Twenty Reasons Why Development of Mini-Grid

Electrical Power in Rural Tanzania is a

Good Deal for the Ruaha River Power Company
- July 2014 -
The Ruaha River Power Company Ltd. ("Ruaha Power") is a Tanzanian and American owned start-up company established
in Dar es Salaam, Tanzania. The Tanzanian government refers to power developments with capacity of 10MW and under as a
"Small Power Projects" or "SPPs". They call us a "SPP Developer", and that is precisely who we are and what we are intent
on doing. Ruaha Power is dedicated to the goal of profitably developing, building, owning, and operating small-scale,
distributed electrical power generation and mini-grid distribution networks in the vast and underserved rural and small urban
markets of Tanzania and doing so on a commercially viable basis.
We intend to expand and employ this same business model in other developing countries around the Indian Ocean Rim that
also have substantial numbers of power impoverished rural populations, but there are 20 good reasons we are first pioneering
this business model in Tanzania:
1. According to the World Bank, only 15% of Tanzania's population of 49 million has access to electricity. The other 85%
offer a huge market opportunity for SPP Developers like us who can offer integrated, hybrid power generation and
distribution network operations in rural areas and regions remote from the National Grid.
2. Tanzania is experiencing an electricity demand growth of 13 to 15% per year in an economy growing steadily at 6 to 7%
per year. Most of the demand growth is forecast for regions already served by the National Grid, and does not account for
extension of electricity supply to rural areas. A switch to develop small-scale, renewable capacity, distributed through
areas not on the existing grid will likely have the effect of increasing demand growth even further. TANESCO's managing
director told East African Business Week that Tanzania needs about US$ 2.9 Billion per year in additional capacity and
infrastructure over the next ten years to meet the growing demand. This situation creates a market niche Ruaha Power
intends to fill.
3. There are no restrictions in the small power generation and distribution sector on foreign share ownership of Tanzania
incorporated companies or projects, and foreigners may own 100%. This means we can invite partners, buy equipment,
source finance, and use technology from anywhere.
4. According to the US State Department the government of Tanzania has a favorable attitude towards foreign direct
investment and in 2012, FDI in Tanzania exceeded over US$ 1.1 Billion, the highest in East Africa.
5. The United Republic of Tanzania is one of only 6 African companies eligible for US$ 7 Billion in financial assistance
under the five-year US Presidential initiative "Power Africa" announced by President Obama in June 2013 that is aimed at
supporting economic growth and development by providing funding to projects that provide access to reliable, affordable,
and sustainable power. This offers a better than normal chance of receiving US financial and technical support.
6. Numerous other international multilateral agencies and financial institutions also have financial support, incentives,
investment risk insurance, and soft loans available for rural and renewable energy projects in Tanzania.
7. Tanzanian law permits any SPP Developer to act as an independent power producer, generate electrical power, operate a
distribution network, and sell power directly to commercial or residential consumers or to state owned utility TANESCO.
8. All SPP Developers are eligible to obtain a 100% depreciation allowance in the first year of commercial operation of their
SPP for income tax purposes. The corporate tax rate is 30%.
9. Tanzania law offers Standardized Small Power Purchase Agreements or SPPAs to SPP Developers building power
generation of up to 10MW capacity that streamlines and substantially facilitates the permitting and approval process.
These take-or-pay SPPAs have a fixed term of 15-years and a fixed sales Small Power Purchase Tariff or "SPPT" that is
set as a floor but may escalate up in accordance with an inflation indexed adjustment declared annually.
10. The SPPT applicable for new SPPAs signed in 2104. and selling power direct to customers via an own Mini-Grid or a
TANESCO operated Mini-Grid isolated from the National Grid, is set at TZS 482.64 per kWh (US$ 0.2901/kWh), a
commercially attractive price by international standards. Mini-Grids represent the sweet-spot of the niche market we are
targeting.

Twenty Reasons Why Tanzania Rural Mini-Grids Page 1 of 2

11. The SPPT applicable for SPPAs signed in 2104 and selling power to TANESCO at an interconnection to the National
Grid is set at Tz Shillings ("TZS") 197.31 per kWh (US$ 0.1186/kWh). This rate is subject to dry and wet season
adjustments equivalent to US$ 0.1423/kWh and US$ 0.1067/kWh respectively. A SPPA with TANESCO is a sovereign
contract and in certain situations may offer an attractive addition to Ruaha Power's Mini-Grid focus when sufficient
excess power is not used in the Mini-Grid.
All SPP Developers are eligible for one or more of four grants offered under the Tanzania Energy Development and Access
Project ("TEDAP") program which is administered by Tanzania's Rural Energy Agency ("REA") and funded by the World
Bank, the Global Environmental Facility, and the Russian Government. These include:
12. "Matching Grants" of up to US$100,000 may be used for hiring of consultants, obtaining technical assistance, and
preparation of feasibility studies for SPP developments.
13. "Performance Grants" of up to US$500 per new rural customer connection to an isolated Mini-Grid under 10MW.
Performance Grants are intended to help offset capital investment costs of transmission and distribution ("T&D") systems
incurred by SPP Developers of Mini-Grids in isolated areas unconnected to the National Grid. Performance Grants are
limited to an aggregate amount equivalent to 80% of the actual costs of the T&D component of each Mini-Grid.
14. "Credit Line Enhancements", which permits 70% (or 85% in the case of an SPP of under 3MW) of the SPP Developer's
commercial bank debt for a SPP development to be refinanced for up to 15 years, a longer than typical commercial loan
term.
15. "Green Generation Performance Grants" ("GGPG") are made available to the SPP Developers for those SPPs which
meet the UNFCC's Clean Development Mechanism requirements and generate carbon emission reduction credits
("Carbon Credits") in exchange for transfer by the SPP Developer to the REA of rights to the associated Carbon Credits.
The REA then accumulates Carbon Credit receipts and funds additional GGPGs. The amount of the GGPG is variable
based on a pre-set formula according to actual emission reductions at a deemed Carbon Credit price of €3.97/ton of CO2,
The GGPG amount is subject to maximum amounts for the type of energy generated, and whether in a grid-connected or
off-grid situation, as set forth in the following table:
Renewable Energy Type National Grid Connected Isolated Mini-Grid
Solar PV € 28,000 per MW € 45,000 per MW
Wind € 42,000 per MW € 67,000 per MW
Hydro and other types € 83,000 per MW € 134,000 per MW
Biomass € 97,000 per MW €156,000 per MW
16. All SPP Developers are eligible to obtain special exemptions from payment of value added tax, excise duty, and other
import duties on goods and services purchased for use in an SPP development.
17. Foreign owned SPP Developers are eligible to obtain special guarantees issued by the Tanzanian Investment Centre for
repatriation of income, dispensation of assets, and assurances against expropriate risk.
18. Foreign owned SPP Developers are eligible to obtain special, long-term land rights under guaranteed derivative titles
issued by the Tanzanian Investment Centre.
19. The principals and management of Ruaha Power have a an established presence in Tanzania and a combined amount of
over two centuries of experience in energy, finance, and for-profit business operations in the developing countries of the
world.
20. Last but by no means least, are the natural resources available in Tanzania that may be utilized for SPPs, depending on
proximity. About half of Tanzania's current power generation capacity is from hydropower, and small scale Run-of-River
type hydropower developments offer good potential in areas blessed with a high relief stream. Tanzania's climate is ideal
for Solar PV or concentrating solar thermal applications in the semi-arid highlands. Wind boasts potential on the east
coast. Torrefied biomass or biogas derived from agriculture residue in high cultivation areas has substantial potential.
Portions of Tanzania in the Rift have world class geothermal steam potential. Natural gas is produced in the SE and new
discoveries bode well for its increase as a power fuel. Coal mine production is poorly developed, although significant
potential coal resources have been identified in the west.
---oOo---

Twenty Reasons Why Tanzania Rural Mini-Grids Page 2 of 2