On July 10, a motion in the Kenyan parliament summed up the
general feeling in the country about electricity distribution. Words like
inefficient, unreliable, expensive were used to describe the 50-year
stranglehold Kenya’s sole electricity distributor has on the economy. The bill
to end this monopoly received unanimous support in the house. Even though it
still has few stages to go through before it becomes law, Kenya’s power
distribution monopoly looks set to end.
The old, inefficient system meant customers have often had
to bear high electricity prices to cover the cost of system losses, breakdowns
and so on. It also meant very prohibitive interconnection fees. Just recently,
one of my friends from a rural area was complaining how they live just half a
kilometer from a power transformer, and yet the Kenya Power Company (KPC) has
refused to connect them to the national grid.
There will be general benefits to the Kenyan economy from
ending this monopoly, but it’s interesting to ask what this could mean for the
renewable energy industry. Perhaps the most notable thing is that it is
happening just as the country has moved to a devolved system of government
where counties have the authority to make investment decisions. In fact, one of
the guidelines in the renewable energy act gives local authorities and private
companies the power to set up their own distribution networks.
County governments are keen to attract businesses, but one
hindrance is the availability of electricity. Some counties have enough
renewable energy potential to power their local economies and also sell power
to other regions. Liberalizing electricity distribution could be one of the key
advantages these county governments exploit to bring development in rural
Kenya.
INVESTMENT OPPORTUNITIES
The biggest winners of all could be renewable energy
investors. Most of the counties with renewable energy potential will
undoubtedly be keen to have their own electricity networks, primarily for their
own development needs. Previously, if you built a wind farm far away from the
national grid, you had to pay to put in a connection line to the grid, leading
to higher investment costs.
A case in point is the 300MW Lake Turkana wind project. The
electricity generated from this wind farm will be sold to KPC via a connection
line estimated to cost billions of shillings. KPC has no electricity network to
speak of in Marsabit County where the wind farm is located, but now with
deregulation it is possible for the county to build its own network to supply
power to its residents and other counties too.
Most renewable energy resources are located in areas where
the current electricity distribution monopoly has no network. This is also true
of potential clients, as only about a fifth of the population has an
electricity connection.
Most people live in rural areas which KPC has been slow to
connect. This opens up the opportunity for potential investors to fund new
distribution infrastructure to tap clean energy resources and linking more
people to electricity supplies, thereby speeding up renewable energy
investment.
These new electricity networks would not be isolated, as the
energy act requires careful balance between different energy resources, as well
as maintaining overall energy security for the country. This means there has to
be inter-connection between different distribution networks.
Some investors in the renewable energy sector might opt to
invest in power generation plants as well as local distribution networks to
maximize their earnings.
Another possible benefit is lower electricity costs to
consumers who may in turn favor electricity from renewable sources. This is
because new distribution networks will not have as many system losses and
inefficiencies as the old network, which passes these problems on to its
customers in the form of high electricity prices.
Potential investors that don’t want to build their own
networks should, in future, have a number of utility companies at their
disposal with which to negotiate and sign power purchase agreements.
While it might take some time for the bill to pass through parliament
and become law, and for investors to start backing new projects, opening the
door to more competition will definitely be a positive for renewable energy in
Kenya.
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