13 November 2018

East Africa: Why EAC Governments Should Support Solar Energy Investments

Nairobi, Kenya — Commercial provider of PayGo solar systems- Azuri Technologies has called for tax incentives to support solar equipment use in rural areas of the East Africa region, a move that will increase connectivity to electricity.

This comes as a larger population of East Africa remains off-grid with majority being poor households.

According to Azuri, increased use of solar equipment will support expansion of off-grid energy and service provision in the East Africa Community, where at least 121.3 million people are living without access to electricity.

This translates to about 78 per cent of the total population of about 158 million in the region.

The International Energy Agency's "World Energy Outlook" defines access to electricity in a number of methods which include a household's ability to consume enough electricity to power small devices such as lights, floor fans, or an electric outlet for mobile phone charging.

Changes in finance laws by the EAC member states has however made it difficult to import and deliver more solar powered equipment to households at affordable prices, Azuri General Manager-East Africa, Snehar Shah, told The Exchange in an interview.

This includes reversal of tax incentives which has made the equipment more expensive.

The region has witnessed two major changes in solar equipment taxes in the last three years. In 2016, the East Africa Community removed duty exemption on accessories and parts of solar systems. Currently only solar panels and their batteries are exempted.

Kenya's Finance Act has also revised the previous provision where companies or importers were exempted from Value Added Tax if they could prove equipment could only be powered by solar, a case for Azuri's Television set for example.

"That provision has been now removed so we are paying almost full duty and VAT on our devices," Shah noted, "We appreciate what the governments are doing but one of the areas we would still ask for support is the tax incentives that they have removed. That is really hurting the sector."

Shah said Solar home system companies need support to light and power homes, which will in the long-run improve livelihood and economic development.

"Our main message to the governments is to see the economic value we are bringing to the end customers which include the savings they are making. We have done studies to show that the average income of a user of our systems monthly goes up by as much as 35 dollars," Shah said.

"We have also shown through research and education point of view that children who study under our light are able to do as much as one hour extra of homework every day so you can imagine the direct impact this sector is making to the lives of the East African community. We would encourage the governments to look into that," he added.

Shah notes that to support penetration of solar powered equipment and PayGo solar systems, all related equipment should be given tax incentives.

"Initially when we started they were giving full incentives in terms of when you bring solar equipment and accessories, it was fully exempt from duties and VAT. Last year they brought some changes which caused confusion," he says.

Where now the solar panel and battery unit are exempted from taxes, everything else even if it is part of the system attracts duty.

"Our system is quite holistic, the battery and the solar panel is quite useless. Customers don't really care about that what they care about is having energy, having access to energy to power their devices," Shah said.

He said the way EAC member states have handled removal of duty exemption on solar equipment has also created confusion.

"Not all the countries have harmonized and we lose a lot of time clearing shipments because one customs officer will refer things differently. We have been lobbying to get much more clarity on this. In an ideal situation, we ask that governments put all those duty exemptions back," he said.

There are 23 companies in the region's Pay-Go-Solar sector which Azuri is among the top four.

Kenya is ranked first in solar power investments followed by Tanzania and Uganda.

To improve electricity connectivity in Kenya, the government is working with the World Bank to provide a US$100 million facility to support some of the underserved counties. There are 14 counties which are underserved which will benefit from this initiative.

"We are hoping that similar things will be replicated in the other East Africa countries," said Shah.

Tanzania has been named among countries where doing business has become a challenge with latest industry developments seeing top Pay-Go-Solar companies exiting the market.

"I will say a place like Tanzania, many of us struggle in terms of doing business there because even though the rules are set, the goal posts are tending to be moved to the extend where we are seeing large investors exiting the market. We would hope that the government there supports us more to really advance the industry," Shah said.

Tanzania is among countries reported to have the largest population of people without access to electricity at 36 million or 71 per cent of the population but on a relative basis, Burundi has over 10 million or 93 per cent of the population without access to electricity.

Kenya has the highest electricity access rate in East Africa, according to a recent World Bank report which tracks global achievements in sustainable energy.

Two years ago, electricity access rate in Kenya was reported at 56 per cent, Tanzania at 32.8 per cent, Rwanda at 29.37 per cent,Uganda at 26.7 per cent and Burundi at 7.5 per cent.

As of April 2018, electricity access rate in Kenya stood at 73.4 per cent owing to increased investments which include government's rural electrification projects.

Challenges

According to experts, developing energy generation, transmission, and distribution services to non-urban consumers requires investments in the hundreds of millions of dollars.

Borrowing from the global capital markets to pay for energy infrastructure has proved to be a challenge due to perceived high risk in lending to EAC countries.

Another key challenge is that people in the EAC generally live relatively far away from each other in rural areas. These far distances make extending a grid to reach those consumers even more expensive.

The number of consumers who have the ability to pay for electricity service connection fees and ongoing consumption of electricity is also quite small.

Option and targets

Solar hence provides an opportunity for the region's remote areas to be connected to electricity.

Tanzania has developed a Power System Master Plan calling for a 90 per cent access rate by 2035. Kenya has targeted connectivity to one million customers a year and a target of universal access to electricity by 2020.

Uganda has targeted 51 per cent coverage by 2040 and universal access by 2040. Rwanda has set a plan for 70 per cent access by 2018 and 100 per cent access by 2020.

Burundi seeks to increase from its current electrification rates to 25 per cent by 2020 and 40 per cent energy access by 2030.

With companies such as Azuri, the region could increase connectivity by tapping into the natural solar energy where East Africa is blessed with long sunshine periods.

Azuri Technologies is a commercial provider of PayGo solar systems to rural off-grid communities.

With the widest reach of any provider in sub Saharan Africa, the company is addressing the problem of energy access which affects the 1.3 billion people around the world who lack access to the grid.

Azuri has used mobile technology to turn a development challenge into a business challenge through its Azuri solar home systems, which allow users to pay for solar power on a pay-as-you-go basis, just like they do for their phones and kerosene.

This provides clean safe renewable power to families at about half the cost of the kerosene it replaces.

Azuri's headquarters is in Cambridge, United Kingdom, with staff based in Kenya, Uganda, Ghana, Ethiopia and Tanzania and presence in 11 countries across sub Saharan Africa.

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