Small-scale hydropower curbs power shortfalls in poor countries
30/06/2009
Finnfund is one of the financial institutions participating in a project to build small hydropower stations in Sri Lanka and Uganda. By exploiting renewable energy, these countries can reduce their dependence on imported oil.
South Asia Energy Management Systems Inc. (SAEMS) is a US company established in 2006 to develop and own renewable energy plants, especially in South Asia and Africa.
Currently underway is a SAEMS project to build eleven hydropower stations in Sri Lanka and one plant in Uganda. Among the financiers of the project alongside Finnfund are development finance institutions from the Netherlands (FMO), Germany (DEG) and United Kingdom (EAIF, The Emerging Africa Infrastructure Fund). Finnfund is financing the project with a five million-dollar loan.
Finnfund investment manager Tuomas Suurpää notes that the SAEMS hydropower project fits well with Finnfund’s underlying strategy.
“Firstly, a project that displaces fossil fuels will serve to slow climate change. Secondly, part of the project is aimed at Uganda, which is one of the world’s poorest countries. Thirdly the project’s financial backers include other development finance institutions, which is one of our strategic objectives,” Suurpää explains.
Significant increase in Uganda’s generating capacity
Five SAEMS plants are already in operation in Sri Lanka. Another seven are expected to be ready to go on line by 2010. The combined output of the twelve power plants will be about 58 megawatts.
The development impact of the hydropower station to be built in Mpanga, western Uganda, is particularly significant. Currently under construction, the plant will have a generating capacity of 18 megawatts, which is equivalent to about 5% of the total generating capacity today of this east African country. In Sri Lanka the new SAEMS power plants will give capacity a boost that is about 2% of the country’s current generating capacity.
In both Uganda and Sri Lanka, SAEMS sells the electricity it generates to the national grid of the countries’ state-owned power utilities.
Hydropower to replace oil imports
“In Uganda the hydropower project will have a particularly strong impact on the electrical supply of a poor country,” Suurpää says.
Like many other African nations, Uganda has had its economic development seriously hindered by inadequate generating capacity. As power demand has increased over the past few years, electricity supply problems have become worse, with longer and more frequent power blackouts around the country.
Its national income per capita is about 900 dollars a year. Of a population of some 31 million, only five percent are estimated to have access to the power grid.
Income per capita in Sri Lanka is about 4 100 dollars. 54 percent of the country’s 21 million inhabitants have access to the electrical supply.
Suurpää points out that it makes sense for a national economy to exploit renewable forms of energy within its own borders. Electricity can be generated more cheaply from hydropower than from other sources. In addition hydropower improves the country’s current account because it reduces the need to import foreign fossil fuels.
“In practice hydropower is often used to replace power stations that use heavy fuel oil, causing pollution.”
Detailed studies to reduce risks
The development institutions providing finance for the project have carefully analysed whether the technology used in the power plants is suited to local conditions. The risk is reduced by the fact that the power plants under construction employ the same solutions as the completed SAEMS plants that are already producing electricity.
In the view of independent experts, the construction methods and the equipment used in the operating power stations are of high quality and their technology is well suited to the target countries.
One of the challenges faced by the Uganda power plant is that it has twice the capacity of the largest power plant in Sri Lanka, and its catchment area is ten times greater. To reduce risks a comprehensive study is being made of the geology of the area and the measures that should be taken because of this.
Environmental impact also under close review
The Mpanga hydropower project uses standards devised by the International Finance Corporation, part of the World Bank Group. These standards concern the assessment of environmental and social impacts, environmental management and monitoring systems and a separate programme for the protection of endangered tree species.
For all power plants, a list of the necessary environmental and social measures is being drawn up. Their implementation is assessed annually by independent experts.
Some 110 people work in SAEMS power plants. With the completion of the new plants, the company is expected to take on another 120 workers. It intends to recruit new workers mainly from neighbouring communities, which will improve employment in poor areas. SAEMS has its own training programme for new employees.
For more information please contact Mr Tuomas Suurpää, tel. +358 9 3484 3307, firstname.lastname@finnfund.fi
