18 November 2018

Kenya: Regulator Mulls New Fund to Spur Growth in Solar Power Mini-Grids

The energy regulator is planning to set up a fund to cushion operators of mini-grids from high costs as part of regulations to encourage investors generate, transmit and sell electricity in remote areas at affordable retail prices.

A proposed law seeks to open up the national grid - transmission and distribution network - to multiple players, challenging Kenya Power's stranglehold on supply of electricity.

The Energy Bill, which underwent first reading in November 2017, proposes licensing of rival electricity distributors and retailers in a bid to open up the market and end State-controlled Kenya Power's near-monopoly status.

The Energy Regulatory Commission (ERC) says it is planning ahead in order to have regulations within a year after the proposed energy law is passed.

ERC director general Pavel Oimeke said the setting up of a fund will ensure uniform electricity tariffs for mini-grids across the country based on fair return on investment, with varying additional costs due to factors such as location being shouldered by the proposed fund.

"The cost of a tariff for a mini-grid is quite high because you are doing generation, distribution and billing," Mr Oimeke said last week.

"Right now, the government is funding transmission lines through Ketraco and we have Kenya Power and REA (Rural Electrification Authority) doing distribution. So the cost that people are paying (for electricity) now is not the true cost."

He said the regulator will be seeking concurrence within the government, including ministries of Energy and the Treasury, first on the size and source of funds before developing a framework for implementation.

"For the framework for an access fund (proposed) for mini-grids, we first need to have an agreement within government on how it will be funded. Is it from you the (electricity) consumer or exchequer, so we have a uniform tariff?"

ERC currently requires firms to have a permit to operate a power plant and a tariff approval to sell electricity under sections 27 (2) and 45 of the Energy Act 2006.

The regulator was in March sharply criticised for switching off a solar plant operated by Dream Green Power (K) Ltd at Remba Islands in Lake Victoria - which is not connected to the national grid - for operating without requisite approvals. Mr Oimeke said the processes of getting a permit for a power plant and tariff approval is a labourious one and that proposed regulations will ease it for investors in mini-grids.

"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," Mr Oimeke said.

"We have a general framework and we have licensed about 10 of them (mini-grid operators). But we are now working on mini-grid regulations."

Companies are increasingly turning to cheaper solar photovoltaic grid-tied system to supply power largely for internal use. They include Kapa Oil Refineries, Oserian Flowers, Africa Logistics Properties, London Distillers, Garden City, Williamson Tea and Strathmore University.

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