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Economy

Law locks out small power producers from tax breaks

Job Wanjohi
Kenya Association of Manufacturers head of policy and research Job Wanjohi during a past briefing. FILE PHOTO | NMG 

Power producers under mini-grid systems may lose out on incentives extended to large-scale generators who sell to Kenya Power #ticker:KPLC, manufacturers have said.

They are now warning this could hurt government policy of promoting access to affordable off-grid electricity in remote areas.

The Kenya Association of Manufacturers (KAM) said the Income Tax Act only recognises producers of electricity to the national grid as manufacturers, locking out small ones who are now legally allowed to supply to surrounding consumers.

The Energy Act 2019 allows a person who owns an electric power generator of a capacity of not more than one megawatt to enter into an agreement with a licensed distributor to operate a net-metering system.

The system enables them to charge surrounding homes and businesses connected to the electricity.

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KAM, the sector lobby, wants a miscellaneous amendment to the Income Tax Act to include small-scale producers of electricity who are supplying to mini-grids among manufacturers so that they also enjoy incentives such as tax holidays.

This, Job Wanjohi, KAM’s head of policy and research said, should be done through the Finance Bill 2020 to be prepared by the Treasury for approval by the National Assembly later in the year.

“We want the definition of manufacturing to be changed under the Income Tax Act because it does not cover someone who’s not supplying to the national grid,” Mr Wanjohi said.

“In net metering, you don’t have to necessarily supply to the national grid. You have a number of consumers who are the ones you supply to. But because you are not supplying to the national grid, you cannot get some allowance.”

The Energy Act 2019 has opened up the national grid — power transmission and distribution network — to multiple players, democratising the electricity retail market segment which has been dominated by Kenya Power.

The Energy and Petroleum Regulatory Authority (EPRA) requires firms to have a permit to operate a power plant and a tariff approval to sell electricity.

“We can’t get grid to every corner of the country; we will be having spaghetti wires all over. There are isolated areas where we want people to have some mini-grids in order to supply energy to those people,” EPRA director-general Pavel Oimeke said in a past interview.

The regulator was in March 2018, for instance, sharply criticised and condemned for switching off a solar plant operated by Dream Green Power (K) Ltd at Remba Islands in Lake Victoria — which was at the time not connected to the national grid — for operating without requisite approvals.

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