Bugoye Hydropower Project

Project Description

This summary covers an investment by TrønderEnergi AS and the Norwegian Investment Fund for Developing Countries (Norfund), both of Norway, in the Bugoye hydropower project in Uganda. The investors have applied for a MIGA guarantee of approximately $16 million for a period of up to 15 years against the risk of breach of contract.

The project involves the construction and operation of a 13 MW run-of-the-river hydropower plant and a six kilometer-long 33 kV transmission line to connect it to the Ugandan grid. The project is expected to cost approximately $56 million and to take about 21 months to build.

The plant is located on the Mobuku and Isya rivers in the foothills of the Rwenzori mountains in Kasese district in western Uganda. The site is relatively remote, located about 400 km from Kampala. The project will divert water from the two rivers and run it via a five kilometer-long canal along the contour into a 950 meter-long penstock with a head of 160 meters. After passing through two 6.5 MW Francis turbines, the water will be discharged back into the Mobuku River. There are two existing power plants on the river: Mobuku 1 (5,0 MW), at Ibanda upstream of the project site, and Mobuku 3 (10 MW), downstream of the project site. The project will utilize the remaining head between these two hydropower plants.

Only about five percent of Uganda’s population has access to electricity. In addition, due to a lower water level in Lake Victoria and increasing demand, Uganda is currently experiencing a power crisis. One way in which the government of Uganda has been trying to address the country’s low number of electricity connections and energy shortfall is through the Energy for Rural Transformation (ERT) project. The Bugoye project arises from the ERT initiative. The ERT, which has been supported by the World Bank Group, seeks to attract private sector investors to develop small hydro plants as independent power producers, to supply power to either independent distribution networks or to the grid. Under the ERT, developers may apply for exclusive permits to conduct a feasibility study and subsequently apply for a generation license if the feasibility study proves positive.

Environmental Categorization

The project is a Category B under MIGA’s environmental review procedures. Click here  to access the Environmental and Social Impact Assessment, and here to view the Environmental and Social Review Summary.

Development Impact

Although small, the project is expected to have a high development impact for the following reasons:

Alleviating power shortages. Uganda is currently facing significant power shortages, which are affecting industrial production and curtailing economic growth. The project will generate incremental power upon commissioning in 2009, which will help to alleviate shortages ahead of the commissioning of the Bujagali hydro power project.

Demonstration effect. Over the last four years, about ten small hydro projects with a total capacity of 80 MW have been studied for exclusive permits, with an additional 32 sites identified as being potentially viable. The successful development of some or all of these projects would make a significant contribution to alleviating Uganda’s current energy crisis. Furthermore, some of the projects being studied would be off-grid, so their development would enable the connection of new rural customers. For various reasons, none of these projects has yet advanced to the construction stage. The project will demonstrate the viability and finance ability of such projects to their sponsors and potential financers, and thus help advance the development of the sector.

Competitive tariff. The government of Uganda has had to commission thermal power plants to alleviate the current shortage of electricity in Uganda. The electricity generated by these plants costs more than 20 US cents/kWh and as a result retail tariffs have risen to over 17 US cents/kWh (excluding VAT). This project will contribute to providing a significantly cheaper alternative to thermal power.

Renewable power. The substitution of thermal power with renewable energy will help Uganda reduce its carbon footprint. As a result, the project can potentially benefit from carbon credits.

Employment. During the construction phase, the project will provide significant employment (approximately 150 jobs) in a remote part of Uganda. The operational phase will provide ten stable long-term jobs.

Grid stability. The project is in a remote part of Uganda where the grid suffers from voltage loss due to its remoteness from other generation plants. The project will help improve grid stability.

MIGA’s participation in the project is aligned with its commitment to supporting investments in infrastructure and in sub-Saharan Africa. The project is also consistent with Uganda’s Joint Assistance Strategy of seven development partners—African Development Bank, Germany, the Netherlands, Norway, Sweden, the United Kingdom’s Department for International Development, and the World Bank Group. The strategy lists increased investment in energy systems—particularly from renewable sources such as mini-hydro plants—as key to enhancing Uganda’s competitiveness, production, and incomes.

This project is no longer being considered for a MIGA guarantee, as of July 14, 2008.