The unbundling and liberalisation of the energy sector in the mid-1990s was the golden key that unlocked the vast private investment opportunities in Kenya.
This was closely followed by the establishment of decentralised State-owned energy organisations.
The unbundling and liberalisation of the energy sector in the mid-1990s was the golden key that unlocked the vast private investment opportunities in Kenya. This was closely followed by the establishment of decentralised State-owned energy organisations.
These events significantly improved the operational efficiency of the sector and mapped Kenya as one of the foremost destinations in the region for private energy investment.
After the reforms, Vision 2030 was launched in 2008, signalling the State’s pivotal claim in championing the scaling up of electrification. Then came the Big 4 Agenda in 2017, whose pillars are manufacturing, affordable housing, universal health coverage and food security and nutrition.
Vision 2030 identified energy as one of the enablers for sustained economic growth and a key foundation for Kenya’s envisaged national transformation.
The East African region is endowed with both renewable and non-renewable energy resources. On average, the region has an electrification rate of 39 percent, a relatively low figure partly due to the high cost of connectivity.
The electrification gap provides opportunities for deeper investment, especially considering that Kenya placed strongly at position 56 worldwide for its ease of doing business in the World Bank Doing Business 2020 Report.
In a bid to attain 100 percent electrification, Kenya recently enacted policies and regulations aimed at increasing investment in the generation, transmission, and distribution sub-sectors.
The draft Energy (Mini-Grid) Regulations 2021 for instance, seek to encourage the generation of power near underserved demand centres. The regulations, once gazetted, will promote affordable and accessible electricity for community needs and extensive investment opportunities.
Kenya’s grid system has for decades, been a single buyer model with Kenya Power being the sole off-taker and distributor.
The Energy Act of 2019 provides for an open access market framework. With enabling regulations, Kenya Power is set to lose its monopoly status and consumers will be able to choose from suppliers and distributors.
This Act also introduced net-metering where consumers who own electric power generators of a capacity not exceeding 1 megawatt (MW) will be allowed to supply power to the national grid.
Once net-metering regulations providing grid interconnection specifications are published, qualifying consumers will be able to earn grid supply credits and offset electricity expenses.
The recently revised 2021 Feed-In-Tariff Policy allows Independent Power Producers (IPPs) of small-scale biomass, biogas and small hydro projects of up to 20MW, to enjoy fixed predetermined tariffs for supplying power to the main grid through Power Purchase Agreements (PPAs). The Feed-In-Tariff Policy has resulted in increased uptake of renewable energy investments.
Under the Auctions Policy, tariffs for solar, wind and renewable projects larger than 20MW will be based on a competitive bidding process. This is set to reduce off-taker costs, introduce a level of flexibility, and promote innovation.
The recently revised Feed-In-Tariff Policy and the new Auctions Policy are subject to approval by the National Treasury and recommendations of the report of the presidential taskforce for the review of PPAs.
The taskforce established on March 29, 2021 is reviewing aspects such as risk re-allocation, compliance, sustainability, renegotiation, and possible termination of PPAs. It is also re-examining the sector’s Take-or-Pay system, which compels Kenya Power to buy agreed electricity regardless of need, and possibly and possibly replace it with Pay-when-Taken approach, or any other suitable payment structure.
Notably, the taskforce in executing its mandate, has been called upon by industry to take an all-encompassing approach to ease the power sector challenges.
To spur demand, the focus should be on acceleration of implementation of the Big 4 Agenda flagship projects, coupled with load growth through affordable grid connection initiatives in lower income areas.
In addition, better system management will help reduce system losses caused by administrative inefficiencies, absence of adequate automation solutions and sufficient innovative technological advancements.
PPAs under review by the National Assembly Departmental Committee on Energy have naturally created anxiety and uncertainty over project bankability and country risk. What remains constant, however, is the ever-changing regulatory universe.
In the wake of the above regulatory reforms, it is important for energy stakeholders and investors to have a clear understanding of the policy and legal framework to expertly navigate any regulatory minefields.
An assessment of the applicable energy laws, including the surrounding laws of general application such as public private partnerships, environmental, consumer protection, corporate and tax laws is key.
Identifying land acquisition considerations, licensing requirements and local content obligations early enough will go a long way in quantifying the risks and opportunities involved, mitigating any negative implications, and maximising the potential benefits.
Ms Kipkulei is a manager in PwC’s Legal & Regulatory Compliance Advisory practice in Kenya
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