Evaluation of private operated isolated mini grids in rural Tanzania

Abstract: In Tanzania approximately 15 % of the population have access to electricity, a resource critical to a socio-economic development. To reach the governmental goal of becoming a middle-income country (defined as a GNI per capita between 1,006 USD and 3,955 USD) by 2025 the rate of electrification needs to be greater than the 3 % growth rate of the population. To reach the 67 % of the population living in remote areas establishments of isolated, mini grids are crucial in reaching the goal. However, whom to operate, distribute and transmit the energy needs to be determined. The focus of the report is on two operation models, utility and private sector based. The role of private actors is important, but they are at the same time facing challenges in establishing feasible grids and are dependent on subsidies, public funding and grants. The fully state-owned power utility TANESCO is today charging significantly lower tariffs than the private actors, much regulated by the political agenda even though it results in revenues not covering the costs. This thesis intends to investigate to role of private actors in Tanzania, the challenges faced and differences in costs charged to end consumer compared to the ones charged by TANESCO. Furthermore, the thesis aims in analysing the economic value provided by the two ways of operating the isolated grids. In order to answer the questions above, interviews with four private companies of similar size have been conducted and data have been gathered. In addition, useful insights from the Energy Department of the Swedish Embassy of Dar es Salaam have been of great importance in analysing the data in relation to the energy situation in Tanzania.The results presented are divided in several subcategories covering costs, subsidies, reliability and promoting the local economy. The report concludes that the private actors, in general, are charging a tariff ten times higher than TANESCO. Regarding connection fees the roles are reversed and TANESCO are the ones charging the highest. Due to different business models and sales strategies, motives are not as strong for TANESCO as for private actors to sustain reliable electricity and in actively promoting a socio-economic development resulting in growing demand. The choice in using renewable energy or fossil fuel are also conducted to be of importance when establishing an isolated mini grid. In a short-term perspective fossil fuel technology are cheaper but in a long-term, renewables are both more economic and environmental sustainable.