* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
A bill to end Kenya's power distribution monopoly could stimulate renewable energy investment by local governments and business
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 kilometre 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. Liberalising 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 maximise their earnings.
Another possible benefit is lower electricity costs to consumers who may in turn favour 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.
