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Summary of MINI GRIDS IN KENYA: A CASE STUDY OF A MARKET AT A TURNING POINT

Core Content

This report is part of a broader ESMAP initiative to analyze the regulatory environment for mini grids in six countries in Sub-Saharan Africa and Asia. It focuses on Kenya, examining the policy, technical, financial, and operational aspects of mini grid development, with an emphasis on how these systems can support the expansion of electricity access in underserved areas.

Main Actors in the Power Sector

• Kenya Power and Lighting Company (KPLC): A partially state-owned utility responsible for buying electricity from generators, transmitting, and distributing it to consumers. It manages 19 public mini grids.
• Kenya Electricity Generating Company Limited (KenGen): A semi-public generation company, responsible for generating 74% of Kenya’s electricity. It is listed on the Nairobi Securities Exchange.
• Energy Regulatory Commission (ERC): The national electricity regulator, responsible for approving tariffs, PPAs, and licenses. It also reviews compliance and resolves disputes.
• Rural Electrification Authority (REA): Established in 2007, the REA is tasked with extending rural electrification, including the planning and development of mini grids.
• Ministry of Energy and Petroleum (MoEP): Oversees energy policy and directs public sector entities in infrastructure planning and execution.
• Independent Power Producers (IPPs): Play a significant role in the sector, generating power and selling it to KPLC under competitive bidding processes.

Evolution of the Power Sector

• Electricity Generation: Increased from 4,000 GWh to 9,000 GWh between 1995 and 2014, with an average annual growth rate of 5%.
• Installed Capacity: Reached 2,370 GW in 2017, with hydro and geothermal sources dominating.
• Transmission Network: Expanded significantly, covering 5,978 km of transmission lines by 2017. New high-voltage DC lines (400kV and 500kV) and regional interconnectors with Ethiopia, Uganda, and Tanzania were under development in 2016.
• Distribution Network: Composed of 33kV and 11kV medium-voltage lines, which are stepped down to 0.433kV and 0.24kV for end-user connections. In 2017, the total length of medium-voltage lines was 68,080 km, and low-voltage lines was 139,642 km.

Access to Electricity

• National Connection Rate: Rose from 11% in 1995 to 36% in 2014.
• Urban vs Rural: In 2014, 68.4% of urban areas had access to electricity, compared to 12.6% in rural areas.
• Electrification Goals: The Government aims for 70% electrification by 2018 and universal access by 2020.
• Mini Grids: Used to connect the remaining 20% of the population in underserved areas, particularly in northern and northeastern regions. These areas are characterized by low population density, nomadic lifestyles, and limited economic activity.

Mini Grids Overview

• Definition: Mini grids are small, privately-owned and operated systems with up to 10 MW capacity, serving multiple customers.
• Types: Includes pico-grids (under 1 kW) and micro-grids (1 kW to 10 kW).
• Private Mini Grids: At least 21 privately developed mini grids, but growth has been slower due to lack of clear regulations on tariffs, licensing, service quality, and interconnection.
• Public Mini Grids: Developed by REA and operated by KPLC, with 120 planned under a PPP model.

Policy Settings for Mini Grids

• Uncertain Policy Landscape: The ERC is developing a draft regulatory framework for mini grids, which may apply to both fully private and PPP models.
• National Electrification Strategy (NES): Aims to increase access to modern energy services in 14 underserved counties through KOSAP, a $150 million loan project.
• Subsidies: The average subsidy per connection was $435 in 2017, expected to drop to $145 soon. Subsidies are provided by the government and are subject to regulatory oversight.
• Tariffs: Regulated by the ERC, with an average tariff of $0.56/kWh for mini grid customers. KPLC charges $1,000 per connection, which is a higher cost than for private developers.

Technical and Service Standards

• Service Quality: Mini grids provide 24 hours of electricity service per day.
• Authorization: The ERC issues licenses for mini grid operators, and the REA plans and builds mini grids, handing them over to KPLC for operation and maintenance.
• Interconnection: KPLC is responsible for purchasing power from mini grids, ensuring a stable revenue stream for private operators through PPAs.

Lessons Learnt

• The regulatory environment is evolving, with the ERC working on a comprehensive framework.
• Public-private partnerships are being used to scale mini grid development, especially in remote areas.
• There is a need for clear and consistent policies to support private sector participation and ensure the sustainability of mini grid projects.
• Subsidies are critical for making mini grids economically viable, but their level and regulatory treatment require careful management.
• The integration of mini grids with the main grid is a key challenge, requiring both technical and policy solutions.

Key Metrics

Conclusion

Kenya is at a critical juncture in its mini grid development, with the government aiming to achieve universal electrification by 2020. The NES, supported by KOSAP, is a key initiative to expand access in underserved areas. The involvement of the private sector is growing, but it is constrained by the lack of clear regulatory frameworks. The ERC is developing new regulations that could support both private and public models. The integration of mini grids with the main grid, along with the establishment of fair tariffs and subsidies, remains a central challenge for the sector.