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REGULATING THE ENERGY SECTOR IN KENYA
By: Joe Ng’ang’a, Energy Regulatory Commission, Kenya
Geothermal Working Group MeetingAfrica Union Commission
Kampala, Uganda
19th – 23rd September 2011
BACKGROUND The Energy Regulatory Commission (ERC) is
established under the Energy Act, 2006
Parliament passed the Act in November 2006 and itreceived presidential assent on 30th December 2006.
The Minister for Energy operationalized the Act witheffect from 7th July 2007 through Legal Notice No. 142
Amongst others, the Act: Transformed Electricity Regulatory Board (ERB)
to Energy Regulatory Commission (ERC) with regulatory mandate for the entire energy sector.
BACKGROUND (2) The Energy Act, 2006 consolidated under one act
the legal framework for electric power, renewable energy and downstream petroleum sub-sectors.
The Act confers powers to the Minister for Energy to make regulations for electrical energy (s 63), petroleum (s 102) and renewable energy (s 103) on the recommendation of ERC.
BACKGROUND (3) The Act created an enabling regulatory
environment for power producers to invest in the country
Created a more effective regulatory framework for the petroleum and renewable energy sectors
Established the Rural Electrification Authority and Energy Tribunal.
ERC MANDATE ERC was created as a single sector regulatory
agency with responsibility for economic and technical regulation of electric power, renewable energy and downstream petroleum sub-sectors with powers to, inter alia:
Issue, renew, modify, suspend and revoke licenses and permits
formulate licensing procedures, enforce and review regulations, codes and standards
ERC MANDATE - (2)Recommend to the Minister regulations
necessary for the sectorSet, review and adjust electric power tariffsApprove power purchase and network service
contracts Investigate and resolve complaints and
disputes on any regulated matterProtect interests of various stakeholdersPrepare indicative national energy plan
ORGANISATION STRUCTUREThe Management of ERC is vested in the Commissioners consisting of:-
The Chairperson appointed by the President for a four year term (renewable once)
The Director General, who is the Chief Executive Officer of the Commission, appointed by the Minister for a period of three (3) years (renewable once)
Five other Commissioners appointed by Minister to represent theprivate sector in
general. They are appointed for a three (3) year term (renewableonce).
Section 15(1) of the Act provides for the appointment ofsuch other staff as would be needed for the properdischarge of the functions of the Commission
INDEPENDENCE OF THE COMMISSION
Section 4(3) of the Energy Act provides that:-
“Except as otherwise provided for in thisAct, the Commission shall be independentin the performance of its functions andduties and exercise of its powers and shallnot be subject to the direction and controlof any person or authority”.
23-Sep-11 Slide 9
INDEPENDENCE OF COMMISSION (2)Exceptions…
Under Section 111(3), the Minister may,from time to time, give directions inwriting to the Commission with respectto the policy to be observed andimplemented by the Commission
The Commission’s decisions may bechallenged by a party through the filingof an appeal with the Energy Tribunal
INDEPENDENCE OF THE COMMISSION (3)Challenges… Section 111(3) of the Act exposes the
Commission to the possibility of undueexternal pressure (usually political)
ERC has limited powers to sanction regulated entities (e.g. impose fines)
PS, Ministry of Energy is a Commissioner
Commissioners lack security of tenure
DETERMINATION OF TARIFFSAll contracts for the sale of electrical energy,
transmission or distribution services, between and among licensees and large retail consumers shall be submitted to the Commission for approval before execution
In considering a contract, the Commission shall ensure that the rates or tariffs established in the contract are just and reasonable
DETERMINATION OF TARIFFS(2)… just and reasonable tariff shall
mean a rate that enables a licensee to, inter alia:Maintain financial integrity; attract capital;operate efficiently compensate investors for the risks
assumed.
TRIGGERS OF A TARIFF REVIEWEnergy Act, 2006 provides for an
application by a consumer or a utility; ERC can also act on its own motion
Retail Electricity Tariffs Review Policy, 2005 provides for retail tariffs to be reviewed every three years
INCENTIVES AND SUBSIDIES IN THE SECTOR
Investment costs for transmission projects, geothermal exploration and drilling costs are borne by GoK
Development partners offer concessionary funds with low interest, moratorium and long tenor
Inter-consumer subsidies under the uniform tariff policy where for instance rural consumers enjoy the same tariff as their urban counterparts
Intra-consumer subsidies where lifeline consumers are subsidized by domestic consumers with large consumption
PLANNING MANDATE OF ERCSection 5 (g) of the Energy Act mandates ERC
to develop indicative national energy plans
ERC has set up a Stakeholder committee with representatives from: MoE, KenGen, KPLC, GDC, REA, KNBS, KenInvest, KETRACO,KEPSA, Vision 2030 Board and the Ministry of State for Planning, National Development and Vision 2030 to undertake least cost planning
DEMAND FORECASTThe peak demand forecast rises from
1,227MW in 2010 to 15,026MW in 2030 and 16,905MW in 2031.
The energy demand increases from 7,296GWh in 2010 to 91,946GWh in 2030 and 103,518GWh in 2031
Thus current peak load is expected to grow by about 12 times by the year 2030
The main driver for this growth is Kenya’s Vision 2030 strategy
Least Cost Power Development Plan
By 2031 installed capacity will be 21,620 MW of: 5,530 MW Geothermal 4,000 MW Nuclear 2,720 MW Coal 2,340 MW GT- NG 2,036 MW Wind 2,000 MW Imports (regional interconnections) 1,955 MW MSD 1,039 MW Hydro
Proposed Regional Interconnections1,200km of 500kV HVDC line
between Kenya and Ethiopia
423km of 220kV double circuit linebetween Olkaria, Kenya and Tororo, Uganda
500km of 400kV line between Isinya, Kenya and Singinda, Tanzania
LICENSING MANDATE OF ERCIn accordance with Section 27 (1) of the Energy Act,
a licence is required for: the generation, transmission, distribution and
supply of electrical energy (to utilities orlicensees)
electricians and electrical contractors
Performance Monitoring of licenseeswith respect to quality of supply and service
electricians and electrical contractorsperformance
LICENSING ACTIVITIESReviewing and recommending issuance, renewal, modification,suspension or revocation of licences and permits for utilities-
To ensure electricity is generated, transmitted, distributedand supplied in a safe, secure and reliable manner,
The licences and permits include conditions setting out therights and obligations of licensees, as well as end-users
Licences required for undertakings of more than 3 MW;permits apply for projects of 3 MW or less
Permit not required for undertakings of less than 1 MWwhich cannot be conveyed to a transmission or distributionsystem (i.e. of own use)
LICENSING PROCESS Applications are made by the party wishing to carry
out electric power undertakings
The application is reviewed and if found materiallycomplete the license or permit is processed within90 days. Aspects to be assessed include feasibility ofthe project, technical and financial capability ofapplicant, bulk tariff offered, compliance withenvironmental laws, amongst others
Upon issue of the licence or permit, the applicantpays a grant fee, and thereafter annual fees, to theRural Electrification Authority.
LICENSED ELECTRIC POWER PRODUCERS Kenya Electricity Generating Company (KenGen) accounts for 1,180 MW
(72%) of the total installed capacity of 1,639 MW consisting of hydro,geothermal, thermal and wind power plants
Independent Power Producers (IPPs) provide the balance (28%):
Iberafrica Power, Tsavo Power and Rabai Power operate thermalpower plants (MSD) of, respectively, 108MW, 74MW and 90MW makinga combined capacity of 272 MW
OrPower4 Inc. operates a 48 MW geothermal power plant
Mumias Sugar produces 38 MW of cogeneration, of which 12 MW is forits own use, leaving a balance of 26MW for export
An Emergency Power Producer has a 60 MW short-term power plant
OTHER LICENSED ELECTRIC POWER PRODUCERS
Imenti Tea Factory operates a 920 kW hydro power plant of which about500 kW is for own use, balance being sold to KPLC under the Feed-in-Tariff Policy;
James Finlay, Sotik Tea Company, Sotik Highlands Tea Estate andUnilever Kenya operate hydro and thermal power plants for own use;
Oserian Development operates a 3 MW geothermal power plant andPan African Paper Mills operates a 9 MW thermal power plant for ownuse;
Base Titanium, Turkana Wind Power, Triumph Power, Gulf Powerand KPRL are also licensed but are yet to construct their plants.
TRANSMISSION, DISTRIBUTION AND SUPPLY LICENSES FOR KENYA POWER
Kenya Power, the sole offtaker, purchases power from KenGenand IPPs through Power Purchase Agreements (PPAs) approvedby the Commission, and has been issued with- One Transmission Licence for the existing transmission
network comprising 1,323 km of 220 kV lines and 993 km of 132kV lines;
Four Distribution and Supply Licences for its Nairobi,Coast, West and Mt. Kenya Regions;
Two Distribution and Supply Permits for the isolated gridsof Lamu and Garissa and Twelve Generation, Distributionand Supply Permits for the isolated grids at Elwak,Habaswein, Mpeketoni, Mfangano Island, Merti, Wajir,Mandera, Moyale, Lodwar, Marsabit, Hola and Bargoi.
MONITORING OF THE ENERGY SECTOR
Technical performance of licensees is monitored for compliance to ensure that they: operate in accordance with their license/permits
conditions, operate efficiently, safely and protect the environment, Meet expectations of their customers, for acceptable
Quality of Supply and Quality of Service,
Monitoring entails technical audits, analysis of periodic reports and investigations of selected accident and incidents
TYPICAL TECHNICAL AUDIT ISSUES
Design and constructionOperation and maintenanceCustomer serviceMetering and billingQuality of supply / product
SAMPLE OF ISSUES RAISED WITH LICENSEES
• Understanding of the Regulatory framework
• Stock levels of materials to meet obligations
• Adequacy of permanent and contracted personnel
• Quality of materials used
• Adherence to environmental health and safety
standards
• Inspection of new facilities prior to commissioning
COMPLAINTS/DISPUTES RESOLUTION The Commission approves customer service charters and
complaints handling procedures of the licensees byensuring provision of a platform to adequately addressconsumer complaints / expectations
If any complaint is not resolved by the licensee, thecomplainant is advised to lodge it with the Commissionfor a fair and independent hearing
Complaints vary in nature from quality ofproduct/service, metering, billing, tariffs, wayleaveinfringement to damaged equipment, etc.
COMPLAINTS AND DISPUTES RESOLUTION (2)
Once the complaints are lodged with theCommission, they are addressed throughmediation, arbitration or a fullCommission hearing
The Commission has issued new Energy(Complaints and Disputes Resolution)Regulations, 2010 consistent with theEnergy Act 2006
NEW DISPENSATION…New Kenya Constitution promulgated on 27th
August 2010
Revision (Repeal?) of Energy Act, in progress
Rules and regulations under the Act will need to be revised too
But…
New legistative framework should lead to an even more favourable regulatory environment