Open Access Market for the Energy Sector in Kenya

HIGHLIGHTS

The Energy Sector in Kenya is poised to make significant developments this year following the passage of several key regulations in 2024. In 2025, the following are likely to be the major developments:

• More private sector participation in electricity transmission and distribution following the passage of the Energy (Electricity Market, Bulk Supply and Open Access) Regulations, 2024 which have opened up Kenya’s electricity market and ended KPLC monopoly.
• Uptick in the installation of renewable energy systems as businesses and individuals with renewable energy generators below 1MW look to take advantage of the Energy (Net Metering) Regulations, 2024 that allow them to send excess electricity back to the grid and earn credits.
• Lifting of the moratorium on the negotiation on new Power Purchase Agreements (PPAs) subject to strict conditions
• Competitive recruitment of renewable energy projects modeled on South Africa’s Independent Power Producer Procurement Programme.

1. The Energy (Electricity Market, Bulk Supply and Open Access) Regulations, 2024

In March 2024, the Energy (Electricity Market, Bulk Supply and Open Access) Regulations were published came into force. The Regulations are designed to make Kenya’s electricity market more competitive, efficient, and transparent by introducing a clear structure with wholesale and retail sectors,
allowing for cross-border electricity trade and promoting regular market reviews.

Key to these reforms is “open access,” which lets eligible consumers and companies use electricity networks, giving them more choices and fostering competition.

The regulations focus on fairness, especially in bulk supply agreements and tariffs, and they support renewable energy and mini-grids, encouraging new investments. They also require compliance with grid codes and environmental standards to ensure a stable and reliable electricity system.

Key Implications

• These Regulations have opened up the electricity market allowing private sector investors to participate in electricity transmission and distribution. This has ended decades of monopoly by Kenya Power and Lighting Company PLC (the country’s primary electricity distributor). In 2025, we are likely to see new investment opportunities in electricity distribution and transmission by the private sector.
• As a result of these Regulations, large businesses can now choose their electricity suppliers for better deals, offering more control over costs, but they must follow the application processes and comply with the new rules.
• The Regulations promote competition in electricity distribution and transmission which will pave the way for a more efficient electricity sector in terms of costs and reliability.

2. Energy (Net Metering) Regulations, 2024
The Government of Kenya in June 2024 introduced the Energy (Net Metering) Regulations, 2024, which implements Section 162 of the Energy Act. These regulations allow businesses and individuals generating renewable energy to send excess electricity back to the grid and earn credits. Below is a breakdown of what the Regulations entail, the benefits and how Commercial and Industrial can position themselves to take advantage of the arrangements

Who qualifies? Renewable energy generators up to 1MW. The Regulations provide that any consumer owning a generator of up to 1MW, located within the area of a distribution licensee or retailer, may apply for a net metering system agreement. Fossil fuel-powered systems are not eligible.

How it works: Net metering operates alongside the distribution system, measuring the energy supplied by the licensee to the consumer and vice versa. Excess energy is credited at 50% of the exported units, reducing electricity bills. Credits can be carried forward but expire annually.

Limits: Domestic users are capped at 4kW (single-phase) or 10kW (three-phase). Businesses can generate up to 1MW.

Costs: The consumer’s responsibility includes Installation, commissioning, and smart metering.

Key Implications

• The Net Metering Regulations are likely to spur renewable energy projects in Kenya in 2025. This will call for more financing and investments, an area in which financial institutions may plug into
• Reduced storage costs: Storage costs alone account for about 30% of the total costs for off grid projects. The net metering system presents the opportunity to feed the surplus energy into the national grid instead of storing the same.
• Improved awareness on energy use: Net metering will make consumers who enter into net metering arrangements more aware of their energy consumption and use which may help with efforts to improve energy efficiency.
• Load reduction: uptick in the number of consumers entering into net metering arrangements may result in load reduction in the national grid since less power will have to be produced to meet consumers’ needs. These may impact power generators such as Kenya Electricity.

4. Competitive recruitment of energy projects

In the report by the National Assembly’s Departmental Committee on Energy presented on 25 November 2024, one of the conditions recommended by the Committee for the lifting of the moratorium on PPAs was the implementation of a competitive auction system for energy projects, similar to South Africa’s Independent Power Producer Procurement Programme.

This is intended to ensure that energy is procured at the lowest possible price, in line with the set tariffs and the Least Cost Power Development Plan. Only the most affordable power producers who meet all technical and financial requirements are to be selected. If no suitable bids are received, then an auction is to be considered unsuccessful.

Additionally, the Committee recommended that the Ministry of Energy and the Energy and Petroleum Regulatory Agency (EPRA) work together to create a Renewable Energy Auctions Policy. This policy is to guide the transition from the current Feed-in-Tariff system to the auction system for advanced projects and is to be presented to the National Assembly within 6 months of the report’s adoption.

Key Implications

• While auctions can lower costs, a rushed transition may cause challenges, especially for small-scale or niche renewable energy technologies like biomass and mini hydro which may not be well suited to auctions. This may result in reduced investments in these technologies.
• The requirement that a new auctions policy be drafted within a constrained timeline of 6 months may lead to rushed policy making, compromising the quality and effectiveness of the policy.

Disclaimer:

The information provided in this article is intended for informational purposes only and should not be construed as legal advice. Don’t hesitate to get in touch with us at info@koassociates.co.ke for any queries or legal advice.