New bill in Kenya puts cheaper renewables first

From the newsletter

The Kenyan Senate has passed the Energy Act Amendment Bill 2023 to increase transparency in energy purchase agreements. Key changes in the Bill require independent power producers to disclose their beneficial owners to obtain generation licences and mandate that electricity from cheaper, renewable sources be prioritised.

• Renewable energy use is being supported by favourable policies to support sector growth. This week, Zambia reduced the approval period for solar project applications from over six months to 48 hours, as it moves to fast-track projects in line with its goal of achieving 1,000 MW from solar by year-end.

• The policy targets to close loopholes that have facilitated electricity price exploitation, noting the contrast between KenGen's $0.039 per kilowatt charge and IPP rates of $0.077 to $0.22.

More details

• IPPs have played a major role in supporting the grid since the early 2000s when Kenya faced severe load-shedding issues. Key policy changes were made to allow private sector generation that pulled the country out of those dark days. Their contribution to total electricity consumed has grown to reach about 40%, with the majority of this mainly from renewables like solar, geothermal, and wind. Pictured is the Lake Turkana wind farm, one of Africa's largest IPP projects.

• The involvement of the private sector for power generation, however, came with a cost, since the first ones relied on thermal power generation that over time proved expensive due to increasing global fuel prices. These costs are passed on to consumers in the name of Fuel Energy Charges and Forex Charges. Public outcry led to the formation of a task force to review IPP power purchase agreements. The conclusion was that there were disparities that needed review. This bill sets out to establish more transparency for IPPs to protect consumers.

• The bill, which has now been sent to the national assembly for its input, further provides that the purchasing entity shall, before the procurement of electrical power, conduct a feasibility study to identify whether there is enough demand for electricity purchase that cannot be met by existing production.

• In addition, the entity shall ensure the process of procurement of electrical energy complies with the procedures set out in the Public Procurement and Asset Disposal Act and ensure that priority is given to dispatchable generation with a sustainable base load at the point of dispatch.

• Kenya, which relies on renewables for about 85% of its generation, is also proposing other policies and regulations. One is the net metering policy that is to allow captive power generators to inject their excess electricity into the grid and offset some of their consumption. Mini-grid regulations that aim to protect mini-grid providers whenever a grid extension reaches the mini-grid by allowing licence adjustments when the main grid arrives.

• Other countries are also making great strides in streamlining their renewable energy market. South Africa, earlier this month, extended its zero-registration fee policy and free smart meter installation for residential small-scale embedded generation (SSEG) customers in Eskom-supplied areas until March 2026. Nigeria, Malawi, Ghana, and Tanzania are developing policies to facilitate private sector investment in transmission lines.

Our take

• This proposed policy promises greater transparency in Kenya's energy market, which has long lacked it, to the detriment of consumers. However, the government should exercise caution to avoid over-regulating the market to the point where energy investors' returns are unduly restricted. Such tight control could deter essential investment.

• The emphasis on renewable energy is a positive step. The falling costs of renewable technologies mean they are increasingly competitive with fossil fuels and, when combined with battery storage, can now provide reliable baseload power.

• South Africa's solar incentives offer valuable lessons. Their market has experienced significant growth, and they continue to support the sector by extending zero registration fees for residential solar projects. Other African nations would do well to adopt similar strategies to promote growth in their own renewable energy sectors.