Page 1

Implemented by

Mini-Grid

Regulation and

Practical

Experiences from

Kenya

Page 2

Background, GIZ Energy Portfolio in Kenya

Energy activities in Kenya

Page 3

Background (I) – GIZ Energy portfolio in Kenya (28.5m

EUR) Energizing

Development

(EnDev)

promotes access to

clean energy

technologies; with

a focus on pico PV

systems, improved

cook stoves,

biogas

Promotion of Solar-

Hybrid Mini-Grids

(ProSolar)

focuses on the

electrification of

remote areas

through mini-grids

and the participation

of private sector

Promotion of

variable

Renewables (vRE)

aims at improving

the preconditions

for integrating vRE

(focus on wind,

solar PV) to the

national grid

Project Development Programme (PDP)

supports German RE businesses in accessing the Kenyan RE market

Powering

Agriculture

promotes the use of

clean energy

solutions in food

value chains and

increase the quantity

and quality of food

produced

MG Workshop

Page 4 18/10/2016

Implemented by

Promotion of Solar-Hybrid Mini-Grids in Kenya, focus on

greenfield mini-grids

• Focus: remote rural areas

• Aim: Promote the development of greenfield

solar-hybrid mini- and micro-grids

• Main objective: contribute to cost-effective and

sustainable power supply in rural areas

• Partner institutions: MoEP, REA, ERC, KPLC

• 15 m Euro • 7.5 m Euro

MG Workshop

Page 5

Fields of cooperation

18/10/2016

Capacity building and

training

Implementation

mechanism

Energy Policy Advisory

and Strategy

Development

2 3 1

Support to pilot

projects

4

Results-Based-

Finance

5

MG Workshop

Page 6

Status of the Kenyan Energy Sector, with focus on

isolated mini-grids

MG Workshop

Page 7

Kenya Energy Mix (2015)

MG Workshop

Energy source Installed

capacity in MW

Hydro 820

Geothermal 598

Thermal 797

Emergency

power

30.00

Solar PV 0.6

Wind 26

Cogeneration 26

Total 2,295

Hydro 35.68%

Geothermal 26.02%

Thermal 36.02%

Cogeneration 1.13% Solar

0.02%

Wind 1.13%

Variable RE 1.16%

Source: Kenya Power Annual Report 2015

> 60% from renewables!

Page 8

Source: Kenya Power Annual Report 2015

Consumer group Sales in GWh

Domestic 1,866

Small commercial 1,346

Commercial and industrial 4,040

Domestic 26%

Small commercial

18%

Commercial and industrial

56%

sales in GWh

MG Workshop

Demand: Electricity consumption in consumer

categories (2015) • Peak demand expected to

grow to 2,600-3,200 MW by

2020 (Power Africa)

• Power consumption

expected to grow betw 1.0-

1.2x GDP (GDP ~5%)

• Timelines for Vision 2030

are shifting

Page 9

Generation: Kenya’s power plants

MG Workshop

Source: ERC 2015, Power Africa 2015

Page 10

Generation: Public and private off-grid stations

MG Workshop

Source: Own illustration; ERC 2015, Power Africa 2015

Turkana Marsabit Mandera

Wajir

Isiolo

Garissa

Lamu

Samburu

Homa

Bay

public

Kisii Narok

Nakuru

Kajiado

private

Page 11 MG Workshop

Source: KETRACO, 2014/5, Power Africa Study

• 2015: 4,149km 200kV and

132kV transmission lines

• KETRACO currently

constructs approx.

4,500km new lines (incl.

400kV and 500kV lines

and interconnectors with

ETH, UG and TZ)

• Challenge: way leaves!

• Distribution network lacks

behind (now: Last-Mile

Project)

Transmission and distribution

Page 12

Barriers to mini-grid development, with practical

examples

MG Workshop

Page 13

Kenya as case study:

Barriers typical for mini-grid deployment

Vague

regulations that

prioritises grid-

connection over

off-grid solutions

Demand side: Load

curves and customer

demand that can

often not be

predicted

Uniform tariff and

single utility

model that

discourage

private sector

A banking sector

that is not

prepared for

small-scale high-

risk projects

Barriers

MG Workshop

Page 14 18/10/2016

Development partners:

Focus on policy/regulation and finance

Regulatory

Framework/

Policy

Access to

finance

Technical

capacity

Business

models

Deficiencies in policy and regulatory framework for MG

market development: arrival of main grid, lack of clarity

around tariff setting (cost-reflective vs. national tariff)

Timeline for grid expansion unclear / intransparent

Few investors with sufficient risk appetite – small project

size with high anticipated risk

Grant dependency to demonstrate bankable business

model due to lack of incentives

Lack of technical skills along the mini-grid value chain

planning, design, construction, O&M, management

Challenges and high costs to operate in remote,

inaccessible areas

High electricity costs due to high upfront / investment

costs, yet low ability to pay especially in remote areas

Business models remain untested: 1) Mini-Grid

concession model; 2) IPP model

Market analyses, policy

gap assessment,

regulations etc: IFC, WB,

GIZ, AfD, Power Africa

Several grant/ incentive

programmes: AfD/ DfID,

KfW, GIZ EnDev (RBF),

Power Africa

Training and CB for

public and private

sector: AfD/ DfID, GIZ

Application of various

business models: AfD/

DfID, KfW, GIZ, IFC, WB

Challenges Interventions Details

MG Workshop

Page 15

Regulations: looking back

Current energy policy and regulation is supportive of MG!

• Is it possible to obtain a permit / license for MGs? Yes!

• < 3 MW = permit; >3 MW = license

Barriers

“How do we license it?” –

A guide to licensing a private sector

driven mini-grid MG Workshop

Page 16

Practitioners’ experience: Talek Power Company

• Location: Talek, Narok

County

• 40 kWp solar pV

• 12 kVA diesel genset

• 3,210 Amph

• 3 km low-voltage

distribution network (3-

phase)

MG Workshop

Page 17

Lessons learned

• Regulatory compliance: start early!

• Involve the community and county

government!

• Choose the right business model!

• Check alignment of MG economics

with ATP / WTP!

• Work with local partner and build on-

site capacity for O&M!

• Get technical specs right! (e.g.

insulated conductors)

MG Workshop

Page 18

The backbone of mini-grid development – a clear

regulatory framework

MG Workshop

Page 19 vRE Kenya

Institutional landscape: electricity sector (Oct 2016)

Page 20 Energy activities in Kenya

Regulations

Sessional Paper

No. 4 fo 2004 on

Energy

Energy Act

2006

Feed-In Tariffs

Policy (revised

2008, 2010, 2012)

New National

Energy Policy and

Bill (latest draft

Aug, 2015)

New Kenya

Electricity Grid

Code (2016)

Energy (Electricity

Licensing) Regulation,

2012

Small Scale Grid Connected

RE Framework, 2012

Least Cost Power

Development Plan

(LCPDP)

Rural Electrification

Masterplan

(Update 2009)

Planning

Policy

Law

Kenya Vision 2030, est.

in 2008, defines

economic growth agenda

New Kenyan

Constitution, fosters

devolution (Aug, 2010)

New Energy Bill

2016 (latest draft

Aug, 2015)

Public-Private

Partnership

Act 2012

Energy (Solar PV)

Regulations, 2012

Standardised PPA for small

scale RE (up to 10 MW),

2012

new

new

Energy

(Complaints

and Dispute

Resolution)

Regulations,

2012

Auctioning

expected to

replace FiT

in 2016

new

Mini-grid

policy

(2016)

new

Governing Framework in Kenya

Power Generation and

Transmission Master

Plan (MTP, LTP)

new

Kenya National

Electrification

Strategy

new

Mini-Grid

regulation

new

new

Page 21

Regulations: looking forward

New Energy Policy and Bill (to be enacted end of 2016)

• Many provisions that support mini-grids, but...

• no specific mini-grid policy and legal framework (no appropriate

mini-grid license, regulatory procedures still too heavy-handed)

• National Electrification Strategy is still under development

• No mini-grid coordination agency or guidelines for use of

national funds to support mini-grids

• existing institutional roles will be redefined or extended (e.g.

REA mandate will be extended through successor REREC)

Ongoing study on mini-grid policy and regulation (finalised

by 12/2016)

MG Workshop

Source: ECA / TTA Study Oct 2016

Page 22

Ongoing study on MG regulations: Categories for

regulatory classification

XXX 18/10/2016

A B C D

Size of system < 50kVA 40-500 kVA >500 kVA SDP

Expectation of

grid connection

(if it arrives)

No (but can be

negotiated)

Yes Yes n.a.

Technical

standards

Light Light unless grid

connection is

anticipated

within 8 years)

Light unless grid

connection is

anticipated

within 8 years)

Full grid

Licensing Light mini-grid Full mini-grid Full mini-grid Full SPD

Tariff Not reviewed Cost-reflective KPLC main grid KPLC main grid

Recurrent

subsidies

available

No No Yes No

Preliminary

Page 23

Business models –

All isolated business models should be considered!

MG Workshop

Business model Requirement

Utility – KPLC owns

and operates MG

Release the restriction

on KPLC for isolated

MG

PPA - separate

generation from

distribution

Allow also for much

smaller generation

under the RE

framework

Management contract

– Different parties own

and operate MG

REREC should no

longer develop sites

Private (concession) Already possible

Public – public entity

owns and operates MG

County Gov to develop

and prioritise site

Source: ECA / TTA Study Oct 2016

Preliminary

Page 24

Business models –

All grid-connected business models should be considered!

MG Workshop

Business model Requirements

Small Power Distributor

(SPD) only

Framework exists; bulk

supply tariff tbd

Generate only/ sell

distribution assets to KPLC

Framework needed for

transferring assets, incl

compensation

Combined SPD / SPP See above, net-metering

can be used for power

sale/ purchase

Sell viable assets to KPLC See above (2)

Move or abandon assets -

Source: ECA / TTA Study Oct 2016

Preliminary

Page 25

Procurement –

Top-down and bottom-up approaches for universal access

MG Workshop

Source: ECA / TTA Study Oct 2016

Preliminary

Page 26

Economic regulation –

Overall approach is to ensure all operators’ commercial

sustainability and all customers’ affordability

MG Workshop

Source: ECA / TTA Study Oct 2016

Preliminary

Page 27

Economic regulation –

Operators may upgrade their category

MG Workshop

Source: ECA / TTA Study Oct 2016

Preliminary

Page 28

Conflicting perspectives-

MG Workshop

Source: ECA / TTA Study Oct 2016

Preliminary

• “All people should pay the same price for electricity”.

• “Electricity cannot be produced at the national tariff”.

• “Investors are not investing unless they are able to

generate reasonable returns on investment”.

Page 29

Opportunities for private sector - More than 150m EUR

towards mini-grid market development available

MG Workshop

Page 30

Development Partners activities –

Focus on policy and finance

18/10/2016

0

20

40

60

80

100

120

140

160

1 2 3 4 5 6 TOTAL

Green MG

programme Promotion of

Solar-Hybrid

MGs (FA)

Promotion of

Solar-Hybrid

MGs (TA)

Kenya-Power’

(brownfield) MG

hybridization

KEEP / KEMP/

SREP/ new

solar off-grid

project

MG Workshop

Page 31

Opportunities for private sector –

How to get involved

XXX 18/10/2016

Green Mini-Grid

Facility (greenfield)

Providing support to project

preparation and capital/ credit

availability

30 Million GBP

KfW Promoting of

Solar Hybrid Mini-Grids

Reversed bidding for private

generation component (CAPEX

subsidy)

15 Million EUR

GIZ/ EnDev Results-

Based-Financing

Reversed bidding: incentives for

connections, production incentive

(premium per kWh supplied),

CAPEX

2.1 Million EUR

Page 32 Promotion of Solar-Hybrid Mini-Grids

18/10/2016

As a federal enterprise, GIZ supports the German Government in achieving its objectives in the field of international cooperation for sustainable development.

Published by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH

Registered offices, Bonn and Eschborn, Germany

Promotion of Solar-Hybrid Mini-Grids (ProSolar)

Utumishi House, 5th floor PO Box 41607 00100 Nairobi, Kenya T +254 20 2731828 M +254 712 992969

E jasmin.fraatz@giz.de I www.giz.de

Responsible

Jasmin Fraatz

Author

Jasmin Fraatz, Jackson Mutonga, Alice Amayo,

Pierre Telep

Photo credits

© GIZ/Alex Kamweru

In cooperation with

Implemented by

Page 33

Back-up slides

XXX 18/10/2016

Page 34

Electricity prices (2015) by category

Energy activities in Kenya

Source: Kenya Power Annual Report 2015, ERC

0

200

400

600

800

1000

1200

1400

1600

1800

2000

0

2

4

6

8

10

12

14

16

DC SC CI1 CI2 CI3 CI4 CI5

base tariff in KHs/kWh sales in GWh

Consumer

category

Type of

consumer

Energy

supply

Energy charge

in KHs

Billing

DC Domestic 240V 0-50kWh: KHs

2.5

51-1500kWh:

KHs 12.75

>1500kWh:

KHs 20.57

Fixed charge

(KHs 150)

plus variable

energy

charge/kWh

depending on

consumption

SC Small

commerci

al

240V 13.5 Fixed charge

(KHs 150)

plus constant

price charge

CI1

Commerci

al and

industrial

415V 9.2 Fixed charge

(between KHs

2,500 –

17,000) plus

energy

charge/kWh

depending on

consumption

plus demand

charge per

kVA

CI2 11kV 8.00

CI3 33kV 7.50

CI4 66kV 7.30

CI5 132kV 7.10

Page 35 Energy activities in Kenya

Electricity bill components and tariffs for domestic

consumers in KHs (Jan 2013 – Nov 2015)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

BASIC FCC FOREX IA WARMA VAT ERC REP

Abbreviations

Basic Basic tariff

FCC Fuel cost

charge

FOREX 30.00

IA Inflation

adjustment

WARMA Water resource

management

Authority levy

VAT Tax

ERC Energy

Regulatory

Commission

levy

REP Rural

electrification

programme

fund

Source: Own illustration, based on KPLC data and electricity bill