helen hoka osiolo - green growth diagnostics for africa

Regulation in Kenya

Helen Hoka Osiolo

Thursday, 19th January 2016 Wellcome Collection, London

Landscape RE in Kenya • Kenya is endowed with abundance renewable energy

resources but energy endowments remain largely underutilized.

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Hydro Geothermal Cogeneration Wind Subtotal:Renewable energy

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Landscape RE in Kenya • Lack of access to modern energy services and over

dependence on biomass to meet basic energy needs

• Electrification rate is over 55 percent as at 2015/2016 by Kenya Power

• Challenges in RE is dominated with regulation and institutional; information and technical capacity; and financial barriers.


Regulation and Institutional Barriers • Kenya has vibrant policy, regulatory and institutional

framework however it suffers from slow implementation

• The Feed in Tariff -project developers consider them to be too low for the policy to serve its purpose.

• Lack of a guaranteed tariff for wind projects larger than 50MW.

• Because of the lack of a guaranteed tariff for wind projects larger than 50MW, the project activity had to negotiate its own tariffs with Kenya Power which may not be attractive.

• Because of intermittency of power supply from renewables, utility may not allow favourable transmission accessibility to renewable energy producer or they may charge high prices for transmission access

• Lack of coordination among RE stakeholders and regulatory authorities


Financial Barriers

• lack of funding and inadequate financing in Kenya.

• Financing of RE projects is mainly through external sources, (in Africa the local sources contribute to less than 3% of total public expenditure).

• Lack of bankable RE projects .

• The domestic market lacks the resource capacity needed to finance RE due to the enormous cost outlay involved.

• lacks of a long-term affordable financing or or a lack of long-term price guarantees.

• Challenges in delivering committed projects on time and within stipulated budgets.

• Challenges in maintaining competitive, efficient and equitable tariffs especially for green energy.


Financial Barriers

• Cost of renewable energy technologies when compared to conventional energy such as fossil fuels is high .

• Imperfect capital markets have been identified as a constraint.

• Lack of avenues to achieving high rates of return .

• Internal Rate of Return needs to be higher than economic rate of financing.

• 12-15% Rate of Return on Investment

• Returns are not high enough due to:

– high investment costs. For high costs the main causes of concern are the capital costs.


Financial Barriers

• Energy promoters require funding of their projects in foreign currency and this poses a challenge to financiers who may not have a pool of foreign currency.

• Specialized nature of energy projects pose a challenge in choosing the financing mechanisms, it would not for instance be easy to ring fence any lending’s made to energy projects.


Information and Technical Barriers • Power utilities do not easily accept power produced by solar,

biomass and wind technologies not only because of the challenges in intermittent power but rather because of their smaller size.

• lengthy and uncertain processes to issue permits, limited local supply of expertise .

• Obstacles such as inadequate or antiquated grid infrastructure.

• Lack of technology knowledge and Lack of familiarity with the technology – implies relatively longer negotiations and approval processes.

• The growth of national institution for testing and operation and maintenance of technologies especially for solar is slow.


Information and Technical Barriers • In addition, the sector lacks a national systems of innovation

where such technologies can be incubated and commercialized.

• In adequate domestic technical skills account for poor maintenance of imported systems and lack of provision of adequate after-sales service in Kenya (UNIDO, 2009). -i.e. biomass the challenge is demonstration of the commercial and institutional framework in which the technologies can be profitably deployed and replicated.

• Because of the newness of the technology, there is still a general lack of understanding about the technology. People tend to be sceptical about the potential of wind energy as a reliable source of energy.


Behavioral Barriers • Poor dissemination have affected even the mature

technologies like hydro.

• Poor market acceptance is the cause for low investment in renewable energy technologies

• socio-political challenges linked to securing land and wayleaves.


Constitution of Kenya • The passing of the Constitution of Kenya in 2010 altered the

governance structure of the country thereby necessitating the review of the energy sector framework.

• This led to the review of the Energy Policy (Sessional Paper No. 4 of 2004), the Energy Act (2006) and related Subsidiary Legislation in light of The Constitution, culminating in the Draft Energy Policy 2012 and later after the Energy Bill 2015.

• 47 county government;

• Responsible for energy planning and development within their jurisdiction.

• In charge of electricity and gas reticulation and energy regulation.


Constitution of Kenya


Institutional Framework of Power


Energy Regulatory Commission (ERC) • ERC is the only single sector regulatory agency whose

functions include; economic and technical regulation of electric power, renewable energy, and downstream petroleum sub-sectors, including tariff setting and review, licensing enforcement, dispute settlement, and approval of power purchase and network service contracts.

• It administers pricing and plays a role in negotiation of Power Purchase Agreements (PPAs) between KPLC and the power producers as private entities.


Overview of RE Policies in Kenya


Energy bill, 2015 Energy policy and integrated energy plan

National energy entities

Renewable Energy and RE FiT systems

Electrical energy

Rights of way, way leaves and use of land for energy resources and infrastructure

National Energy and Petroleum Policy, 2015

Captures the contribution of both RE and Non RE

Provide details on land, environment, health and safety

Discussion on devolution and provision of energy services

Energy financing, pricing and socio-economic issues

Legal and regulatory framework, integrated energy planning

Sharing of energy benefits

Community engagements, expectations and conflicts

Energy (Local Content) Regulations, 2014

It provides Commodity extraction and commodity revenues policies that enhance diversification, linkages and spill-over effects to the local economy.

Overview of RE Policies in Kenya


Feed-in-Tariff(FIT)

Introduced in march, 2008, updated last in Dec 2012,

Allows power producers to sell electricity generated from renewable energy to the off-taker, KPLC, at a pre-determined tariff for a given period of time.

Solar was introduced in 2010 and covers only off-grid systems

Competitive Auctions

That is now looked unto to substitute the FiTs

FiT Application and Implementation Guidelines Policy , 2012

Provide guidelines o application and implementation of the FiTs

Overview of polices in Kenya

Guidelines for Grid Connection

Provides connection guidelines for small-scale renewable generating plants

Solar PV Regulations, 2012

The underlying purpose of the Solar PV Regulations is to improve the quality of solar PC systems in Kenya, especially by improving and ensuring the capabilities of the private sector actors, e.g. technicians, manufacturers, vendors.

Energy management regulations, 2012

Through these regulations the energy efficiency shall be enhanced in the industrial, commercial and institutional facilities.

The focus lies on energy conservation, but renewable energy systems are usually considered as one option of energy efficiency enhancement

The regulations generally contribute to the awareness raising towards energy issues and to increase the interest in solar PV and wind.

Overview of polices in Kenya Net-metering/

electricity banking regulations

Discussion ongoing on the introduction

Sessional Paper No. 4 on Energy” (2004, the Energy Act (2006) and Vision 2030

They mention RE as important for ensuring a safe and independent

Policy objective is to ensure adequate, quality, cost effective and affordable

supply of energy through indigenous resources while protecting the

environment

Encourages wider adoption and use of renewable energy technologies to enhance their role in the country’s energy supply matrix.power production in Kenya, but do not define any concrete targets.

National strategy for RE research is to be developed as well as a framework to enable the efficient and sustainable renewable energy generation, transmission and marketing.

Energy Act 2006 provides the regulatory framework

energy sector restructured


Least cost power development plan

Revisisons 2013 and 2016

Rural Electrification Master Plan

Roadmap for rural electricity expansion

Kenya National Climate Change Response Strategy (2010)

- Carbon neutral energy development plan


Exemptions from Import duty and VAT

Supplies imported or bought for the construction of power-generating plants, as well as certain equipment and machinery, are eligible for VAT and import duty exclusions under the VAT Act 2013 and

VAT (Amendment) Act 2014:

Hydro turbines and water wheels are free from import duty but pay 16% VAT.

PV semi-conductor devices including PV cells and light-emitting diodes, together with wind powered generating sets (preassembled), are subject to a 5% import duty and 16% VAT.

Solar cells and modules that are not equipped with elements such as diodes, batteries, or similar equipment are free from import dutyand exempt from VAT.

Wind engines (wind mills) are free from importduty and exempt from VAT.


Other policies in RE

The Energy (Solar Water Heating ) Regulations ,2012

The Energy (Appliances' Energy Performance & Labelling) Regulations, 2016

Designation of Energy Users Gazettement

The Draft Energy (Improved Biomass Cookstoves) Regulations

The Energy (Solar Photovoltaic Systems) Regulations, 2012

The Energy (Energy Management) Regulations, 2012

Conclusion • Long term debt can attract RE investments.

• What is need is a political will and leadership.

• Stakeholder engagement - bottom up approach and feedback

• Resource evaluation and allocation - financial, environmental, human and institutional resources.

• Need for Private sector participation – investments & feedback.

• Innovative Public Private Partnership frameworks that help address socio-political challenges :securing land and way leaves and that help investor’s focus on their expertise.


Conclusion • Need to re-align RE policies with other sector policies and

development plans.

• Need for proper knowledge on renewable energy.

• What is also required is an optimal mix of different policies – “No one policy is enough but a mix of all the policies is essential”.


END

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