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Difference between revisions of "NAE Case Study: Kenya, Off-Grid for Vision 2030"

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[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
 
[[File:Back to NAE Overview Page.png|center|800px|NAE Overview Page|alt=NAE Overview Page|link=National Approaches to Electrification – Review of Options]]
<p style="text-align: center;"><span style="color:#003399;">'''<u>Category Dashboard:</u>'''{{NAE Case Study Table Ethiopia}}</span></p>
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{{NAE Case Study Table Kenya}}
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= Description<br/> =
 
= Description<br/> =
  
An off-grid solar market development programme has been implemented through policy/regulatory changes and incentives.&nbsp; The Rural Electrification Strategy prepared in 2002 was aimed at improving access to better social services (communication, water health and education), reducing negative environmental impacts, and promoting private sector participation in increasing access to electricity in off-grid areas.&nbsp; Solar PV based electrification was recommended for isolated and dispersed electricity requirements. Several projects have since been initiated as part of the programme including Light For Education, Scaling up Solar Energy Supply (Revolving Fund), Lighting Rural homes and community services, Solar power installation for Health institutions, and Lighting Student Homes.&nbsp; This has involved several national and international funders.&nbsp; For example, the Development Bank of Ethiopia (DBE) and the World Bank have provided working capital loans to private sector household solar providers, as well as micro-finance to households for the purchase of solar lanterns and Solar Home Systems (SHS).&nbsp; Also, the Solar Energy Foundation supported the unsubsidized introduction of SHS through entrepreneurs using low-cost downsized systems, RFID (Radio Frequency ID) card payment and revolving-fund micro-finance. This was facilitated with awareness raising/marketing through schools and media campaigns.&nbsp; Concessionary loans (interest free) were also provided by the national&nbsp;<span style="font-size: 0.85em;">electricity utility (EEPCO) to households for connection charges, with funding from the Global Programme for Output-Based Aid (GPOBA).</span>
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The aim is to increase access to electricity (equally in all 47 counties) and promote renewable energy development. An integrated approach is being employed, involving the expansion of national grid in rural areas, development of mini-grids and installation of stand-alone systems (primarily solar PV) - all with an equal (cross-subsidised) tariff. USAID estimates that about 10% of new connections by 2025 will be off-grid. Providing for basic needs in remote communities has also involved widespread dissemination of solar lanterns.&nbsp; Promotion of a private sector-driven approach to rural electrification has been a focus by encouraging private investments in off-grid systems such as solar home systems, solar lanterns and mini-grids. For example, at Kissi, private operators are leading the design, build and management of 4 advanced 100% solar micro-grids in villages with a total solar generation capacity of 80 kW; together with a pre-payment platform. The Rural Energy Authority (REA) has overall responsibility for increasing energy access in rural areas through all appropriate means, whether via grid expansion&nbsp;<span style="font-size: 0.85em;">or through off-grid applications; REA is currently involved with constructing mini-grids in 11 sites.</span>
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= Context =
 
= Context =
  
Ethiopia’s electricity sector is underdeveloped but with prospects for rapid growth - it has been distorted by past policy and has lacked private sector investment. The government has been committed to urban and industrial upgrades, but most of the population lives in rural areas.&nbsp; Over the past 15 years, the approach to raising electrification rates has been focused on extending the national grid to more villages and towns. Yet the number of households without electricity remains quite high.&nbsp; In 2016, less than 30% of the population had access to electricity (which is 15% higher than in 2007, but means that 70 million people are still unconnected).&nbsp;&nbsp; 95% of people in large towns and 83% in small towns have electricity (2014 data) but, in rural areas, only 7.9% of people have access (2016).&nbsp; In 2015, Ethiopian Electric Power (EEP) announced that it had connected 5,415 rural towns under its Rural Electrification Programme (REP) over the previous nine years.&nbsp; But the extremely low electricity price makes it difficult for the utility to recover its costs, thus causing problems for rural electrification as a business. There is a growing consensus that stand-alone systems can be an effective means to electrify rural households. At present, diesel generation sets are popular and well known in the country. Renewable sources of energy are less familiar and their contribution to electrification is minimal.&nbsp; Ethiopia is however seen as a frontrunner in the field of future renewable energy deployment. It has set ambitious targets for carbon neutral growth towards 2025, aligned with its sustainable development and poverty reduction goals. The country has abundant natural energy resources such as solar, water and wind, which supply most of the current electricity production (generally in the form of large scale grid connected systems).&nbsp; But the supply of such energy to rural areas faces a range of barriers including market uncertainty, no successful business models and no clear policy framework for the future supply of clean energy.
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The installed capacity&nbsp; of the interconnected system as at March 2016 was 2,341 MW which included 632 MW of geothermal energy and 821 MW of hydro power.&nbsp; The off-grid system installed capacity in 2015 was 28 MW and consisted of diesel, solar and wind power plants with supporting mini-grids.&nbsp; Following the full operationalization of the new 280MW geothermal plant in Olkaria, the&nbsp; national electricity consumption by mode will be 47% geothermal, 39% hydro, 13% thermal and 1% wind.&nbsp; Kenya’s demand is expected to rise to 15,000 MW by 2030.&nbsp; The Government's "Vision 2030" recognizes energy as a key priority, which requires an alignment of the energy sector policy and legislation. The target for rural electrification is “full access” for the rural population by connecting those public facilities (trading centres, state schools, health centres) that are not yet electrified (about 4,000 from the total of 25,000).&nbsp; However, this target of full access does not mean that all households will be connected.&nbsp; The tariff system is uniform (cross-subsidy) irrespective of grid or off-grid and is based on energy consumption and fuel used for generation (the average generation cost in 2010 was $0.29/kWh).&nbsp; In order to offset fuel consumption, renewable energy is being introduced into the off-grid systems. There is a huge potential for replacing diesel with solar power in micro-grids.&nbsp;
  
 
= Objectives =
 
= Objectives =
  
The broad goal was poverty alleviation and creating a long-term sustainable solar market in Ethiopia.&nbsp; Specific targets were 3.6 million solar lanterns and 400,000 solar home systems by 2020.&nbsp; The programme also aimed to create jobs, and to transfer knowledge by training solar technicians and make them available for the developing solar market.
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Although overall electricity access increased from 23% in 2009 to 50% in 2015, the coverage is still limited to the coastal, central and some eastern and western parts of the country, with remote regions (such as northern Kenya) having access of only about 5%. The mandate of REA to power the Vision 2030 is to reach ‘universal connectivity by 2030’.&nbsp; REA has a target of 23% of the population to be served by mini-grids, both publicly and privately owned. There are no such formal targets for stand-alone systems, though the government estimates that the cost of connecting a rural household to the national grid is between $800 and $1000 whereas a stand-alone solar system (providing enough power for an off-grid household) costs an average of between $150 and $300 – this acknowledgement is likely to see increased support for such systems as part of Vision 2030.
  
 
= Legal Basis =
 
= Legal Basis =
  
The Second Growth and Transformation Plan (GTP II) of Ethiopia (2015/16-2019/20) – National Planning Commission, September 2015, states that the Rural Electricity Access program will continue to be implemented. There are no specific requirements for licensing off-grid solar businesses.
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National Energy and Petroleum Policy (2015), provides the basis for the development of a comprehensive electrification strategy towards universal access by 2020.&nbsp; This provides dedicated targets for rural electrification and off-grid generation. For mini-grids, generation, distribution and supply licences are required from the Energy Regulatory Commission (ERC) as well as clearance from the National Environmental Management Authority (NEMA).&nbsp; For stand-alone solar systems, a licence is required for any person who “carries out any solar PV system manufacture, import, vending or installation work” according to the Energy (Solar PV) Regulation, 2012.
  
 
= Institutions, Roles and Responsibilities<br/> =
 
= Institutions, Roles and Responsibilities<br/> =
  
*Ministry of Water Irrigation and Energy (MoWIE) Directorate for Alternative Energy Technology Development and Transformation manages programmes related to solar market development; the technical intermediary for projects<br/>
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The national utility Kenya Power & Lighting Company (KPLC) is a for-profit corporation, majority-owned by the government. It is one of the two companies that dominate the Kenyan power sector. While KPLC is responsible for power transmission, distribution and supplies to consumers, and manages diesel-powered mini-grids set up in off-grid areas of commercial or strategic importance, Kenya Electricity Generating Company Limited (KenGen) is the leading electric power generation company, producing about 75% of installed electricity capacity (using hydro, geothermal, thermal and wind). Independent Power Producers (IPPs) such as IberAfrica, Tsavo, Or-power4 Inc., Rabai, Imenti, and Mumias -&nbsp; own and operate private power stations connected to the grid and sell electricity to KPLC. Collectively, they account for about 28% of the country’s installed capacity.&nbsp; The Geothermal Development Company (GDC) was formed by Government in 2008 to develop geothermal electric power. The Rural Electrification Authority (REA) was established in 2007 to extend electricity to rural areas - REA is responsible for the Implementation and sourcing of additional funds for the rural electrification programme – it handles the planning of network extension (including the development of mini-grid sites throughout the country), facilitates links with private investors/operators, and manages the Rural Electrification Program Fund. KPLC&nbsp; oversees the implementation of these mini-grids. For the 18 existing mini-grids,&nbsp; distribution and sales are done by KPLC, and the generating equipment is owned either by KenGen or REA (all three are government organisations). There are a few private developers (e.g. Powerhive, Powergen RE, and Talek Power) that own and operate independent mini-grids, though the licensing/tariff regulation regime presents a major barrier (regulations are still quite vague and generally prioritise grid expansion over non-grid electrification in remote areas), and the uniform national tariff is still predominant (though exceptions have been agreed e.g. for Powerhive). Other key players include the Ministry of Energy (MoE) - responsible for policy as well as generation and distribution licenses - and the Energy Regulatory Commission (ERC) responsible for energy planning, tariff setting, and recommendations for licenses
*Rural Electrification Fund Office (REF)&nbsp;has financial resources from donors including UNDP, Power Africa, Energy Plus, the World Bank, and UNCDF. These donors contribute 80-85% of the total budget with the balance coming from the government<br/>
 
*Development Bank of Ethiopia (DBE): the financial intermediary for several solar market development programmes<br/>
 
*Ministry of Finance and Economic Development (MFED): involved with financial support from donors for solar market development<br/>
 
*Ethiopian Electric Power Corporation (EEPC) is responsible for generation, distribution and sale of electricity<br/>
 
*Ethiopian Energy Authority (EEA) is responsible for setting tariffs, supervising private sector involvement and approval of power purchase agreements<br/>
 
*Private companies, drawing on this public sector support, are responsible for procurement, installation and sale of solar lanterns and systems.
 
  
 
= Interventions<br/> =
 
= Interventions<br/> =
  
The main incentives offered by the Government are duty free imports and loans for private business and MFIs. These have provided the basis for a range of activities that have been undertaken by the Government in association with international donors, aiming to develop the nascent market for solar systems.&nbsp; The most significant initiatives have included:
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The off-grid energy market in Kenya has developed on the basis of a wide range of well-co-ordinated interventions at many levels, including:
  
*DBE established a US$ credit line for importers of solar lanterns; tax exemption for solar products was introduced, linked to quality standards<br/>
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*Vision 2030 to prioritise energy and prepare appropriate policy/regulation frameworks
*a US$20m fund was established by the Government (with support from Lighting Africa) and administered by DBE; the fund provides foreign exchange denominated working capital to enable companies to import solar products, and MFIs to access credit to support loans to users<br/>
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*the establishment of a dedicated Government agency (REA) with focussed mandate and a clear target (full access by 2030)
*a US$40-million concessional loan from the World Bank to MFED was passed to DBE and used to provide foreign-currency denominated, collateral free, concessionary working capital loans to developers and credit to MFIs who give market-rate loans to households buying energy products on a revolving-fund basis.<br/>
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*specific actions to address barriers and encourage the private sector, including pilot projects to demonstrate that cost-reflective tariffs were socially possible for mini-grids, capex provided by government, cross subsidy from all KPLC customers,&nbsp; the removal of value-added tax on solar products
*in 2013 the government introduced a feed-in tariff and Power Purchase Agreements (PPAs) to encourage investment in RE generation<br/>
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*proactive and customer-oriented marketing strategy that also covered the poor peri-urban districts
*since 2005, the Solar Energy Foundation (an NGO) has provided unsubsidized&nbsp; SHS through entrepreneurs using low-cost downsized systems, RFID card payment and revolving-fund micro-finance; awareness raising/marketing has been pursued through schools and media campaigns
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*promotion of solar lanterns as a substitute to the use of kerosene as the main source of lighting in rural areas and as the main back up lighting system in urban areas<br/>
  
 
= Impacts Achieved<br/> =
 
= Impacts Achieved<br/> =
  
By August 2016, 40,000 solar home systems had been provided with finance on the basis of 7-year instalment loans (through REF).&nbsp; In total, close to 60,000 SHS (many without the need for financing arrangements) and 1 million lanterns had been sold (by NGOs and private companies).&nbsp; The Government estimated that there was a demand for solar products from 14 million households.
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Kenya added 1.3 million households to its electricity grid during 2016, raising the percentage of connected Kenyans to 55%, from just 27% in 2013. This has been complemented by a dramatic growth in implementation of off-grid solar powered electrification; it is projected that the installed capacity of solar photovoltaic systems in Kenya will reach 100 MWe, generating 220 GWh annually, by 2020. (In&nbsp; mid-2013, it was estimated that about 2.5 million people were already using off-grid solar lighting products, with evidence of more than 35% annual growth in this sector). The policy and regulatory environment for electrification is fairly advanced, with significant and growing IPP presence, unbundling and partial privatization of national utilities, and increasing take-up of cost reflective tariffs. Over 30% of the off-grid population has first hand experience with solar lighting (BNEF/GOGLA market trends report 2016), with many replacing kerosene and other fossil fuels with pico and small home solar PV systems for lighting, resulting in significant energy-related savings. However, there is need for continued effort in order to achieve the universal access goal, with additional connections becoming more challenging as they become more remote. By the end of 2016, 5.7 million households had been connected. The next target is 6.5 million connected households by 2017.
  
 
= Lessons Learned<br/> =
 
= Lessons Learned<br/> =
  
Experience from the solar market development programme has raised awareness of the limitations & challenges that must be faced.&nbsp; The lack of a clear policy framework, and no clear plans from the grid company or different donors means market uncertainty, which is a barrier to investment. Also close attention to financial resources is required from the outset since projects cannot be initiated without relevant financial solutions, particularly for start ups.&nbsp; Other key lessons highlighted by&nbsp; the programme are i) trust between all stakeholders must be built to allow the market to grow; ii) effective after sales service is necessary to satisfy customers and so spread positive word-of-mouth feedback to grow demand; iii) product availability in local stores is required for customers to access appliances and demand to increase; iv) product quality must be good enough to avoid any negative experiences that will stall market growth; v) proper technicians training is essential to build local capacity and ensure the sustainability of applications.&nbsp; Other lessons included the challenges for local businesses that were involved in the chain of supply for solar products and services.&nbsp; These included i) the need of hard currency for imports; ii) arrangements required for the necessary loans (local and from abroad); iii) the need to address poor quality products imported, or fake/copied products, and the associated price competition.&nbsp; Finally, the programme experience has highlighted additional issues that must be addressed to achieve success: raising awareness of the end user; creating an effective distribution network; using local assembly to reduce prices and create job opportunities; establishing a strong association of stakeholders.
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The potential for increased private sector involvement is not yet clear and the viability/sustainability of existing initiatives&nbsp; to increase electrification has not been fully proven mainly due to tariff issues. The Government has established regulatory and policy frameworks to encourage private sector investment, but there is still a lack of local capacity for planning and for financial assessments to consider the load demand growth. Clear national plans are required to motivate private reinvestment for new customers. The Solar Lantern programme has shown how government policy and strategy have a significant impact on the private sector’s ability to advance in these markets,&nbsp; but a key to commercial success will be making these products and services affordable and attractive to Kenyans.&nbsp; It is probably possible for high-quality off-grid lighting to compete with inexpensive, low-quality products if sufficient attention is given to consumer outreach, advertising, to raise awareness of quality differentiators.&nbsp; Another critical factor has been mobile pay-as-you-go off-grid solar vendors’ ability to leverage the popular M-Pesa mobile money and payments service for standalone solar products.&nbsp; Private enterprises generally agree that direct subsidies are counterproductive in the case of small lighting products such as solar lanterns and small SHSs. Such support is not needed, since this segment of the rural electrification market will grow quickly by itself. The private sector believes that government efforts should rather be centred on enabling issues such as consumer education (on quality), access to finance, and training of skilled local retailers.
  
 
= Effectiveness<br/> =
 
= Effectiveness<br/> =
  
Ethiopia has recognised the demand for lighting and mobile charging in rural areas, and the opportunity for a range of solar technologies, including solar lanterns,&nbsp; solar home systems, solar televisions and radios, as well as solar water pumps, water heaters and refrigerators.&nbsp; The payback experienced for solar lanterns is 6-9 months and, with chargers, <15 months. After one year into the 5-year GTP II programme,&nbsp; approximately 15% of the SHS target and over 25% of the solar lantern target have been achieved.&nbsp; The Rural Electrification Fund has provided concessional loans for diesel powered electrification (85% loan with interest of 7.5%) and for renewable energy projects (95% loan with zero interest), as well as capital subsidies of 20-30% of the investment costs to renewable energy project developers on a reimbursement basis.&nbsp; DBE has supported six private sector entrepreneurs and, through their efforts, nearly 250,000 solar systems will be disseminated under the credit lines.&nbsp; These developments suggest the establishment of a sustainable national market for solar systems, which are likely to address tier 1 (lanterns) and tier 2 (SHS) levels in the SEforAll framework.&nbsp; However, despite this growing demand, there has been a lack of proper management in reclaiming loans from end-users.&nbsp; Loans to prospective end-users also have a high interest rate, which limits their affordability.&nbsp; Remaining duties on imported technologies compounds this problem.&nbsp; Therefore, despite the great potential for future solar market development, further measures are required to ensure the value for end-users.&nbsp;<br/>
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A key to the success of this national programme in increasing use of off-grid energy systems has been the integrated approach to market development.&nbsp; This has combined policy frameworks with financial support mechanisms and customer education, which has led to growing market demand for off-grid products.&nbsp; It is important to note that direct subsidies from government are not seen as an effective route to a sustainable market.&nbsp; Despite this lack of direct financial support from the public sector, the growth of off-grid electrification (primarily through solar applications) has been substantial enough to represent a nascent commercial market.&nbsp; This has been stimulated by a range of supportive measures, with access to mobile banking services and customer awareness initiatives having the greatest impact.&nbsp; This facilitative approach has had positive results to date and certainly appears to represent a very cost-effective means to extend national electrification.
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= Overview of Other Country Case Studies =
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{{NAE Case Studies Navigation Table}}
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= References =
 
= References =
  
*[http://allafrica.com/stories/201508102287.html http://allafrica.com/stories/201508102287.html]
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*[http://www.erc.go.ke/images/docs/National_Energy_Petroleum_Policy_August_2015.pdf http://www.erc.go.ke/images/docs/National_Energy_Petroleum_Policy_August_2015.pdf]
*Clean Energy Solutions Centre & iied. (2015). Policies to Spur Energy Access [https://cleanenergysolutions.org/resources/policies-spur-energy-access https://cleanenergysolutions.org/resources/policies-spur-energy-access]
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*[http://www.kplc.co.ke/content/item/1119/electrification-project- http://www.kplc.co.ke/content/item/1119/electrification-project-]
*[http://documents.worldbank.org/curated/en/781791487789244953/pdf/112967-WP-P105651-PUBLIC-Beyond-Electricity-Access-Ethiopia-FINAL.pdf http://documents.worldbank.org/curated/en/781791487789244953/pdf/112967-WP-P105651-PUBLIC-Beyond-Electricity-Access-Ethiopia-FINAL.pdf]
 
*[http://global-climatescope.org/en/country/ethiopia/#/details http://global-climatescope.org/en/country/ethiopia/#/details]
 
*Hystra (2009), Access to Energy for the Base of the Pyramid [https://static1.squarespace.com/static/51bef39fe4b010d205f84a92/t/51f246b0e4b08fce1a8b9326/1374832304353/HYSTRA_Access_to+_Energy.pdf https://static1.squarespace.com/static/51bef39fe4b010d205f84a92/t/51f246b0e4b08fce1a8b9326/1374832304353/ HYSTRA_Access_to+_Energy.pdf]
 
*[http://www.mitigationmomentum.org/downloads/NAMA-proposal-for-Off-grid-Rural-electrification-in-Ethiopia_April-2016.pdf http://www.mitigationmomentum.org/downloads/NAMA-proposal-for-Off-grid-Rural-electrification-in-Ethiopia_April-2016.pdf]
 
 
*Practical Action, ODI, Solar Aid, GOGLA. (2016). Accelerating Access to Electricity in Africa with Off-grid Solar [https://policy.practicalaction.org/policy-themes/energy/off-grid-solar https://policy.practicalaction.org/policy-themes/energy/off-grid-solar]
 
*Practical Action, ODI, Solar Aid, GOGLA. (2016). Accelerating Access to Electricity in Africa with Off-grid Solar [https://policy.practicalaction.org/policy-themes/energy/off-grid-solar https://policy.practicalaction.org/policy-themes/energy/off-grid-solar]
*The Second Growth and Transformation Plan (GTP II), (2015/16-2019/20); National Planning Commission, September 2015, Addis Ababa
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*[http://www.renewableenergy.go.ke/downloads/policy-docs/Updated_SREP_Draft_Investment_Plan_May_2011.pdf http://www.renewableenergy.go.ke/downloads/policy-docs/Updated_SREP_Draft_Investment_Plan_May_2011.pd]<br/>
*[http://sun-connect-news.org/fileadmin/DATEIEN/Dateien/New/Ethiopia_solar_GB_final.pdf http://sun-connect-news.org/fileadmin/DATEIEN/Dateien/New/Ethiopia_solar_GB_final.pdf]
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*[http://siteresources.worldbank.org/EXTAFRREGTOPENERGY/Resources/717305-1327690230600/8397692-1327691237767/Rural_Electrification_in_Kenya_presentation_Final_11thNov2011.pdf http://siteresources.worldbank.org/EXTAFRREGTOPENERGY/Resources/717305-1327690230600/8397692-1327691237767/Rural_Electrification_in_Kenya_presentation_Final_11thNov2011.pdf]
*[https://sustainabledevelopment.un.org/content/documents/22747Solar_Energy_Foundation_experiance_and_best_practices.pdf https://sustainabledevelopment.un.org/content/documents/22747Solar Energy Foundation experiance and best practices.pdf]
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*[http://www.vision2030.go.ke/projects/?pj=2 http://www.vision2030.go.ke/projects/?pj=2]
*UNEP & GOGLA, (2015), Developing Effective Off-Grid Lighting Policy [https://www.gogla.org/sites/www.gogla.org/files/recource_docs/developing-effective-off-grid-lighting-policy.pdf https://www.gogla.org/sites/www.gogla.org/files/recource_docs/developing-effective-off-grid-lighting-policy.pdf]
 
*[http://www.unosd.org/content/documents/17599._Ethiopia_Energy_Sector_Highlight_February_2016_main.pdf http://www.unosd.org/content/documents/17599. Ethiopia Energy Sector Highlight February 2016 main.pdf]
 
*[http://www.unosd.org/content/documents/1786Ethiopia_Off-grid_PV_systems,_Technologies_and_Innovations_for_rural_area_electrification.pdf http://www.unosd.org/content/documents/1786Ethiopia_Off-grid PV systems, Technologies and Innovations for rural area electrification.pdf]
 
 
*World Resources Institute (2015),Clean Energy Access in Developing Countries: Perspectives on Policy and Regulation, Issue Brief 2 [http://www.wri.org/sites/default/files/clean-energy-access-developing-countries-issue-brief.pdf http://www.wri.org/sites/default/files/clean-energy-access-developing-countries-issue-brief.pdf]
 
*World Resources Institute (2015),Clean Energy Access in Developing Countries: Perspectives on Policy and Regulation, Issue Brief 2 [http://www.wri.org/sites/default/files/clean-energy-access-developing-countries-issue-brief.pdf http://www.wri.org/sites/default/files/clean-energy-access-developing-countries-issue-brief.pdf]
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*World Resources Institute (Year Unknown), Implementation Strategies for Renewable Energy Services in Low-Income, Rural Areas. Policy Brief Issue 1.<br/>
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*[https://www.wri.org/sites/default/files/pdf/implementation_strategies_renewable_energy_services_low_income_rural_areas.pdf https://www.wri.org/sites/default/files/pdf/implementation_strategies_renewable_energy_services_low_income_rural _areas.pdf]
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{{NAE Acknowledgements}}
 
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Latest revision as of 13:29, 16 July 2018

NAE Overview Page
TechnologyTechnology: Grid ExtensionTechnology: Grid-Connected Mini-Grid/Distribution SystemTechnology: Isolated Mini-GridTechnology: Standalone SystemsDelivery ModelDelivery Model: PublicDelivery Model: Private (Non-Government)Delivery Model: Public-Private PartnershipLegal BasisLegal Basis: ConcessionLegal Basis: LicenseLegal Basis / Price/Tariff Regulation: UnregulatedPrice/Tariff RegulationPrice/Tariff Regulation: UniformPrice/Tariff Regulation: IndividualFinanceFinance: PrivateFinance : UserFinance: Grants & SubsidiesFinance: Cross-SubsidiesFinance: Tax ExemptionsFinance: GuaranteesNon-Financial InterventionsNon-Financial Interventions: Direct Energy Access ProvisionNon-Financial Interventions: Institutional RestructuringNon-Financial Interventions: Regulatory ReformNon-Financial Interventions: Policy & Target SettingNon-Financial Interventions: Quality & Technical StandardsNon-Financial Interventions: Technical AssistanceNon-Financial Interventions: Capacity Building & Awareness RaisingNon-Financial Interventions: Market InformationNon-Financial Interventions: Demand PromotionNon-Financial Interventions: Technology Development & AdoptionNon-Financial Interventions: National Energy PlanningNAE Case Study Table Kenya.png]]


Description

The aim is to increase access to electricity (equally in all 47 counties) and promote renewable energy development. An integrated approach is being employed, involving the expansion of national grid in rural areas, development of mini-grids and installation of stand-alone systems (primarily solar PV) - all with an equal (cross-subsidised) tariff. USAID estimates that about 10% of new connections by 2025 will be off-grid. Providing for basic needs in remote communities has also involved widespread dissemination of solar lanterns.  Promotion of a private sector-driven approach to rural electrification has been a focus by encouraging private investments in off-grid systems such as solar home systems, solar lanterns and mini-grids. For example, at Kissi, private operators are leading the design, build and management of 4 advanced 100% solar micro-grids in villages with a total solar generation capacity of 80 kW; together with a pre-payment platform. The Rural Energy Authority (REA) has overall responsibility for increasing energy access in rural areas through all appropriate means, whether via grid expansion or through off-grid applications; REA is currently involved with constructing mini-grids in 11 sites.

Context

The installed capacity  of the interconnected system as at March 2016 was 2,341 MW which included 632 MW of geothermal energy and 821 MW of hydro power.  The off-grid system installed capacity in 2015 was 28 MW and consisted of diesel, solar and wind power plants with supporting mini-grids.  Following the full operationalization of the new 280MW geothermal plant in Olkaria, the  national electricity consumption by mode will be 47% geothermal, 39% hydro, 13% thermal and 1% wind.  Kenya’s demand is expected to rise to 15,000 MW by 2030.  The Government's "Vision 2030" recognizes energy as a key priority, which requires an alignment of the energy sector policy and legislation. The target for rural electrification is “full access” for the rural population by connecting those public facilities (trading centres, state schools, health centres) that are not yet electrified (about 4,000 from the total of 25,000).  However, this target of full access does not mean that all households will be connected.  The tariff system is uniform (cross-subsidy) irrespective of grid or off-grid and is based on energy consumption and fuel used for generation (the average generation cost in 2010 was $0.29/kWh).  In order to offset fuel consumption, renewable energy is being introduced into the off-grid systems. There is a huge potential for replacing diesel with solar power in micro-grids. 

Objectives

Although overall electricity access increased from 23% in 2009 to 50% in 2015, the coverage is still limited to the coastal, central and some eastern and western parts of the country, with remote regions (such as northern Kenya) having access of only about 5%. The mandate of REA to power the Vision 2030 is to reach ‘universal connectivity by 2030’.  REA has a target of 23% of the population to be served by mini-grids, both publicly and privately owned. There are no such formal targets for stand-alone systems, though the government estimates that the cost of connecting a rural household to the national grid is between $800 and $1000 whereas a stand-alone solar system (providing enough power for an off-grid household) costs an average of between $150 and $300 – this acknowledgement is likely to see increased support for such systems as part of Vision 2030.

Legal Basis

National Energy and Petroleum Policy (2015), provides the basis for the development of a comprehensive electrification strategy towards universal access by 2020.  This provides dedicated targets for rural electrification and off-grid generation. For mini-grids, generation, distribution and supply licences are required from the Energy Regulatory Commission (ERC) as well as clearance from the National Environmental Management Authority (NEMA).  For stand-alone solar systems, a licence is required for any person who “carries out any solar PV system manufacture, import, vending or installation work” according to the Energy (Solar PV) Regulation, 2012.

Institutions, Roles and Responsibilities

The national utility Kenya Power & Lighting Company (KPLC) is a for-profit corporation, majority-owned by the government. It is one of the two companies that dominate the Kenyan power sector. While KPLC is responsible for power transmission, distribution and supplies to consumers, and manages diesel-powered mini-grids set up in off-grid areas of commercial or strategic importance, Kenya Electricity Generating Company Limited (KenGen) is the leading electric power generation company, producing about 75% of installed electricity capacity (using hydro, geothermal, thermal and wind). Independent Power Producers (IPPs) such as IberAfrica, Tsavo, Or-power4 Inc., Rabai, Imenti, and Mumias -  own and operate private power stations connected to the grid and sell electricity to KPLC. Collectively, they account for about 28% of the country’s installed capacity.  The Geothermal Development Company (GDC) was formed by Government in 2008 to develop geothermal electric power. The Rural Electrification Authority (REA) was established in 2007 to extend electricity to rural areas - REA is responsible for the Implementation and sourcing of additional funds for the rural electrification programme – it handles the planning of network extension (including the development of mini-grid sites throughout the country), facilitates links with private investors/operators, and manages the Rural Electrification Program Fund. KPLC  oversees the implementation of these mini-grids. For the 18 existing mini-grids,  distribution and sales are done by KPLC, and the generating equipment is owned either by KenGen or REA (all three are government organisations). There are a few private developers (e.g. Powerhive, Powergen RE, and Talek Power) that own and operate independent mini-grids, though the licensing/tariff regulation regime presents a major barrier (regulations are still quite vague and generally prioritise grid expansion over non-grid electrification in remote areas), and the uniform national tariff is still predominant (though exceptions have been agreed e.g. for Powerhive). Other key players include the Ministry of Energy (MoE) - responsible for policy as well as generation and distribution licenses - and the Energy Regulatory Commission (ERC) – responsible for energy planning, tariff setting, and recommendations for licenses

Interventions

The off-grid energy market in Kenya has developed on the basis of a wide range of well-co-ordinated interventions at many levels, including:

  • Vision 2030 to prioritise energy and prepare appropriate policy/regulation frameworks
  • the establishment of a dedicated Government agency (REA) with focussed mandate and a clear target (full access by 2030)
  • specific actions to address barriers and encourage the private sector, including pilot projects to demonstrate that cost-reflective tariffs were socially possible for mini-grids, capex provided by government, cross subsidy from all KPLC customers,  the removal of value-added tax on solar products
  • proactive and customer-oriented marketing strategy that also covered the poor peri-urban districts
  • promotion of solar lanterns as a substitute to the use of kerosene as the main source of lighting in rural areas and as the main back up lighting system in urban areas

Impacts Achieved

Kenya added 1.3 million households to its electricity grid during 2016, raising the percentage of connected Kenyans to 55%, from just 27% in 2013. This has been complemented by a dramatic growth in implementation of off-grid solar powered electrification; it is projected that the installed capacity of solar photovoltaic systems in Kenya will reach 100 MWe, generating 220 GWh annually, by 2020. (In  mid-2013, it was estimated that about 2.5 million people were already using off-grid solar lighting products, with evidence of more than 35% annual growth in this sector). The policy and regulatory environment for electrification is fairly advanced, with significant and growing IPP presence, unbundling and partial privatization of national utilities, and increasing take-up of cost reflective tariffs. Over 30% of the off-grid population has first hand experience with solar lighting (BNEF/GOGLA market trends report 2016), with many replacing kerosene and other fossil fuels with pico and small home solar PV systems for lighting, resulting in significant energy-related savings. However, there is need for continued effort in order to achieve the universal access goal, with additional connections becoming more challenging as they become more remote. By the end of 2016, 5.7 million households had been connected. The next target is 6.5 million connected households by 2017.

Lessons Learned

The potential for increased private sector involvement is not yet clear and the viability/sustainability of existing initiatives  to increase electrification has not been fully proven mainly due to tariff issues. The Government has established regulatory and policy frameworks to encourage private sector investment, but there is still a lack of local capacity for planning and for financial assessments to consider the load demand growth. Clear national plans are required to motivate private reinvestment for new customers. The Solar Lantern programme has shown how government policy and strategy have a significant impact on the private sector’s ability to advance in these markets,  but a key to commercial success will be making these products and services affordable and attractive to Kenyans.  It is probably possible for high-quality off-grid lighting to compete with inexpensive, low-quality products if sufficient attention is given to consumer outreach, advertising, to raise awareness of quality differentiators.  Another critical factor has been mobile pay-as-you-go off-grid solar vendors’ ability to leverage the popular M-Pesa mobile money and payments service for standalone solar products.  Private enterprises generally agree that direct subsidies are counterproductive in the case of small lighting products such as solar lanterns and small SHSs. Such support is not needed, since this segment of the rural electrification market will grow quickly by itself. The private sector believes that government efforts should rather be centred on enabling issues such as consumer education (on quality), access to finance, and training of skilled local retailers.

Effectiveness

A key to the success of this national programme in increasing use of off-grid energy systems has been the integrated approach to market development.  This has combined policy frameworks with financial support mechanisms and customer education, which has led to growing market demand for off-grid products.  It is important to note that direct subsidies from government are not seen as an effective route to a sustainable market.  Despite this lack of direct financial support from the public sector, the growth of off-grid electrification (primarily through solar applications) has been substantial enough to represent a nascent commercial market.  This has been stimulated by a range of supportive measures, with access to mobile banking services and customer awareness initiatives having the greatest impact.  This facilitative approach has had positive results to date and certainly appears to represent a very cost-effective means to extend national electrification.

Overview of Other Country Case Studies

Bangladesh, IDCOL Solar Home SystemsBrazil, Luz para Todos (Light for All)NAE Case Study: Cambodia “Light Touch” RegulationCosta Rica, Distribution CooperativesEthiopia, Solar Market DevelopmentKenya, Off-Grid for Vision 2030Mali, Rural Electrification ProgrammeNepal, Rural Energy Development ProgrammePeru, Concession Model for Standalone SystemsPhilippines, Islanded Distribution by CooperativesRwanda, Sector-Wide Approach to PlanningSouth Africa, Integrated National ElectrificationTanzania, Mini-Grids Regulatory FrameworkTunisia, Low Cost Distribution TechnologyVietnam, Rapid Grid ExpansionNAE Case Studies Navigation Table.png]]


References




Authors

Authors: Mary Willcox, Dean Cooper

Acknowledgements

The Review was prepared by Mary Willcox and Dean Cooper of Practical Action Consulting working with Hadley Taylor, Silvia Cabriolu-Poddu and Christina Stuart of the EU Energy Initiative Partnership Dialogue Facility (EUEIPDF) and Michael Koeberlein and Caspar Priesemann of the Energising Development Programme (EnDev). It is based on a literature review, stakeholder consultations. The categorization framework in the review tool is based on the EUEI/PDF / Practical Action publication "Building Energy Access Markets - A Value Chain Analysis of Key Energy Market Systems".

A wider range of stakeholders were consulted during its preparation and we would particularly like to thank the following for their valuable contributions and insights: - Jeff Felten, AfDB - Marcus Wiemann and other members, ARE - Guilherme Collares Pereira, EdP - David Otieno Ochieng, EUEI-PDF - Silvia Luisa Escudero Santos Ascarza, EUEI-PDF - Nico Peterschmidt, Inensus - John Tkacik, REEEP - Khorommbi Bongwe, South Africa: Department of Energy - Rashid Ali Abdallah, African Union Commission - Nicola Bugatti, ECREEE - Getahun Moges Kifle, Ethiopian Energy Authority - Mario Merchan Andres, EUEI-PDF - Tatjana Walter-Breidenstein, EUEI-PDF - Rebecca Symington, Mlinda Foundation - Marcel Raats, RVO.NL - Nico Tyabji, Sunfunder -



NAE Overview Page

Any feedback would be very welcome. If you have any comments or enquires please contact: mary.willcox@practicalaction.org.ukbenjamin.attigah@euei-pdf.org, or caspar.priesemann@giz.de.

Download the Tool as a Power Point: https://energypedia.info/images/a/aa/National_Approaches_to_Electrification_-_Review_of_Options.pptx


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