HomeIndustry SectorsBusiness and marketsProposed minigrid licence to bolster investment in sector

Proposed minigrid licence to bolster investment in sector

The Energy and Petroleum Regulatory Authority (EPRA) is reviewing a proposal that might see private companies being able to buy electricity from Kenya Power and resell it. If approved the proposals are expected to bolster the minigrid sector.

The new rules are aimed at pulling investors into the off-grid electricity sub-sector.

The proposals contained in the draft Energy (minigrid) Regulations 2021, if approved, are set to boost investors in the sector as the structure allows them to continue their operations even when the national grid reaches their area.

The remote location of most of the minigrids means the transportation costs for the fuel that powers them are high which ensures that most of them operate at a loss, booking less earnings from electricity sales than their total costs.

But new technology has made investment in renewable energy like solar and wind cheaper, which has buoyed investors who are being put off by the high operational costs of running minigrids.

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Minigrid licence

“A minigrid operator operating under a minigrid license who has built a distribution system… may apply to the Authority for modification of their licence to operate as a power distributor that purchases power in bulk from the Distribution Licensee and resells that electricity to the Consumers under an Energy Supply Agreement,” the regulations read.

“A minigrid operator may in the event of a main grid arriving at the minigrid area…apply to the Authority for modification of their licence to operate as a power producer selling to the Distribution Licensee,” say the regulations.

In the new proposals, EPRA will also allow applications by companies to charge more for electricity than what on-grid customers pay, which will allow investors to turn a profit.

“The Authority shall consider the application and if the proposed retail tariff is higher than the approved tariff of the Distribution Licensee, the Applicant shall be required to submit the proposed margin that would be added to the bulk supply tariff in order to ensure efficient distribution operations,” say the regulations.

The new regulations seek to streamline the operation of minigrids of capacities of up to 1 megawatts (MW) which the government is betting on to add 34,700 new households to electricity as it races to achieve universal electricity connection by next year.

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The new rules will harmonise the requirements needed for approval of building of new minigrids, procedure for licensing and interconnection to the main grid and processes of tariffs setting and approval.

The sector is currently regulated through the Energy (Electricity Licensing) Regulations, 2012, which are not robust enough to deal with the growing interest in the sector. There are currently 106 minigrids in Kenya with 14 owned and operated by private entities, while Rural Electrification and Renewable Energy Corporation (REREC) owns 46, Kenya Power (28) and communities (18).

Meanwhile, there are 180 new minigrids that are being developed by private companies and are currently in various stages of development, while the government is also planning 158 minigrids under the Kenya Off-Grid Solar Access Project (KOSAP) to be built and operated by REREC or Kenya Power.

The new minigrids developed by REREC are built using funds generated from the Rural Electrification Levy, which makes up about 5% of the total electricity charge.

Kenya Power in February floated a tender for retrofitting of its 21 diesel-powered minigrids in Northern and North-Eastern Kenya to hybrid solar and wind technologies to cut operational costs.

The company bought 60 gigawatt-hours of electricity from off-grid power stations last year, a marginal increase from 50GWh it bought in 2019.

Reported by Brian Ambani in Nation.