The impact of the capital structure of electricity generation projects on electricity tariffs in Uganda

The recent transformation in the Ugandan energy sector has led to a significant surge in private electricity generation companies in the country. These companies have a heterogeneous capital structure and they tend to charge different tariff rates for the electricity generated. While the capital structure might have an important role to play in differential tariff setting, it is not clear to what extent it influences the tariff structure of electricity generation projects. Thus, the objective of this study was to examine the effect of capital structure on the tariff of electricity generation projects in Uganda after controlling for other factors such as operation and maintenance costs, technology used for generation, project development costs, and installed capacity of generation plants on the generation tariffs. Using cross-sectional data from 29 companies as at September 2014, a bootstrap linear regression analysis was used for estimation. The results of the study indicated that the higher the debt portion in the capital structure, the lower the generation tariff. However, the impact of debt in the capital structure was not statistically significant. What stood out is that renewable technologies have a much lower generating tariff than non-renewable technologies.