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Developments in the regulatory framework for renewable energy in Kenya: Energy Bill 2017

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​In a nutshell:

The Energy Bill 2017 (the Bill) aims to rationalise and consolidate the legal provisions regarding the energy sector. It is intended to align the industry-specific legal provisions with the new constitution of Kenya. To this end, the Bill should provide clarity as regards the roles of the two levels of government – the National Government and the County Governments. Moreover, it should create a single legal framework to enable the development of this sector. This includes the discovery of different energy resources in Kenya, both fossil and renewable, and the opportunities resulting from declining costs in the renewable energy sector.

At the time when this article was written, the Bill was adopted by the National Assembly and passed on to the Senate.

 

The Bill covers all aspects of energy regulation except for discovery, development and production of petroleum. In this article, we will address all issues that relate to renewable energy. We will give you an overview of the implications of the new Bill, address the existing regulations and have a look at possible changes in the administrative and regulatory procedures in the renewable energy sector.


Regulatory supervision and guidelines

ERC

The control over the energy sector will remain in the hands of the Energy Regulatory Commission (ERC). To this end, the  ERC is vested with a specific authority to regulate all aspects relating to renewable energy. The tasks of the ERC include the issuance of licenses and the supervision of compliance with the conditions of the licenses; it has the power to impose sanctions and penalties for non-compliance and to issue instructions to ensure compliance with the requirements.

 

Rural Electrification and Renewable Energy Corporation (REREC)/Renewable Energy Resource Advisory Committee (RERAC)

 

The Bill creates two new corporate bodies: the Rural Electrification and Renewable Energy Corporation (REREC) and the Renewable Energy Resource Advisory Committee (RERAC).

 

The REREC will replace the Rural Electrification Authority (REA) formed under the currently applicable Energy Law. The REREC will continue to be responsible for the tasks of the REA and will be given additional regulatory powers specifically relating to the renewable energy sector. This will give the REREC the central role in legislation, research and development, international collaborations, and the promotion of renewable energy sources within society.

 

The RERAC is an inter-ministerial committee which is composed of the Principal Secretary in the Ministry of Energy and Petroleum, the CEO of the REREC, the MD of Geothermal Development Company Limited and the MD of Kenya Electricity Generating Company Limited, among others. The functions of the Committee is to advise the  Cabinet Secretary for Energy and Petroleum on criteria for the allocation of renewable resources, licensing of renewable energy resource areas, management of water towers and catchment areas, development of multi-purpose projects such as dams and reservoirs for power generation, and management and development of renewable energy sources.

 

Rights to renewable resources

 

Sections 72 and 76 of the Bill provide that all renewable resources and geothermal resources are vested in the government:

 

The rights to all untapped renewable energy sources under or on the surface of the national territory are vested in the National Government, except where any rights have been granted or vested in any other person by or under any written law.

 

This regulation aims to clarify which of the two government corporate bodies is in control of the renewable resources. The National Government is tasked with managing the resources in the interest of the Kenyan people. But renewable resources are not evenly spread across the country. It is easy for the local population and local governments to register ownership of resources located within their territories and, thus, to exclude others. With the resources being under the control of the National Government, the whole country could participate in their exploitation and also in the profits derived from them.

 

By extension, this means that no one would be allowed to use a renewable resource without the respective permit, license or authorisation. Together with the constitutional provisions, this would enable the government to impose regulatory controls on renewable resources.

 

Royalties for extracting geothermal energy

 

Section 84 of the Bill proposes introducing royalties for extracting geothermal energy. The royalties would change throughout the lifecycle of a geothermal drilling project. They would be 1 % – 2.5 % in the first 10 years of production and between 2 % and 5 % in the following years.

 

Here, the royalties would depend on the producer‘s profit [value of geothermal energy at the well head]. The profit would be calculated based on the current sales price. This price would be reduced by all expenses reasonably incurred by the producer for delivering energy to the consumer.

 

The royalties would be apportioned between the National Government, the County Government and the local community on the territory of which the well would be situated. The introduction of these royalties caused many debates between these three groups, since each of them demanded a bigger share in the royalties. According to the Bill, the community‘s share would be 5%, the County Government‘s share would be 20% and the National Government‘s share would be 75%.

 

Geothermal resources can be found primarily in the poorer regions of the country where fertile land and other resources that could be used for developing the communities are non-existent. Communities and local governments in these regions demand 45% of the royalties to counterbalance the underdevelopment of the local population. After all, this might be the only valuable resource in their region. The National Assembly did not address these demands but it can be assumed that new debates will be sparked off when the Bill is passed on to the Senate.

 

The Cabinet Secretary is vested with the authority to impose or reduce royalties if this was beneficial for investment or the extraction of the resource. The text of the Bill is formulated very vaguely so as to give the Cabinet Secretary sufficient elbow room to issue decrees.

 

It can be assumed that every decree will raise intense political debates. Headwind should be expected in particular from the local communities and local governments. Therefore, decrees will presumably be issued only in very specific cases and only for very large-scale projects because these offer high added value to local communities and municipalities in the form of creation of jobs and construction of infrastructure.


Attracting investors

Preparation of renewable energy resources inventory and resource maps

 

High initial investment costs constitute a large barrier to the development and use of any type of renewable energy. A significant part hereof is attributable to feasibility studies. The National Government acting through the Ministry of Energy and Petroleum intends to reduce these costs in order to attract investors. To this end, a renewable energy resources inventory and resource map will be prepared. This aspect is addressed in section 73 and the government is given a period of 12 months for the implementation after the Bill comes into force. In addition, the Ministry will be bound to prepare updates on the progress to be published in the Gazette every two years.

 

Net metering

 

One of the novelties includes the introduction of net-metering. Net-metering allows consumers who own small-scale electric power generators to feed excess electricity into the grid. In return, they will receive a credit. The Bill provides that only producers generating less than 1 MW may participate in the net-metering system. They will be allowed to supply excess electricity only to distribution licensees or retailers. The introduction of net-metering is subject to the rules of market economy which will decide about the success of the project. An example for successful net-metering in Kenya is the PV installation for the SOS Children‘s Village in Mombasa.

 

The Renewable Energy Feed-in-Tariff System (FiT)

 

The Bill proposes introducing feed-in tariffs for renewable energy. The objective is to increase/improve the generation of electricity from renewable energy sources, local consumption, local production and innovation in the area of renewable energy.

 

For the administration and implementation of the FiTs, the Cabinet Secretary may introduce regulations in consultation with the ERC. This includes the technical and operational requirements for connection to the grid, the duration of the feed-in-tariff approval, the priority of purchase of electrical energy generated using renewable energy sources and the tariff to be paid by distribution licensees to licensees under the FiT system.

 

Currently, no draft regulations exist that would show how the FiT system will be implemented. Thus, until a new system is gazetted under the Bill, the present FiT will continue in place. It includes: wind, biomass, hydro, geothermal energy, biogas and solar. Two evaluations have been performed since its introduction in 2008. They were based on feedback from market players, and findings of the Ministry were used. It can be assumed that any regulations which will be developed under the new Bill will be consistent with the present FiT regulation.

 

Summary

We do not expect any major changes in the area of renewable energy if the new energy bill was approved by the Cabinet. Most of the debates will revolve around the royalties and their allocation between the National Government, the County Governments and the local communities.

 

The Kenyan energy regulation will remain stable and predictable. This is thanks to the high involvement of the government acting through the Ministry of Energy and Petroleum, the  ERC, non-governmental corporate bodies, private individuals and local lobbies. This cooperation also leads to a better understanding between the groups and has a positive impact on the development of the renewable energy sector under a single comprehensive regulatory framework.

 

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