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Linda Lee Bower's picture

Off-grid hydropower boost for agribusiness in Uganda

An initiative in Uganda seeks to help agricultural development by encouraging the implementation of small hydropower projects that deliver electricity to farmers, agribusiness, and other customers in the area surrounding the power plant. Economic analysis indicates that such projects can have a large and positive impact on agricultural production and productivity. What is needed now is investment for such power projects, writes Linda Lee Bower.

Atari river siteUganda is a primarily a rural, agricultural country. Agriculture represents almost three quarters of total employment and one quarter of gross domestic product (GDP). The sector also accounts for most of Uganda’s exports: coffee is the biggest export earner, along with other agricultural products including tea and cotton, among others.

The role of electricity in agriculture

Energy is a very important factor in increasing agricultural productivity. Modern agriculture requires energy input at all stages of production, including post-harvest activities such as drying and milling, hulling, grading, roasting, and packaging, among others. 
Currently in Uganda, electricity from the national grid is not available in rural areas.

Consequently, most post-harvest processes are performed by hand. Some concerns rely on diesel generators, but this method is two to six times more expensive than grid-based electricity. Thus, new hydroelectric power plants in rural areas can accelerate agricultural growth and economic development. Hydropower is one of the least expensive methods of generating electricity.

Uganda’s renewable energy policy

The government of Uganda’s policy vision is to make modern renewable energy a substantial part of national energy consumption. A very important element in this program is attracting investment for projects and financing them. One focus is on small hydropower projects. 

The national grid is owned and operated by the Government of Uganda; but for small hydropower projects (under 20 MW), private investment is allowed, and foreign investment is welcome. The business model is that the investor builds a hydropower project and sells electricity output to the national grid under a 20-year contract at a good price that yields a 15–20 per cent return to the investor. 

Presently, small hydropower plants account for only a small percentage of electricity generation capacity in Uganda, but a lot of potential exists. Uganda has many small rivers where hydropower plants could be developed. More than 50 potential small hydropower sites have been identified in Uganda through various studies.

This framework fosters the expansion of the supply of energy to the grid, but it does not facilitate local distribution networks to provide electricity in the area surrounding the plant. To address this issue, the Ugandan Government created the Rural Electrification Agency (REA), which has a mandate to invest in the expansion of local distribution networks to increase electricity distribution in rural areas. However, this agency is overwhelmed by many requests, and investment needs exceed government funding capacity.

Another issue is that while the potential users want to have electricity and could afford the monthly bill, the initial costs (such as meters installed on customer premises or new electric-powered machinery) may be beyond their means.

The US Agency for International Development (USAID) has established a program to address these issues.

USAID’s Power for Rural Livelihoods Activity

USAID’s Feed the Future program has a “Power for Rural Livelihoods Activity” (PRLA), which seeks to achieve agricultural development through increased availability of power. The objective of this activity is to increase the value of selected agricultural products through improved post-harvest operations. The program focuses on the value chains for coffee, beans and maize. 

This is seen as a win-win opportunity for investors interested in building hydropower plants"

USAID has developed a concept that adds incentives to investors to include local distribution networks in their projects – incentives such as loan guarantees and assistance with environmental impact assessments and feasibility studies.

This is seen as a win-win opportunity for investors interested in building hydropower plants, as they can make additional revenues and profits from running the distribution network, and can also make an important contribution to the local community, which could be presented in the context of corporate social responsibility.

For the local customers, the model could assist with the initial capital costs of new electrical machinery for agribusiness or could help with the cost of installing meters in households.

Case study: Kapchorwa

One potential site for a hydroelectric project is located at Atari Falls in Kapchorwa in eastern Uganda. 

One farmers’ co-op located in Kapchorwa is the Kapchorwa Commercial Farmers Association (Kacofa). Kacofa is made up of 6,300 farmers, representing about 30 per cent of households in the area.  This co-op has a vision to transform the practices of its members from subsistence agriculture to profitable and sustainable commercial farming that provides income. 

Currently, few Kacofa farmers have powered equipment, and most post-harvest processes are done by hand. Kacofa leadership desires an adequate supply of reliable electricity to increase efficiency in processing crops, and to add value by moving more into processing and higher-value agribusiness activities. For example, the addition of a milling machine in the Kacofa facility would add value, and a machine shop would enable rapid repair of broken plows and other equipment. Also of interest to Kacofa is irrigation, which a hydropower project could enable. Irrigation would enable farmers to increase productivity, expand their acreage, and diversify into higher value crops.

Conclusions

An analysis of the potential to Kapchorwa indicates that delivering electricity to farmers that grow coffee, maize and beans may result in a 50 per cent increase in their annual income.

The main finding is that small hydropower projects with local distribution can have a large and positive direct impact on farmers’ income, private sector activities, and indirectly on households and non-agriculture business, resulting in economic growth and poverty reduction.

The author, Linda Lee Bower, participated in a project sponsored by USAID to examine the costs and benefits of small hydroelectric projects in Uganda to deliver electricity to farmers, agribusiness, and other customers in rural areas surrounding such projects.