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.
Thursday, 19th January 2017 2
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Hydro Geothermal Cogeneration Wind Subtotal:
Renewable energy
Thermal Total
Generation(GWh3)
Generation of Electricity, 2013-2015
2013
2014
2015

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.

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
THANK YOU

Helen Hoka Osiolo - Green Growth Diagnostics for Africa

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