Kenya moves to swap FiTs for competitive auctions

18 October 2016, Week 42, Issue 531

Kenya intends to move to an auction system for the development of new renewable energy generation and will release its final policy draft is released in the next three months. 

“We are transitioning to the auction model and will give projects to investors with the lowest pricing and highest efficiency,” said Energy Regulatory Commission (ERC) director of electricity Joseph Oketch, quoted in local media reports this week.

The auction system will replace Kenya’s 2010 revised feed-in tariffs (FiTs), which have been criticised for their lack of certainty in project pricing, transparency and the claims that they stifle competition which could lead to more competitive electricity prices for consumers.

The FiTs have been blamed for the delay in project developments, as many developers are said to have signed power purchase agreements (PPAs) at specific tariffs and have purposely delayed building projects, instead waiting for further reductions in the cost of renewable energy equipment.

The current tariffs have been revised three times since their introduction in 2008, covering wind, small hydro and biomass projects not exceeding 50 MW, 10 MW and 40 MW respectively. They have also been expanded to accommodate other technologies such as biogas and grid-connected solar energy.

However, the ERC previously said that the 2010 tariffs had not been “attractive enough to progress biomass and biogas generated electricity to [the] power purchase agreement negotiations stage and funding.”

It also said the tariffs had left out grid-connected solar energy despite “increasing interest for investment in the technology,” which it attributed to the significant decrease in the cost of solar generation equipment.

Permanent Secretary in the Ministry of Energy Joseph Njoroge was quoted early this week as saying: “[The government expects] the auction system to take effect in the next three months and will help us plan, since we will only auction what the country needs as opposed to the current regime where private investors set the agenda.”

Yet there is still uncertainty over what the new policy will advise. Officials could not commit to any specifics, such as the capacity of projects which will qualify to participate in the auction, how many times the bidding process will be held in a year, the criteria for project developers to qualify to participate in the auction and under what timelines the preferred bidders would be allowed to develop their projects.

The current tariff system caters for projects of less than 10 MW, for which developers sign a standardised PPA if it is connected to grid, while off-grid project tariffs are technology-specific.

However, the current FiT policy also allows for a bidding process for projects larger than 10 MW. The ERC can permit these if they engage in “utilisation of significant national renewable resources” but this requires the Ministry of Energy to carry out preliminary identification studies before it can initiate any competitive bidding. 

“Government will solicit bidders, shortlist them on the basis of qualifications and competencies, and at the full proposal stage have the shortlisted candidates compete for the lowest levelised price,” ERC says in its current FiT policy. 

It is unclear why the Ministry of Energy could not invoke this provision for projects larger than 10 MW before it launched an overhaul of the existing policy. Whatever the outcome, the next 90 days is likely to be an uncertain time for developers planning new projects in 2017.

Edited by

Andrew Dykes

Editor

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