Meeting demand for electricity is an increasingly important priority in Tanzania. Consumption more than doubled between 2000 and 2012, and with access to low-cost power a core element of the government’s push to develop industry, the pursuit of new generation options is even more pressing.

Tanzania is in the midst of an energy diversification drive, and new power plants are under development using coal, geothermal, wind and solar power as feedstock – a shift from historical precedent, when hydroelectricity accounted for the bulk of production. Private investment is expected to play a major role in this process, although the independent power producer (IPP) structure is less of a priority for the government than other public-private partnerships (PPPs) in which it retains ownership of the assets, such as build-transfer arrangements.

Primary Sources

In FY 2015/16, of the country’s 1250 MW of generation capacity, natural gas accounted for 56%, hydro 31% and liquid fuels 13%. Hydroelectric capacity comes from six sites, including the Kidatu (204 MW), Kihansi (180 MW) and Mtera (80 MW) power stations. Its contribution has fallen from around two-thirds in 2005 to under onethird currently, a result of erratic rainfall and a rise in other forms of generation. The biggest increase in new feedstock for generation is gas, which is unsurprising, given Tanzania’s substantial reserves of the hydrocarbon. Processed gas is available from PanAfrican Energy Tanzania (PAET), which is one of three upstream producers, and Tanzania Petroleum Development Corporation (TPDC).

Tanzania Electric Supply Company (TANESCO) – the country’s vertically integrated power utility – buys from PAET at around $3.50 per million British thermal units, and from TPDC at $5.14. Gas purchase agreements are regulated by the Energy and Water Utilities Regulatory Authority. TPDC has so far sold gas at the same cost regardless of the customer’s distance from the gas source; however, an audit completed in June 2016 recommended that customers that are closer be charged less than those who are further away, to account for pipeline costs.


Some 5% of generation comes from renewables, according to the African Development Bank, but there is scope for development. The Rift Valley is rich in geothermal energy, and Tanzania has identified at least 650 MW of potential; in neighbouring Kenya, geothermal energy accounted for 27% of total installed capacity in 2015, although it is anticipated that Tanzania would develop several small-scale geothermal projects, rather than the large-scale ones seen in Kenya.

Tanzania also has high levels of solar energy, ranging between 2800 and 3500 hours of sunshine per year, and global horizontal radiation of 4-7 KWh per sq metre per day, according to estimates from the African Development Bank. Large-scale, grid-connected photovoltaic solar power is a possibility, with estimates indicating that total capacity could reach 800 MW. In addition, wind potential has been identified at Singida and Iringa.


TANESCO accounts for around 60% of total production, while IPPs and emergency power producers (EPPs) provide 26% and 13%, respectively. However, the government is hoping to increase private participation beyond the current six IPP agreements. Three of these are operated by US-based Symbion Power, and three by Tanzanian companies Independent Power Tanzania and Songas.

The development of IPPs stems from a push to expand generation during a shortage in hydropower created by droughts in the past two decades. Contracts were signed with private investors, of which Aggreko, APR Energy and Symbion were designated as EPPs, allowing them to sign power-purchase agreements (PPAs) for five years – shorter than the typical 15-20 years usually granted to producers.

However, the agreements have been problematic in terms of implementation. A 1995 PPA with Independent Power Tanzania, for example, saw Standard Chartered – which had signed a finance agreement for the facility – being awarded $140m plus interest, payable by the government of Tanzania. Similarly, Symbion Power, which entered the country as an EPP, and then in 2015 signed a 15-year PPA with TANESCO that would have re-categorised it as an IPP, said in March 2017 that it is seeking $561m at the International Chamber of Commerce in France from TANESCO over breach of contract, both for power already provided, and a failure by TANESCO to execute the 2015 contract.

As a result, total output by IPPs has slowed. In 2016 IPPs accounted for 37% of power generation, down from 40% in 2015. The figure is expected to be shown to have fallen further when full-year figures are available for 2017 because the government has declined to offer new PPAs to some existing producers. However, the state remains formally open to IPP investments, although the government’s current power development strategy focuses instead on state-owned facilities or on PPP arrangements allowing for state ownership. It is also expected to be more cautious in contracting in more complex structures with a private sector partner. “The government has concerns about entering into contracts for which terms are unrealistically inflated and revenue due to government is implicitly understated,” Samuel Nyantahe, chairman of the Confederation of Tanzania Industries, told OBG. “But for the contractors, sometimes this is just a hedge against risk.”

New Plants

According to the Five-Year Development Plan II 2016/17-2020/21 (FYDP II) published in June 2016, four major capacity additions are envisioned by 2020. These gas-fired power plants in the works at Kinyerezi – one of several sites in the country where power plants have been clustered – will add a combined 1055 MW of new capacity.

The state will be funding one expansion in full, budgeting TSh410bn ($186.5m) for the project. For another, it will spend TSh110bn ($50m) and receive funding of TSh138.09bn ($62.8m) from the Japan Bank for International Cooperation. For the two others, private partners are being sought, with each project needing an investment of around TSh230bn ($104.6m). Kinyerezi is already the site of one plant, a 150-MW facility which Norway’s Jacobsen Elektro completed in 2015 on a turnkey basis. The FYDP II assigns the state-run National Development Corporation (NDC) a central role in developing power generation, via coal, wind and other projects, and details seven new transmission lines, which will expand the grid from 4901 km to 9511 km by FY 2020/21.


Funding remains central to executing the proposed projects, and several variables are still to be determined. In some cases, the development plan makes clear that funding will be a challenge, such as for the proposed 50-MW wind facility at Singida, for which the NDC was unable to source capital.

The national government has capacity to borrow more, with a debt-to-GDP ratio at 39%, although President John Magufuli has stated a desire to avoid exacerbating the country’s fiscal situation.

One solution that could address supply without adding to the debt load is importing power. Tanzania has joined the Eastern Africa Power Pool, a pact between 10 countries with a plan to spend $1.6bn on a regional grid. As part of the power pool, Ethiopia has pledged to supply 400 MW to Tanzania, while TANESCO is expecting to launch a tendering process for a 400-KV interconnection line in Zambia.

Captive Solutions

There is also room for private investment in captive power generation. Kioo Glass and Tanzania Cigarette Company have contracted the UK’s Clarke Energy to build captive plants, and Nigeria’s Dangote Cement, which operates cement plants in Mtwara, has applied for a licence to operate a new 75-MW plant using coal as a feedstock.