RENEWABLE ENERGIES IN THE KENYAN COMMERCIAL AND INDUSTRIAL SECTORS BY BERNARD OSAWA, FRONTIER INVESTMENT MANAGEMENT & VICE CHAIR ENERGY SECTOR BOARD

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1 RENEWABLE ENERGIES IN THE KENYAN COMMERCIAL AND INDUSTRIAL SECTORS BY BERNARD OSAWA, FRONTIER INVESTMENT MANAGEMENT & VICE CHAIR ENERGY SECTOR BOARD

2 The Kenya Private Sector Alliance (KEPSA)

3 ABOUT KEPSA Apex body for the private sector in Kenya founded in 2003 as a limited liability membership organization. Offers a unified voice for the Kenyan Private sector towards easing the cost of doing business and improving the overall investment climate. Brings together over 100,000 members through Business Membership Organizations and direct corporate membership The strategy is to pursue an enabling business environment by ensuring Year on Year improvement on key global business rankings

4 KEPSA GLOBAL BUSINESS RANKING TARGETS Ease of Doing Business Index (World Bank)- from 136 (2014) to 50 and below(2024) Global Competitiveness Index(World Economic Forum) - 96 (2013) to 50 and below (2017) Bribery index(transparency International) (2013) to 100 and below (2024) GDP Growth Rate - 5% to 7% (2018 ) and 7% to 10% (2024). Human Development Index and below (2024)

5 KEPSA ENGAGEMENT PLATFORMS We do this through our Public Private Dialogue Platforms. Our members are organized into 16 sector boards that hold direct engagements with policy makers. Each sector meets with its respective ministry to identify and address policy issues key to improving the business environment. Those policies that require more than one ministry are referred to the interministerial stakeholders forum and if unresolved to the ultimate platform which is the presidential roundtable chaired by the President and Deputy President

6 KEPSA ENGAGEMENT PLATFORMS Regional Ministerial Stakeholders forum Unique relationship with policy makers at all levels of government enabling Kenya s Private Sector to directly articulate it s policy needs to key decision makers Additional engagement forums with National Assembly and Senate chaired by the speakers of the respective houses of parliament to ensure law makers understand the importance and impact of policy on the business environment

7 KEPSA ENGAGEMENT PLATFORMS Advocacy platforms: Semi Annual Presidential Roundtable Ministerial Stakeholders Forum held every two months Speaker s Round Table ( both Senate and National Assembly) Annual Council of Governor s Summit Annual Judicial Round Table Regional Ministerial Stakeholder s Forum Regular engagement with all other Government Agencies including : AG, KRA, ERC, Office of OAG& DJ, KPLC, Department of Immigration among others)

8 KEPSA MEMBERSHIP PROJECT S/ BEST PRACTICES Lobbying MSF & PRT engagements Projects The Gorge project 2 MW Biogas to electricity Wind for Prosperity Project wind diesel hybrids Williamson Tea 1 MW PV Lower cost Micro -gasifiers for cooking Philips, SCODE, SNV Wisdom

9 KEPSA EXPECTATION OF GERMAN INSTITUTIONS/COMPANIES Technical Technology - choice and hardware Training and certification Financial - co-investment Equity Investment Debt Partnerships Product development improved stove designs etc. Biomass pellet manufacturing

10 POWER SECTOR ISSUES

11 NET METERING REGULATIONS Under development, applies to all RE technologies of capacity <1 MW primarily for self-consumption and supply of excess to distribution licensee (DL). Maximum aggregate generation capacity of systems connected to grid is 100 MW. Customers exempt from obtaining an electricity generation permit. DL obliged to accept all electricity exported in non-discriminatory manner. Installation, interconnection maintenance and of net metering systems by competent personnel approved by the distribution licensee/commission. Each exported unit grants a net metering credit of 62% of the exported unit. Customer compensated for electrical energy supplied to DL with a credit for each unit exported in a billing period.

12 KENYA NATIONAL GRID CODE - DISTRIBUTION Revised Grid Code split into Distribution and Transmission Codes The Distribution Code establishes the: Technical aspects of the planning, connection, operation, and use of the Distribution System and; Relationships between the Distribution Network Service Provider(s) and Distribution Network Users of the Distribution System. The Transmission Code establishes the: Technical aspects of the planning, connection, operation, and use of the Transmission System and; Relationships between the National system operator, transmission licensees, distribution licensees and users of the National transmission system Upon request Distribution Network Service Provider must: Provide a connection to the distribution system and; Deliver electric energy to the Distribution Network Users

13 STANDARDIZED PPA Applicable to projects under the FIT Policy. Review being undertaken by KEPSA, ERC, KPLC and MOEP. Key issues as follows: Item Issue Recommendation Political Event and Government Letter of Support No provision for Political Events and does not provide for issuance of GOK Letter of Support typically required by lenders. GoK to provide LoS and encourage involvement of local pension funds and local financing to increase investor confidence. Change in Law PPA for Mini-grids SPPAs does not provide a distinction between Change in Law and Change in Tax. Mini-grids/ Isolated grids are not covered in the FiT Policy. SPPAs should be amended to provide for Change in Law and Change in Tax in distinct clauses. SPPA for/ incorporating mini-grids to be developed taking into account requirements for various RE technologies.

14 STANDARDIZED PPA Item Issue Recommendation Harmonization of laws, regulations and Policy Technology in SPPA Termination Compensation Determination Deemed Generated Energy (DGE) Contradicting provisions in different laws, regulations and policies impacting on FiT projects. SPPA not technology specific which posing challenges in the negotiation process. SPPA provides for Termination Compensation for the off-taker s default but not in the event of developer s default SPPA provides for a cap of 7 days which is ambiguous - whether annual or monthly cap. Energy Bill to provide clarity on several inconsistencies. Technology specific issues be include as appendices to the generic SPPA. Should also provide for compensation to be provided to the off-taker by the developer upon default by the developer. Threshold to be introduced taking into account planned and unplanned maintenance as well as curtailment.

15 FEED-IN-TARIFFS VS. AUCTIONS Objective is to spur increased RE generation and distributed electricity in the grid. FIT shortcomings in terms of tariffs and project development and implementation - Strict implementation regimes needed. Auctions offer competitiveness, but will not necessarily deliver lower tariffs as anticipated by GoK. Land remains a major issue especially if auctions is the preferred approach.

16 CHALLENGES AND OPPORTUNITES

17 SECTOR CHALLENGES & SUPPORT OPPORTUNITIES Challenges High cost of project costs development, transaction, financing, construction etc. Unquantified benefits Low FiT High cost of finance due to the perceived political and economic risk Opportunities Research and info exchange to identify opportunities and approaches for low cost project development, financing and implementation. Lobby for better tariffs Equity investments and Cheaper credit

18 RECOMMENDATION FOR GERMANY COMPANIES Good understanding of the market, regulatory, licensing and tariff regimes key. Opportunities for own consumption and wheeling in commercial & industrial sectors. Tariff is key given the push to reduce cost of electricity - not necessarily aligned to Carbon reduction. German equipment preferred for high end projects but cost remain a major concern.

19 Q & A Discussion