07 December 2015

Powered By Solar

This article was written by James Douglass (partner), Ian Wood (partner), Francis Iyayi (associate) and Jennifer Gray (trainee).

Spotlight on Rwanda, Kenya, Tanzania and South Africa


Africa has vast land resources and is blessed with regular sunshine and solar radiation levels that makes it an attractive continent for solar power developers. However, over the last decade, only a handful of solar pv projects have actually reached financial close. African governments are focused on addressing this issue. What is becoming increasingly clear now is that solar pv projects can be part of the solution for the power crisis that continues to loom over the continent and its growing economies.

The advantages of solar pv in comparison to other forms of power generation include the fact that solar pv projects:

  • can reduce the dependency on expensive sources of feedstock (such as diesel and other petroleum products), 
  • produce zero emissions, 
  • have a quick construction time (can be built in less than 12 months); and 
  • are easily scalable to allow for further project expansion. 

Although solar pv projects are expensive if only considering the upfront capital costs, the technology being deployed is getting better and the price per solar panel is decreasing with time.

By considering some key issues when developing solar pv projects in Rwanda, Kenya, Tanzania and South Africa, this article highlights the regulatory framework and land issues within each country, briefly explore the issue of grid connection and set out some significant terms to note when negotiating power purchase agreements (PPAs) for solar pv projects across all the considered countries.

How are solar pv projects governed?

Over the past decade many changes have been made to the regulatory framework of each country. Generally speaking, the governing framework is split into (a) governmental policy makers and (b) regulators. A brief overview for each country is given below.


The Ministry of Energy and Minerals is mandated to develop and manage the energy sector by formulating governmental policy. The Rural Energy Agency was established in October 2007 to assist the Ministry of Energy and Minerals by focusing on developing the electricity infrastructure in rural areas. The Energy and Water Utilities and Regulatory Authority, established by the Energy and Water Utilities Regulatory Authority Act, is responsible for the regulation of the electricity, petroleum, natural gas and water industry.


The Ministry of Infrastructure is the primary governmental body responsible for setting overall policy and strategy for the energy sector, however there is some overlap with the Ministry of Natural Resources which coordinates and implements legislation and policies relating to the environmental impact of energy production and consumption. The Rwanda Utilities Regulatory Agency regulates the energy and gas sectors and is responsible for implementing the national renewable energy feed in tariff. Currently there is no framework for the regulation of renewable energy but the development of such a policy is integral to the current National Energy Policy.


The Kenyan Energy Sector is regulated by two main governmental bodies; the Ministry of Energy and Petroleum and the Energy Regulatory Commission. The Ministry of Energy and Petroleum is responsible for formulating and developing energy policy and overseeing its implementation. The Energy Regulatory Commission regulates the Kenyan energy sector and its stakeholders and is responsible for issuing licences to undertake activities in the energy sector, enforce regulations, codes and standards, formulate and enforce sector standards and make proposals to the Ministry of Energy and Petroleum on regulations and policy.

South Africa

The energy sector is regulated by the Department of Energy which sets governmental policy for the energy and electricity sector including the renewable energy sector. The Department of Energy is split into two branches; the Electricity and Nuclear branch and the Energy Planning branch. Under the Energy Regulation Act 2006, the enforcement and safeguarding of the national regulatory framework relating to energy supply is granted to the National Energy Regulator of South Africa. Additionally, the Minister of Energy is empowered to establish independent power producers to fulfil the objective of increasing the supply of electricity which the government has indicated as being key to pursuing their objectives in relation to the production of renewable energy.

This is my land

With the exception of South Africa, each country has implemented restrictions on foreign investors acquiring land rights within their jurisdictions. A brief overview of these restrictions is given below.


Land in Tanzania is public land vested in the President as trustee for and on behalf of the Tanzanian people and consequently the "ownership of land" is not recognised in Tanzania; rather people have the "right to use and occupy the land" for an approved purpose by applying to the President for the granted right on a leasehold basis of 33, 66 or 99 years or applying to the Village Council for the right to occupy designated village land.

Under the Land Act 2002, foreigners cannot be granted a right of occupancy for land in Tanzania except for investment purposes pursuant to the Tanzania Investment Act. If the majority of shareholders of a Tanzanian registered corporate body are foreign nationals they will be considered ‘foreigners’ and subject to these land restrictions.

If a foreigner wants to obtain occupancy rights the foreigner must obtain approval from the Tanzania Investment Centre who will provide a derivative right to occupy land for a term not exceeding 99 years to the foreign investor. The land use will be restricted to the investment proposal submitted to the TIC and the TIC will have a residual right to re-acquire the land and the investor will be liable to pay compensation if the investment is not fulfilled.

A popular alternative is for foreign investors to enter into lease agreements with Tanzanian nationals who have been granted rights of occupancy. Otherwise, foreign investors can enter into joint ventures with Tanzanian citizens ensuring that the Tanzanian citizens are the majority shareholders of the joint venture vehicle so that the corporate entity is not considered 'foreign' and therefore can acquire a right to occupy the land directly.


Under the Land Act 2013 an individual can hold either freehold and leasehold title over land in Rwanda. However, foreign nationals are unable to acquire freehold title unless it is provided for by an international convention to which Rwanda is a signatory or under bilateral agreement which contain a condition of reciprocity.

Similarly to Tanzania, an alternative structure is for foreign investors to enter into a joint venture with Rwandan citizens and ensure that the Rwandan citizens hold a 51% stake in the Rwandan joint venture vehicle. Alternatively foreign nationals can hold leasehold title, however the maximum lease term is 49 years whereas Rwandan nationals can be granted a leasehold title up to 99 years.


Pursuant to the 2010 Constitution, non-citizens or corporate bodies with foreign nationals as shareholders are limited to holding land on a leasehold basis for a term of a maximum of 99 years. Further, they cannot acquire agricultural land unless such acquisition has been exempted by the President through a notice in the Kenya Gazette.

Interestingly the restriction on corporate bodies holding land where their shareholders are foreign nationals does not extend to public companies and therefore foreign investors can legally hold land through public companies.

South Africa

There are currently no restrictions on foreign nationals acquiring land rights within South Africa. However, there are current proposals, backed by President Jacob Zuma, under the Land Holdings Bill to restrict foreign ownership of land within South Africa such that a foreign national (including corporate bodies whose shareholders are foreign nationals) will only be able to acquire a leasehold title in land for period of between 30 and 50 years.

Making the connection

Broadly speaking, the issue of grid connection is one that is being addressed across Africa. Each country on the continent has or is experiencing its country specific technical issues in relation to grid connection for renewable energy power plants.

The approach taken to resolve these issues also differ from jurisdiction to jurisdiction, with some countries considering privatising their transmission grids and others wanting to remain as operators but looking to raise financing to upgrade and maintain their networks. Regardless of the approach taken, for solar pv projects to get real traction on the continent (whether large scale or small scale), it is essential for grid operators in each jurisdiction to re-develop, upgrade and maintain their grid networks to ensure contracted electricity is properly transmitted.

In each of Rwanda, Kenya, Tanzania and South Africa , the grid owners and operators are state owned utility companies. In Tanzania, the central grid is owned and operated by TANESCO and it also owns mini grids that are responsible for distributing electricity to remote areas.

The Rwanda Energy Corporation is responsible for the operation and management of the national grid in Rwanda. Kenya Electricity Transmission Company is the national grid operator in Kenya and its main business is to plan, design, build, operate and maintain new electricity transmission lines and associated substations.

Finally, Eskom, the South African state-owned electricity utility company is mandated to manage the grid and provide services such as electricity transmission and distribution.

The onus is on the sponsor to ensure that it can get access to the grid and that the authorities are taking the necessary steps to ensure that transmission and grid infrastructure will be sufficient for evacuating the electricity generated from their solar plant.

Upon receiving a connection offer, the obligation to connect is documented by way of a connection agreement between the sponsors and the state-owned grid operator. The connection agreement sets out the necessary terms and conditions upon which the customer (i.e. the sponsor) is connected to the distribution network in that jurisdiction as well as the capacity of electricity being connected to the grid, amongst others.

For solar pv plants, the smaller projects are typically party to a low voltage connection agreement and larger projects are usually party to a high voltage generation connection agreement. However this may vary from jurisdiction to jurisdiction.

Lenders will scrutinise the technical report relating to grid connection and the connection agreement. Particular attention will be paid to (amongst others) the provisions relating to payment of monies (by whom and when), circumstances dealing with a situation where the transmission grid is not working (how is this risk compensated, if at all) and in what scenarios can the grid operator or sponsor declare a force majeure (therefore setting aside the obligation to transmit electricity or supply electricity to the grid).

Getting the PPA right

The PPA constitutes one of the more significant contractual documents that is heavily negotiated by the project sponsor and offtaker. Its importance stems from the fact that it is the agreement that governs the main source of revenue for the sponsor and therefore can determine the economic viability of the solar pv project.

In the jurisdictions considered by this article, the power offtakers are predominantly the government utility companies (“GOG Utility”). Although there are some anticipated off-grid projects with private / commercial offtakers, the majority of the solar pv projects encountered in these jurisdictions involve the GOG Utility offtaking the electricity. As such, there are a number of key provisions to pay particular attention to when negotiating PPAs for solar pv projects. Below is a list of some of these provisions and relevant points to note:

Term and termination

The PPA should be for a term exceeding the financing arrangements and should be long enough for the lenders to recover the loan amounts and for the equity investors to receive a return on their investment. On-grid PPAs can be between 15 - 25 years and off-grid PPAs between 10 - 15 years depending on the commercial intentions of the parties. The termination provisions should clearly set out the scope for which both parties can terminate the PPA and what happens on termination.


The tariff is an important commercial consideration for lenders and equity investors and therefore must be priced correctly in order for the sponsor to cover its construction / development costs (priced over the lifetime of the PPA), the cost of operating the plant, servicing the debt financing and providing for a reasonable return on equity.

There has been a lot of debate around tariff pricing for solar pv projects in these jurisdictions and all stakeholders recognise that tariffs need to be priced in such a way that is reflective of high sovereign credit risk and higher levels of political and regulatory risk. As such, South Africa introduced the feed-in-tariff scheme (“FIT”) for renewable energy projects which has provided some pricing certainty for investors.

The Kenyan government also launched a FIT policy with a set pricing regime to support grid-connected renewable projects and Tanzania and Rwanda both have their own FIT policies as well.

Force Majeure / Change in Law

Due to the risk profile of the jurisdictions considered in this article, force majeure provisions are negotiated quite carefully by the project sponsor and GOG Utility. The right balance is to agree the circumstances that constitute a force majeure and to set this out clearly in the PPA.

Force majeure provisions are typically project specific and should be drafted carefully in light of the political, regulatory and country risk. A political force majeure may also be triggered in the event that a change of law occurs and this directly/indirectly impacts the economic viability of the project. An example would be if the FIT regulatory regime discussed above was amended to lower the tariff price. As such, a sponsor will want a provision that once triggered will provide it with an appropriate tariff increase to reflect the initial commercial position of the parties.

Credit support

Regardless of whether the offtaker is the GOG Utility or private/commercial party, credit support or credit enhancement mechanisms should be agreed to provide the sponsor (and the lenders) some comfort that the offtaker has the ability to meet its payment obligations. For GOG Utility, this may take place in the form of a government guarantee which should be enforceable against the government in the relevant jurisdiction.

If the sponsor still has concerns over the credit standing of the guarantee, a partial risk guarantee from a development finance institution (such as the World Bank or Africa Development Bank) or multilateral credit agency should be sort.

It is important to note that not every government is willing or in the financial position to issue government guarantees. Other alternatives include a letter of credit which is a viable credit support option but is not always readily available (for the same reasons as government guarantees) or a letter of comfort from the host government which is usually unenforceable.

Events of default

The PPA should have a carefully defined event of default provision including (amongst others) the failure of the sponsor to deliver the contracted supply of electricity or the GOG Utility’s inability to purchase such electricity (can be split into "GOG Utility Default" and "Sponsor Default"), the insolvency of the parties, the occurrence of a misrepresentation, failure to meet certain construction milestones and a material breach of the PPA.

Cure periods in respect of an event of default should be built in to give both parties sufficient time to rectify. The cure periods will depend on the nature of the default and the period agreed by the parties.

Assignment / change of control

The PPA is an important part of the lender’s security package. It is usually a requirement that consent from the GOG Utility in relation to assigning the benefit of the PPA to the lenders should not be required.

Similarly, most developers may at some point want to bring in new investors into the project. The sponsor would want to implement this with little restriction from GOG Utility. As such, the sponsor will not want to include a change of control provision. However, the GOG Utility may require this in order to have some control over the introduction of new investors to the project.


Electricity generated from solar pv projects can be part of the short term and long term solution to the power problems facing Rwanda, Kenya, Tanzania, South Africa and many other parts of Africa. It will take time for these jurisdictions to create a workable development framework for more solar pv projects to come to market.

Absent the mainly technical problems that hinder power projects, what is required are stable regulatory systems that give investors the comfort they need to invest, the “support” of the governments to find solutions to what are usually short term political or fiscal challenges hindering new projects, and willing investors with the appetite to work through some of these challenges with their government counterparts.

We believe that getting these variables right will contribute towards creating an enabling environment for investors, governments and their citizens alike to truly benefit from the clean energy revolution, powered by solar!

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