Kenya as jettisoned its costly power-purchase agreements that are currently in place and opted for auction system for firms trying to do business in energy generation.
Benson Mwakina, director for renewable energy in the Energy Ministry said that the mechanisms for establishing the auction system as provided for in the Energy Act 2019 are in the final stages of formulation.
“The system involves establishing a demand-supply equilibrium and identifying projects on a need basis before inviting potential investors to bid for their development in an open auction,” Mr Mwakina told an energy forum in Nairobi.
Currently, investors come up with power projects, sign power purchasing agreements with the national utility firm Kenya Power and then implement the project.
The proposed policy shift is an indication that Kenya wants to focus on developing renewable energy, where auctioning of projects has become popular, based on its potential to achieve deployment in a cost-efficient and regulated manner.
Under the new law, which came into force in March, entities including the former Rural Electrification Authority, which is responsible for renewable energy has been renamed Rural Electrification and Renewable Energy Agency, while the Energy Regulatory Commission is now the Energy & Petroleum Regulatory Authority.
The chief economist in the Energy Ministry Timothy Gakuo, said the new law has unbundled the energy sector.
“There is a clear cut provision for the integration of county energy plans into the national plan, providing for synergies and complementarity,” added Mr Gakuo.
This, he said, is expected to lead to clean, accessible, affordable and available energy for domestic and commercial use, as it will address the real cost of energy through the chain — generation, transmission, distribution and retailing.
According to George Aluru, the vice chair for the energy board of the Kenya Private Sector Association, the provision of clean renewable energy in the law opens up new opportunities, “especially for private-sector players.”
A case in point of just how expensive the current system is, is the planned $2 billion Lamu coal power plant on Kenya’s Coast, which the government approved in 2015 based on lobbying from investors, and which a US-based think tank has termed a “costly error.”
“Building the proposed Lamu coal plant in Kenya, a three-unit, 981 MW facility, would be a costly error for the country, locking it into a 25-year PPA that would force electricity consumers to pay more than $9 billion, even if Lamu doesn’t generate any power, as long as it is available for dispatch,” said the Institute for Energy Economics and Financial Analysis.
IEFA added that the existing PPA would force Kenya to pay at least $360 million in annual capacity charges, even if no power is generated at the plant.
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