Power policy

Tanzania’s energy policy is underpinned by three targets: 2021 goals for 4,915MW of power generating capacity and a 50% renewables generation mix, and a 75% electrification target in 2025. Since setting these targets in 2016, power capacity has increased by only 281MW (mainly due to a 240MW natural gas plant), fossil fuels still make up 60% of generating capacity and the country has a 37% electrification rate. Two tenders announced in September 2018 for 150MW of solar and 200MW of wind were canceled. The 2.1GW Stiegler’s Gorge hydro project, under construction, will likely remain the government priority for the near future.

Power prices and costs

Retail electricity prices in Tanzania are lower than many other East African countries, averaging close to $0.09/kWh in 2018, and are regulated by the Energy and Water Utilities Authority. Prices are low partially due to the near-600MW of installed hydro capacity, but also due to heavy subsidization from Tanzania’s Ministry of Energy, which is intended to attract industrialization in the country. With more hydro capacity under development, prices will remain low. In February 2016, state-owned utility TANESCO lobbied for slightly lower retail prices to help the country reach its 75% electrification target in 2025, and fixed fees were scrapped for residential households.

Power market

Tanzania has a diverse on-grid power generation portfolio, consisting of thermal generation like natural gas (880MW) and diesel (271MW), in addition to large hydro (532MW), small hydro (42MW) and biomass (11MW). Despite promising tenders announced in 2018 for solar and wind, the only utility-scale project under construction to date is a small 2.4MW wind farm. A number of independent power producers sell power to TANESCO under power purchase agreements, but TANESCO still owns more than half of the country’s generation. The country’s Ministry of Energy plans to establish a competitive wholesale and retail electricity market in 2025, but this remains little more than ambition at this stage.

Doing business and barriers

Conducting business in Tanzania’s clean energy sector presents risk. The country’s power demand has failed to increase in line with the country’s population growth, and data from the regulator show that power demand actually fell between 2017 and 2018. Additionally, there are questions surrounding the validity of economic growth figures that the country has published, which is expected to fuel more investor uncertainty. The country has significant potential for solar and hydro, but neither technology has been fully realized. There is a strong market for off-grid energy in Tanzania, and while the government continues its grid extension plans, in practice many households remain without access to energy in connected areas. In the mini-grid market, no company has succeeded in developing larger sites, with most mini-grids sizing around or below 100kW.

TANESCO is an unreliable offtaker. Many independent power producers operating in Tanzania have suffered from late payments from the utility, and there is little indication that TANESCO is working to amend this situation. In 2016, it lobbied for cheaper retail electricity to boost the country’s power demand, weakening its profitability. Another challenge is the enforcement of a value-added tax exemption for off-grid solar products. Many importers and distributors have been penalized due to unfamiliarity from tax officers, in general prohibiting the off-grid market in Tanzania from realizing its true potential. There are indications that the government may seek to adopt local content requirements. In October 2019, the Minister of Energy instructed the Rural Energy Agency and TANESCO to establish a plan to enable all equipment used in power transmission infrastructure to be made in-country.

EV market

The government has yet to implement any substantive policy support in this sector and the EV market remains at an early stage.

EV policy

The government has yet to implement any substantive policy support in this sector and the EV market remains at an early stage.

Buildings market

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.

Buildings policy

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.