The Devolution of Power: Highlights of the Energy Regulations 2017
By Caroline Katisya, LL.B (UON), LL.M Energy Law and Policy (University of Dundee), CPS (K)
The recent reports that China intends to do away with diesel and petrol cars coming closely after several car manufacturers reported a change of strategy to production of electric vehicles marks a turning point in the renewable energy and electricity sector as a whole. These developments bring to sharp focus the proposed Energy (Electricity Supply) regulations 2017 which make fundamental changes to the alternative generation and distribution of electricity in Kenya. The proposed regulations aim at facilitating the devolution of power through off grid and renewable energy solutions.
Kenya is on an ambitious path of developing its electricity capacity through various projects such as Olkaria geothermal, Lake Turkana Wind and incentivizing renewable energy. These projects have realized an increase of the installed capacity from c. 1,500MW in 2013 to 2,400 MW. The penetration rate is improving and currently about 65% of Kenyans have access to electricity. The proposed ES regulations directly impact the renewable energy sector.
Renewable energy for purposes of this article refers to small-scale RE such as solar, wind, small hydro and bio energy which contribute about 6% to the installed capacity and excludes hydropower (36%) and geothermal power (45%). The renewable energy power generation is governed by the feed in tariff (FIT) regime which creates a loose regulatory environment aimed at spurring the growth of renewable electricity supply.
The FIT prescribes a tariff and guaranteed offtake by the distribution company, Kenya Power for twenty (20) years through a power purchase agreement (PPA). The tariff is passed through to a large extent to all electricity consumers. This incentive together with the rural electrification levy have resulted in the development of RES such as stand-alone power systems mainly solar and mini- grids which have been developed by the Rural Electrification Authority, donors/NGOs, tea factories and communities, mainly in small-scale projects in rural and far-flung areas.
The proposed regulations permit more buyers apart from Kenya Power which is currently the single power purchaser, it opens up electricity connection services to other players, it provides a framework for off grid distribution, it regulates electricity service providers amongst other changes highlighted below.
The main provisions of the proposed law include:
- Mini – grids and stand – alone power systems must be licensed and certified respectively. This is a new requirement for small-scale projects as the primary statute i.e. the Energy Act of 2006 had hitherto exempted power plants of below 1MW capacity from permits although de factoauthorization was required. It is an offence not to comply with the new licensing requirement, which attracts stiff penalties of up to Kshs 1 million for default by mini – grids. It is important to note that under Kenya’s Constitution, sunlight and renewable sources of energy vest in the government and therefore there must be a formal authorization for private players to access and commercialize natural resources. There is no indication of the applicable fees.
- The regulations impose several obligations on licensees. The first is an obligation to use best endeavours to supply customers in their locality. The best endeavours standard requires that all viable efforts must be employed to supply the different categories of consumers in their locality. The second obligation is to provide access for third-party installations to use the licensee’s electricity supply systems subject to ERC pre – approved contracts and licensee’s minimum standards. An open access requirement is thus imposed on electricity infrastructure owners.
- The proposed regulations state that funding for construction of off-grid solutions shall be borne by licensees, government or consumers. This implies that the current FIT system will not cater for this cost.
- The proposed regulations require ERC to competitively tender ‘uneconomically viable areas’ for supply by mini – grids and stand – alone power systems. This includes supply by RE, diesel, petrol and gas generator sets. The regulations define economically unviable areas as those where no return on the aggregate costs can be achieved in less than seven (7) years. It is necessary for the regulations to incentivize investment in none economically viable areas which has so far attracted predominantly charitable and government investment.
- In addition mini – grids have the right of first refusal for connections by Kenya Power within one kilometer of their grids and may refer any dispute to ERC.
- The regulations focus on better consumer experience, safety issues and professionalism of electricity service providers by stipulating licensing requirements for electrical contractors and service providers, periodic inspection of electrical installations, quality of service and reliability standards and detailed procedures for interruption of electricity. The penalty for interruption without notice is electricity providers will provide a credit of Kshs 100 or up to 5% of three months charges. This amount is woefully inadequate taking into consideration the adverse economic impact of black outs on manufacturing and service sectors.
- Of note is the development of segregated transmission and distribution grid codes which have separately undergone stakeholder review. It is expected that these will address reliability of supply. It is a mandatory requirement for licensees to comply with the directions of the System Operator. Failure to comply with the grid code or system operators or ERC’s directives results in a penalty of one million and/or six months imprisonment. This is an important requirement as more players generate electricity the transmission and distribution of it must be systematic to ensure that supply matches demand on real-time basis. The regulations fail to establish structures that will ensure the independence of the system operator in light of their domicile at the distribution company.
- The proposed regulations further liberalize the distribution of electricity by unbundling the connection services which may be provided by other players apart from Kenya Power. Connection charges were one of the debilitating costs for access to electricity. Connection charges incurred by first consumers in unconnected areas will be proportionately refunded by subsequent consumers. The connection charges will be set periodically by the ERC.
In conclusion, the proposed regulations are a win for consumers in terms of enhancing access and quality of service. However the increased compliance and off grid costs will more likely be borne by consumers in remote areas thus creating more inequality. The regulations would better meet its objectives by incentivizing green energy by promoting opportunities for renewable energy credits, net metering, storage solutions amongst other modern renewable energy legislation. It is unclear how the off grid supply merges with the FIT system which has as its lynchpin for offtake and revenue, the distribution company Kenya Power. Since the energy policy and proposed Energy Bill are pending enactment it may be worthwhile placing a moratorium on new regulations until the policy framework is in place.