By Ieva Indriunaite, Policy and Partnerships Manager, Camco and Tom George, Advocacy Coordinator for Kenya & Tanzania (AMDA) & Managing Director, Africa Grants Advisors (AGA) .

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The Government of Kenya has set the bold challenge of providing energy access to every person by 2022. With 25% of the population still living without electricity as of April 2021, the Kenya National Electrification Strategy (KNES) has identified mini-grids as a key decentralised solution for ensuring universal access.

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But is the enabling environment well placed to support mini-grid development at the required pace to reach the policy goals? Currently, mini-grids are regulated under the Energy (Electricity Licensing) Regulations 2012, but this framework does not directly address the nuances of mini-grid development.

 

In collaboration with industry stakeholders, Kenya’s Energy and Petroleum Regulatory Authority (EPRA) has developed the draft Mini-grid Regulations 2021, which set out provisions specific to the mini-grid sector to encourage investment. The regulations provide a framework for mini-grid tariff approval, licensing requirements, guidelines for operations, performance and reporting requirements.

 

On 29 July, the Africa Minigrid Developers Association and the Renewable Energy Performance Platform (REPP), managed by Camco, invited interested stakeholders to a high impact roundtable with representation from energy investors, mini-grid developers and EPRA to discuss the draft Mini-grid Regulations 2021 and address concerns around what they would mean for investors and developers. 

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Critical issues for the bankability of Kenya’s new mini-grid regulations

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The discussion centred around permitting processes, electrification planning and grid encroachment provisions, which are vital issue areas for both mini-grid developers and funders.

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A significant point of discussion was the requirement set out in the draft regulations that 30% of a project’s planned connections must be completed before EPRA issues the mini-grid license. This provision is intended to ensure mini-grids are built within the envisaged timelines and support the government’s ambitious electrification targets.

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Though understandable, this requirement introduces risk from a project finance perspective. Investors would have to finance projects without the confidence that the development will eventually receive a license. 

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The draft regulations detail the license application process and set out a range of options available to developers should the primary grid eventually arrive at the area served. Concerning encroachment and interconnection processes, the regulations provide for interconnection possibilities that protect the developer, the distribution licensee and the community – ensuring no party is disadvantaged through the process.

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Yet, there is currently a lack of clarity in the draft regulations on how interconnection or compensation options can be opted for by the developer and the subsequent commercial relationship between the developer and the primary grid – an area that requires further attention.

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Closely linked to the grid encroachment risk is the question of comprehensive national electrification planning. Incorporating mini-grids into national and county plans is seen by most stakeholders as a strategy for increasing the speed and reducing the cost of electrification in Kenya.

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Developers and investors will be monitoring the development of the Integrated National Electrification Plan (INEP), set to replace KNES, with great interest. Once published, the INEP should provide clarity and transparency required by developers and their funders to plan and develop mini-grid infrastructure projects.

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The way forward for Kenya

In a poll conducted at the end of the discussion, the majority of the audience was still unsure about the bankability of the current draft regulations. The roundtable highlighted EPRA’s great work in designing the draft regulations and considering broad stakeholder views in the future mini-grid regulatory framework. However, there is a need for further sensitisation, engagement of the public and the investor community on the draft regulations.

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EPRA, AMDA, REPP and other stakeholders are continuing to work together to ensure that the general public, and specifically the investor community, understand the draft regulations and their impact on Kenya’s growing mini-grid sector. Additional input from industry stakeholders, rural electrification professionals in other markets, and investors in the region’s off-grid energy sector will be invaluable in reaching a final set of regulations that are fully bankable and can support the sector’s electrification of millions of off-grid households.

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This article first appeared in ESI Africa.

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