This article is based on a presentation by David M. Mwangi, an independent energy consultant, at REGlobal’s recent virtual conference on “Solar Power in Africa”
Kenya’s geographical location astride the equator gives it a unique opportunity for a vibrant solar energy market where solar power can be harnessed for generating electricity, lighting, heating and drying. The country receives good solar insolation all year round estimated at 4-6 kWh/m²/day, coupled with moderate to high temperatures. As the western part of the country receives the highest levels of solar power irradiation, most projects are coming on this side. In fact, the regions around Eldoret and Nairobi are popular for solar power installations. Meanwhile, the eastern part of Kenya is yet to be connected to the grid and is majorly served through minigrids. Solar-based minigrids are a common source of power supply in the country.
However, the percentage of solar energy harnessed presently is insignificant relative to the potential. Kenya has just 53 MW of contracted solar power capacity which is less than 2% of the total contracted demand of 2,668 MW. In energy generation terms as well, the contribution of solar has remained less. However, the commissioning of the 50 MW Garissa Solar PV Plant in 2018 has raised the share of solar energy in the total generation mix to a small degree. Thus, the country has been recently making efforts to increase solar power uptake and decarbonise its electricity sector.
Organisational structure of the power sector
The Ministry of Energy is in charge of policy formulation and the Energy and Petroleum Regulatory Authority regulates the sector and also gives recommendations to this ministry on policy and regulation related matters. The Energy and Petroleum Tribunal is responsible for resolution of all disputes in this space and takes up appeals against the regulator.
On the generation side, the Kenya Electricity Generating Company (KenGen) is the main player. The government of Kenya owns 70% of the company while the rest is owned by private shareholders. There are 14 operational IPPs as well in the country while a few projects are under construction. The Geothermal Development Company and the Nuclear Power and Energy Agency cater to the geothermal and nuclear segments respectively. In addition, Kenya also indulges in cross-border power trading with Tanzania, Uganda and Ethiopia.
On the transmission side, there is the Kenya Electricity Transmission Company (KETRACO) which plans, constructs and manages the transmission infrastructure. Meanwhile, the Kenya Power and Lighting Company (KPLC) is the single offtaker in the country that buys power from all power generators on the basis of negotiated power purchase agreements (PPAs). It then supplies power to consumers. On the distribution end, there exist the Rural Electrification and Renewable Energy Corporation (REREC), a few private distribution companies and a few minigrids as well.
Evolving policy and regulatory framework
The Energy Act, 2019, is an important recent policy intervention as it ushers in the freedom to install a power generation plant of up to 1 MW for own consumption without the need for a licence from the regulator. Thus, willing power consumers can set up their own solar power plants. Further, it also lays the groundwork for net metering framework through which privately owned rooftop solar projects can sell power to KPLC. Moreover, the act also has provisions for opening up the transmission and distribution networks for promoting wholesale and retail competition.
Other important legislations include:
- The Public Private Partnership Act, 2013: Currently being reviewed to mainly streamline and shorten the procurement process of infrastructure projects
- The Competition Act, 2010: Aimed at promoting and safeguarding competition in the national economy
- The Environmental Management and Co-ordination Act, 1999: Regulates environmental issues
- Land Act No. 6 of 2012: Revision, consolidation and rationalisation of land laws; provides for the sustainable administration and management of land and land-based resources
- Climate Change Act, 2016: Regulatory framework for enhanced response to climate change and mechanisms and measures to achieve low carbon climate development in the country.
- Anti-Corruption and Economic Crimes Act No. 3 of 2003: Prevention, investigation and punishment of corruption, economic crime and related offences
- Community Land Act No. 27 of 2016: Recognition, protection and registration of community land rights; management and administration of community land; role of county governments in relation to unregistered community land
- Land Act No. 6 of 2012: Revision, consolidation and rationalization of land laws; sustainable administration and management of land and land-based resources
- The Land Registration Act, No. 3 of 2012: Registration of titles to land and the objects of devolved government in land registration
- Physical Planning Act, Chapter 286 of the Laws of Kenya: Zoning of areas for storage, distribution and retailing of petroleum products and construction of electric power sub-stations and other infrastructure
There are a few regulations that are being reviewed under the Energy Act, 2019 like the Energy (Electricity Licensing) Regulations, 2012 and the Electricity Tariff Regulations, 2014. Some are still under deliberation like the Energy (Solar Photovoltaic Systems) Regulations 2012 which has met with criticism owing to certain charges and fees for licenses that have been perceived to be quite high.
There are a number of policies and programs that impact solar power development in the country. The Kenya Vision 2030 aims to transform Kenya into a newly industrialising, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment. Solar power is expected to be a major contributor in this transition. Moreover, Kenya’s Sustainable Development Goals (SDGs) especially SDG 7 which is related to affordable and clean energy also promotes solar power uptake. As part of its commitments under the Paris agreement, the country is working on development of low carbon pathways anchored on policy, strategy and action plans which can be enabled in part through solar power.
The government prepares Least Cost Power Development Plans that account for solar power generation and are periodically updated. In the near future, Integrated National Energy Plans (INEP) are also proposed to be developed. The government also gives letters of support for PPP Projects. Further, the Feed-in Tariff Policy was announced in 2008 with revision of tariffs in 2012. For solar and wind power segments, the government agencies have decided to do away with the feed-in tariffs and move to auction-based mechanisms for allocating projects. However, this regulation is yet to be finalised. A few policies focus on solar minigrids as well like Installation of Power to Public Institutions distant from grid, Kenya Off-Grid Solar Access Program (KOSAP) for 14 counties and Kenya National Electrification Strategy (KNES) which aims for universal access to electricity by 2022 and includes the use of solar in minigrids and solar home systems.
Key drivers for growth
Attractive cost economics: Like the rest of the world, the cost of solar PV technology has drastically dropped in the last 12 years, now making it competitive with conventional technologies. The East African Community has exempted solar panels from import duty and VAT which further reduces project capex and make them more affordable. Moreover, attractive payment options like the “Pay as You Go” model have made solar power procurement affordable especially in the minigrids and solar home systems segments. Another important factor is the abundance of equity and debt funds that can support the development of solar projects.
Policy and technical support: To reach universal access to electricity by 2022 as per the Government of Kenya’s target, or by 2030 as per SDG 7, the country will need to connect households to electricity through the grid, minigrids and solar home systems. To promote solar power uptake, the government is considering auctions for attracting private sector participation. The net metering framework has also been formulated and will encourage homeowners and commercial establishments to set up solar projects and sell power to the grid. Further, free technical support is available for early and late-stage development of solar projects. Regarding issues of grid integration of large volumes of intermittent solar power, very high voltage interconnections between countries (mainly with Ethiopia, Uganda and Tanzania) will be in place in the next 1-2 years which will help maintain grid stability and ensure continued power offtake.
Scope for solar minigrids: Kenya is extensively hybridising existing minigrids, running on diesel, with solar PV and/or wind power. Further, new minigrids that are coming up will be either hybrid or purely solar PV with battery energy storage. Extensive studies are also being carried out to assess the use of grid-scale battery storage to mitigate against the intermittency of solar PV and wind power.
Key issues and challenges
While a lot of efforts are being made by both the public and private sector to scale-up solar power development in the country, there are a few inherent and critical challenges that need to be addressed. First and foremost, there is a lack of clarity on country’s evolving policies including the imminent transition from Feed-in Tariff Policy to proposed renewable energy auctions as well as Government’s insistence on applying national uniform retail tariffs in minigrids with no offer of subsidies to the private sector. Further, there are no regulations for minigrids except a draft which is yet to be finalised.
Although historically KPLC has been perceived as a creditworthy offtaker but now there are concerns about its financial health. Since it is the sole power offtaker in the country, its financial situation might delay payments thereby affecting project viability and investor confidence. On the other hand, there is a concern regarding the lack of demand for solar power as the country’s overall power demand is growing slowly and it is feared that there might be significant surplus solar generation capacity.
There are a number of issues on the transmission and grid integration side as well. There is a mismatch in the construction timelines of solar projects and transmission infrastructure with the former requiring less time. So as IPPs decide to wait for a transmission line being constructed by a utility, the projects can be inordinately delayed and might lead to stranded assets. Further, in a few cases the cost of connecting some solar plants to the grid is too high and impacts the viability of the projects. In other cases, where transmission line length is manageable and not as expensive, obtaining right of way takes long and is costly. Moreover, while energy storage can help in addressing grid integration and intermittency related challenges, the cost is much higher than can be profitably supported by progressively reducing solar PV tariffs.
In addition, there are various issues in procuring timely approvals and permits. There is no “One Stop Shop” arrangement for solar power projects leading to multiple approvals from various agencies which leads to costly delays. Moreover, the process of obtaining exemption of import duty and VAT is quite cumbersome, with concerns about cancellation of some waivers due to the covid-19 pandemic. There is also a lack of standardised solar PPAs which creates confusion amongst developers.
The way forward
Kenya has vast potential for solar energy, which is hardly tapped. However, going forward, solar power is expected to play a pivotal role in facilitating achievement of universal access to electricity owing to an enabling environment for development as well as a good appetite for private, including foreign, investment. According to the Least Cost Power Development Plan 2020-2040 Report, solar power capacity will increase from 53 MW in 2020 to 454 MW in 2030. However, it will decline by 50 MW to reach 404 MW of installed capacity by 2040 due to the expiry of the PPA for Garissa Solar PV Plant.
Further, there are extensive plans for increasing use of solar power in the national power grid, minigrids and solar home systems. There has been an increase in solar power uptake in the commercial and industrial segment as well. However, there have been reports of some reluctance on the part of KPLC which does not want to lose its high paying consumers.
In a nutshell, the challenges highlighted need to be addressed expeditiously if Kenya is to retain its position as a preferred destination for investment in solar power.