framework conditions for private investments if more projects are using the standardised documentation the conditions for private investments have likely improved The first two indicators relate to the share of total energy represented by capacity and genera tion from small scale on grid renewable energy IPPs Currently there are no such projects in the country with private investments only in off grid Zengamina and larger sized projects LHPC with two hydropower projects with more than 20 MW in installed capacity as well as Neoen s 76 MWac Scaling Solar project GET FiT Zambia intends to increase this share by fast tracking a portfo lio of such projects and ultimately create a good Outcome Indicator The annually published Climatescope will serve as another indicator for the investment environment In 2019 Zambia has achieved remarkable results ranking 13th out of 103 countries assessed scoring particularly well on Opportunities linked to current and future electricity demand and Experiences linked to the volume of installed clean energy Target4 2019 Comment Improved framework conditions for private investments in on grid renewable energies up to 20 MW 4 Outcome 1 Proportion in power generation mix of installed capacity 3 70 0 00 There are currently no on grid small scale renewable energy projects in the country Only Zengamina operates an off grid plant of 0 7 MW and the privately held LHPC operates two dams with 24 and 32 MW in capacity Outcome 2 Share of total electricity delivered to the grid of generation 2 70 0 00 There are currently no on grid small scale renewable energy projects in the country Outcome 3 Number of projects using standardised documentation number of projects 10 0 No project has signed the developed standardised documentation yet Outcome 4 Climatescope Ranking Score from 0 to 5 2 15 2 35 Zambia ranked 13th in the 2019 Climatescope report scoring particularly well on opportunities and experience The value in the baseline year 2018 was 2 03 Outcome 5 Number of projects outside the GET FiT portfolio that reached Financial Close number of projects 1 0 No on grid small scale renewable energy IPP outside of GET FiT has reached Financial Close Targets for the year 2024 based on portfolio size of 150 MW 100 MWac solar and 50 MW hydro corresponding to the current donor funding commitments 58
GET FiT Zambia Annual Report 2019 Finally the number of projects reaching Financial Close outside GET FiT with the criteria highlighted earlier is the last Outcome indicator GET FiT tar gets at least one additional project outside GET FiT to achieve Financial Close by the end of the Programme implementation In addition to the five indicators mentioned above GET FiT monitors a range of additional sector level indicators to track developments enabling an early identification of opportunities and threats for the Programme Impact GET FiT Zambia s impact statement is Contributing to a climate friendly development path and sustainable growth in Zambia In the results framework it is assumed that the Impact is achieved when the Outcome is achieved Therefore the Programme is not monitoring the Programme through indica tors in the official logframe and results framework Nevertheless GET FiT is keeping track of devel opments that can give meaningful insight as to the development on this level Measuring Value for Money Value for Money VfM is a concept that aids to assess whether donor funds are allocated to interventions where they produce high value Through the Annual Reports GET FiT Zambia will assess and report on the Value For Money VfM of the funds made available to the Government of Zambia Public support to international assistance pro grammes becomes more robust with increased transparency on how money is spent and the results it produces Adding to the previous section which monitors qualitative and quantitative indica tors this section presents a simple framework to assess the monetary value of the results against the financial inputs which will be used in the future Annual Reports once results start to materialize VfM measurements show how much one will obtain of a wanted consequence through the money allo cated to the given purpose VfM measurements create a basis for better programme management to spend funds more efficiently and continuously increase value for the money It also provides valua ble background for discussions about what causes good or bad performance Cost Effectiveness Inputs Activities Economy Output Efficiency Outcome Impact Effectiveness 59
Programme Monitoring Risk Management The methodology used in VfM considerations is based on the same principles as the M E frame work Inputs to the Programme will enable the implementation of certain activities resulting in outputs that produce outcomes and impacts Value For Money can be measured from three angles Economy Efficiency and Effectiveness While Economy assesses the cost of implement ing the activities in the programme the efficiency and effectiveness dimension focus on how the Inputs translate into Outputs and Outcome Useful Output indicators will be selected as parameters to measure the Efficiency This may include equity and debt leveraged for the power projects as well as the value of jobs created power supplied and GHG emissions reduced relative to the donor funding The Effectiveness of the Programme will be measured by improvements in the framework conditions Risk Management Risk monitoring is an important tool to manage external developments and their impact on the results Through quarterly monitoring GET FiT Zambia tracks and reviews risks that can affect Programme performance and whether Outputs effectively will translate into improved framework conditions for private investments in small scale renewable energy GET FiT Zambia s risk management framework ana lyses risk in an impact probability perspective asses sing risk in terms of level of probability of occurrence and the potential negative impact it could have and labelling each identified risk as Acceptable risk Risk that require follow up or Risk that require mitigation measures to be implemented The key risks for GET FiT Zambia are roughly divided into six categories Policy and Macro Environment Power Sector ZESCO Reform Market Investor Interest Local Capacity Environment Social Governance Sustainability of Results The key risks identified at this stage in the Pro gramme are explained below 60 Macro level economic outlook The macro economic environment influences inves tor s risk perception as well as donor interest and willingness to provide financial support At the end of 2019 uncertainty related to the macro economic environment in Zambia persisted with concerns particularly related to fiscal and debt sustain ability Gross Domestic Product GDP growth was on a three year low at 2 with inflation around 10 at the end of the year Financial situation of ZESCO The public vertically integrated power util ity ZESCO will be the off taker of electricity from the GET FiT projects and their credit worthiness determines PPA bank ability and investor confi dence Facing the high levels of debt that burden ZESCO the RLSF from ATI offers a liquidity guar antee to GET FiT projects A positive signal is a sig nificant retail tariff from January 2020 which will boost the utility s revenues but cost reflectivity of retail tariffs is still uncertain A cost of service study is underway and will support the path toward tariff cost reflectivity
GET FiT Zambia Annual Report 2019 IPP experiences The appetite of investors and financiers to par ticipate in IPP development is influenced by the macro economic and sector sustainability fac tors described above as well as the experi ences of other IPP development in the market A positive track record of IPPs reporting of pos itive experiences related to project development in the Zambian invest ment framework as well as honoured PPAs are important signals to inves tors The high level of competitiveness in the Solar PV Tender as well as the number of Small Hydro developers partici pating in the prequalification process clearly indicate that the market attracts strong interest However the positive decision of Development Finance Institutions DFI depends on the Government implementing measures to improve the financial situation of ZESCO in the short term as well as laying out a clear and credible roadmap for long term sector sustainability Public procedure progress Transparent and efficient procedures require capacity within and good coordination among key sector institutions Long time lags or delays related to Feasibility Study Right FSR licensing DFA signing ESIA clearance Generation license and other formalities increase time and cost for project preparation The cooperation with the EU Programme IAEREP related to the IPP Framework aims at improving transparency and efficiency in IPP licensing Additionally GET FiT s TA Facility can be directed strengthen OPPPI s capacity to access and store data and thus improve the trans parency of Feasibility Study Rights allocations Environmental social standards Renewable energy development requires strong and compe tent Environmental and Social manage ment to protect vulnerable population groups and cultural and ecological values minimize social ten sion and avoid project delays Construction of projects requires acquisition of land that in Zambia in many cases is under customary tenure strict Health Safety and Environmental HSE standards are necessary to avoid accidents during construction or operation of power plants and all projects must comply to requirements from National Heritage and Conservation Commission NHCC as well as Zambia Environmental Management Agency ZEMA Successful implementation of GET FiT Zambia puts strong requirements on developers to man age these processes and coordination and clar ity of roles and accountabilities among Zambian institutions is critical GET FiT Zambia maintains a strong focus on such E S specific risks and actively works to improve both developer and insti tutional capacity for E S compliance 61
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GET FiT Zambia Annual Report 2019 10 Outlook 2020 will be an active year for GET FiT Zambia s sponsors stakeholders developers and investors undoubtedly with both challenges and excitement After awarding the 120 MWac Solar PV capacity in 2019 efforts in 2020 will focus on successfully achieving financial close and start of construction amidst the uncertain outlook of the energy sector In parallel the local capacity building workshops at the universities will be launched in the beginning of the year The Secretariat looks forward to assist ing the awarded consortia in facilitating the work shops which will help build capacity in the sector from students level With the development of the Microgeneration com ponent local stakeholders anticipate an oppor tunity to contribute to bring on more solar PV on the grid in line with the REFiT Strategy There are also expectations that this component will build a proven track record and strengthen the capa city of local developers to compete in international tenders On the hydro side the prequalified developers who were granted FSR in September 2019 are gearing up toward the launch of the GET FiT Zambia Small Hydro Tender a major milestone for the first half of the year A second window for FSR opened for additional candidates to qualify for eventual subse quent rounds of the SHP In parallel and complementary to these key pro cesses the Secretariat will continue the close cooperation with and support of government stakeholders partners financiers and developers giving no less attention to implementation of Technical Assistance packages benefiting various stake holders and exploring opportunities for new bene ficial partnerships and synergies with on go ing efforts to strengthen private activity in renewa ble energy in Zambia Bracing up for an exciting year ahead the Secretariat look forward to gaining ever more experiences from implementation of an efficient and sustain able renewable energy programme creating lessons learned for the future in Zambia and across Africa and continuing to tell the GET FiT story 63
List of Abbreviations List of Abbreviations AEF ATI African Trade Insurance Agency BMZ Federal Ministry for Economic Cooperation and Development E S Environmental and Social ERB Energy Regulation Board EU European Union FSR Feasibility Study Rights GDP Gross Domestic Product GET FiT Global Energy Transfer Feed in Tariff GHG Greenhouse Gas GRZ Government of the Republic of Zambia HSE Health Safety and Environmental IAEREP Increased Access to Electricity and Renewable Energy Production IFC International Finance Corporation IPP Independent Power Producer IRGA Interim Rapid Grid Assessments IRP Integrated Resource Planning KfW Kreditanstalt f r Wiederaufbau M E Monitoring Evaluation MoE Ministry of Energy MW MWac Megawatt Megawatt in alternating current AC capacity NHCC National Heritage and Conservation Commission OPPPI Office for Promoting Private Power Investment RE REFIT Renewable Energy Renewable Energy Feed in Tariff RfP Request for Proposal RfQ Request for Qualification RLSF Regional Liquidity Support Facility SHP Small Hydropower Projects SSA Sub Saharan Africa TA VfM ZEMA 64 African Energy Forum Technical Assistance Value for Money Zambia Environmental Management Agency
The People at Work for GET FiT Zambia The programme is mainly carried for ward by the GET FiT Zambia Secretariat in Lusaka and the Zambian govern mental institutions Department of Energy DOE and Office for Promoting Private Power Investment OPPPI The picture to the left shows representatives from the GET FiT Secretariat and the DoE From left to right back to front Agnelli Kafuwe DoE Dailesi Njobvu Secretariat Judy Raphael Resident Programme Director Secretariat Brian Siakwenda DoE Isaac Soko DoE and Allan Chivunda DoE KfW in close cooperation with the Zambian Ministry of Energy is responsible for the implementation of GET FiT Zambia supported by Multiconsult as Programme Implementation Consultant Marco Freitag KfW Principal Project Manager Ryan Glenn Anderson Multiconsult Project Director Mari Sofie Brelin Furu Multiconsult Project Manager GET FiT Zambia Annual Report 2019 This report and all its contents including figures and graphs are produced by Multiconsult multiconsult no Photos Multiconsult CEC Innovent Getty Images Multiconsult Zambia GET FiT Zambia Secretariat Energy Regulation Board Office Room 101 Plot 9330 Off Alick Nkhata Road P O Box 37631 Lusaka Zambia info getfit zambia org Multiconsult Norway Headquarter Nedre Sk yen vei 2 0276 Oslo Norway 47 21 58 50 00 energi multiconsult no KfW Marco Freitag Principal Project Manager KfW Bankengruppe LAd4 Infrastructure Southern Africa Palmengartenstr 5 9 60325 Frankfurt Germany
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GET FiT Zambia Annual Report 2019
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