Africa Clean Energy (ACE) - Uganda political economy analysis
Between October and December 2020, The Policy Practice worked with the Africa Clean Energy Technical Assistance Facility (ACE-TAF) to undertake a political economy analysis of the constraints facing expansion of the off-grid solar sector. The off-grid solar sector in Uganda is facing several challenges. The inconsistent application of tax rules causes uncertainty in the private sector lowering investment in the sector. Similarly, there is a large number of counterfeit goods in the local market as a result of weaknesses in the customs processes and a lack of capacity to enforce technical standards. This discourages the market for higher quality products and damages the reputation of the sector. Another challenge is the difficulties faced by the private sector in securing finance from local banks. In part, this reflects the higher risk of the sector, but also pervasive ignorance among local financial institutions of the specificities of the sector leading to a reluctance to lend.
A further dilemma is that, notwithstanding efforts to reduce costs, the price of solar home systems is still beyond the reach of many Ugandans. This poses a challenge for energy access since, for most, the grid will also not reach these households for many years. In particular, it raises the prospect of the judicious use of subsidy mechanisms to try and improve energy access. However, previous attempts to introduce subsidies into the sector have led to corruption scandals. The PEA reviewed the challenges faced by the government and by external funders in trying to achieve energy access without creating distortions that might lead to corruption. Finally, the PEA examined two further issues. The first was that, currently, there are no systems in place for recycling or safe disposal of electronic waste, and, in particular, the large number of solar panels and batteries from the first cycle of investment in off-grid solar which are now reaching the end of their life. The second, was the fact that, notwithstanding efforts by donors, the sector is dominated by men and male owned enterprises. The PEA explored the reasons for the relative lack of social inclusion, both of female entrepreneurs, but also other marginalised groups, in both production and consumption of solar power.
The PEA also considered three broader contextual issues. The first was the development of oil and gas in Uganda and the way in which this influenced incentives for prioritising solar power. The second was the electoral context; the PEA was done during the Presidential election campaign and considered how electoral and long-term political considerations might influence the likely opportunities for the development of the sector. Finally, the PEA considered how COVID-19 – and Uganda’s response to the pandemic – might affect the development of off-grid solar.
The PEA was done “remotely” in the sense that the international expert could not visit Uganda as a result of the COVID-19 pandemic. Instead, a team was constructed consisting of a very experienced and well- connected local consultant, together with the head of the local ACE-TAF office in Uganda. Interviews were conducted in person, where possible, by the local consultant, as well as online with the international expert involved. The design and interview questions, as well as the write up of results was done collaboratively between the international and local experts and in close consultation with the ACE-TAF office.
The most important finding from the PEA was that the Government of Uganda are not prioritising the sector (despite statements to the contrary). They are much more pre-occupied with a critical political struggle over the future of the on-grid sector and the private utility and are therefore happy to leave the funding of the off-grid solar sector to external donors. Moreover, the wider contextual factors also place constraints on the sector’s development. The focus on exploiting oil and gas diverts skilled resources from the relevant ministry and ministerial attention away from the sector. The turbulent political context discourages investment and Uganda’s increasingly authoritarian leadership means that donors may be inclined to engage less with the country with knock-on implications for externally funded solar projects. Finally, COVID-19, in additional to its health implications, has hit incomes making solar home systems less affordable, while increasing costs in the supply chain.
The PEA team discussed these findings with the management of ACE-TAF who then drew on the results to inform their strategy for ongoing engagement in Uganda.