Kenya has revised its power pricing policy for renewable energy to allow the sale of solar-generated power to the national grid.
The change in policy is likely to attract new investors in solar energy, who were hitherto restricted to selling their power independently.
It is also expected to trigger new investments by communities living in high solar-potential regions like northern Kenya and to improve Kenya’s energy mix, eventually reducing the cost of electricity and boosting supply.
The revision will also see biogas suppliers roped into the national grid and geothermal prices raised to attract investors who previously kept away due to low tariffs.
Policy makers now expect investments in more and larger solar, geothermal and biogas generation projects.
Previously, the “feed-in tariff” policy only included prices at which investors in solar generation projects could sell to other consumers, and not to the national electricity distribution network, currently Kenya Power’s monopoly.
According to the new policy, which took effect this month, suppliers of solar power to the national grid will earn Ksh10.25 ($0.12) per kilowatt hour (kWh). But the investors must be running projects generating a minimum of 0.5 MW to 40MW.
Currently, there are no companies in Kenya that generate this volume of solar power, although interviews from across the industry show that there are several planned mega solar projects.
Currently, those selling solar power directly to consumers are allowed to charge up to Ksh17 ($0.2) per kWh, a move aimed at encouraging more investors to develop such projects, especially in remote areas of the country where the national grid has not reached.
According to the policy document released by the Energy Regulatory Commission (ERC), “Recent trends show a significant decrease in solar generation equipment prices, which may have contributed to the increased interest in grid-connected solar energy in Kenya.”
Smaller producers locked out
The new policy also introduces geothermal feed-in tariffs for generation of 35MW-70MW, effectively giving independent power producers an opportunity to sell to the national grid.
The previous policy recognised geothermal projects of less than 35MW, meaning the new one has locked out smaller producers. The tariffs have changed slightly from the previous Ksh72.62 ($0.85) per kWh to Ksh75.19 ($0.88).
Unlike the previous tariff that recognised biogas projects of up to 40MW, the revised tariff has roped in smaller producers of up to 10MW.
The tariffs that suppliers of biogas power will earn have also been increased from a maximum of Ksh6.8 ($0.08) per kWh to Ksh9.39 ($0.11).
The energy regulator is looking for ways to reduce the country’s reliance on electricity from the national grid, which currently does not match demand.
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Over-reliance on hydropower dams has often led to rationing when the rains fail, and growing demand has stretched the infrastructure of state utility firms.
The installed capacity is estimated at 1,600MW against a peak demand of 1,300MW, but frequent breakdowns of turbines or routine maintenance have seen the reserve margin dip to the negative zone.
According to the National Energy Policy (Third Draft) released in May 2012, hydro generation contributes 48 per cent of Kenya’s total energy mix, geothermal 12.4 per cent, wind 0.3 per cent, co-generation 2.4 per cent and thermal energy 37 per cent. Solar power is negligible.
Among the companies expected to start up solar electricity generation projects are local solar panel assembler Ubbink East Africa, KenGen, China Jiangxi Corporation and the United Nations Environmental Programme, which already has the biggest solar generation project in Kenya with an output of more than 500 kWh.
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Haijo Kuper, director of the Naivasha-based Ubbink East Africa, the region’s only solar assembly plant, said the company will from next month start manufacturing solar panels with an output capacity of up to 200 kWh, up from the current maximum of 120 kWh to meet the growing demand from investors planning on-grid power projects.
“We have received inquiries from investors interested in on-grid solar projects. There have been ongoing feasibility studies by various players that have indicated that on-grid solar investments are viable in Kenya,” he said, adding that the company will also invest in solar farms with an average output of 2MW.
Kenyans are already burdened by heavy power bills caused by the high cost of fuel. Kenya Association of Manufacturers chief executive Betty Maina said energy costs account for up to 40 per cent of production expenses, hurting Kenya’s global competitiveness.
“We would rather have expensive but consistent and reliable power, than rationing, which results in massive losses as a result of lost production,” she said, adding that the high cost of power has eroded the competitiveness of local manufacturing in the face of cut-throat competition from Egypt, South Africa, and Southeast Asia.
In sub-Saharan Africa, only Kenya and South Africa Kenya have introduced feed-in tariffs for renewable energy although the Sustainable Energy Regulation Network (SERN), a non-profit group, says is working with policy-makers from 14 African countries in designing feed-in tariffs.
The revised policy comes at a time when ERC is supervising the implementation of another policy that requires all premises within the jurisdiction of a local authority with hot water requirements of a capacity exceeding 100 litres per day to install solar water heating equipment.
Both commercial and residential premises will be required to install solar systems, since ERC estimates that 100 litres of hot water is the amount an average household uses every day, while the usage is higher in hotels.
The policy is meant to achieve a 60 per cent contribution of solar to hot water demand in a building to reduce demand from the national grid.
The measures have already driven up demand for solar water heaters, according to equipment vendor Davis and Shirtliff.
Due to inconsistent electricity supply, some companies such as Sasini, Kenya Tea Development Agency, Rea Vipingo and cement producer Athi River Mining have set up or are in the process of setting up power generating units.
Industry players said investment in solar on-grid generation will even make more sense now that the prices of solar equipment have come down.
“We have started seeing prices of solar equipment come down. This will encourage more investments, especially now that the policy guarantees uptake of generated electricity,” said Humphrey Mulinya, chief executive officer at Sustainable Global, a developer of renewable energy projects.
But Rodgers Nalianya, technical director of Irrisun, a solar equipment vendor, said the revised policy will increase investment in solar equipment but not in the immediate term.
“From our experience, Kenyans still need consumer education on the importance of solar energy and until there is mass understanding, the policy change will not affect current market trends,” he said.