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After about a four-year wait, Kenya’s new energy laws have finally been passed into law. President Uhuru Kenyatta assented to the Energy Act, 2019 and the Petroleum Act, 2019 in March, 2019 paving the way for the energy sector to take further steps towards its modernization and development.
The two Acts of Parliament now contain the consolidated and updated laws on the energy sector. The Energy Act, 2019 repeals the Energy Act (the repealed Energy Act), the Geothermal Resources Act and the Kenya Nuclear Electricity Board Order No. 131 of 2012.
The Petroleum Act on its part repeals the Petroleum (Exploration and Production) Act (CAP 308) and absorbs and expands the provisions in the repealed Energy Act concerning upstream petroleum a move that was necessitated by several factors including the need to provide a facilitative legislative framework relating to petroleum products following the discovery of commercially viable oil deposits in Northern Kenya.
This article will be focused on the changes made in the Energy Act, 2019 and the developments expected as a result of its passing. It will also serve as an update to our last article on this subject titled Developments in the regulatory framework for renewable energy in Kenya: Energy Bill 2017’.
The new Act has several amendments to the repealed Energy Act intended as set out in its preamble, to consolidate the laws relating to energy, to properly delineate the functions of the national and devolved levels of government in relation to energy, to provide for the exploitation of renewable energy sources, to regulate midstream and downstream petroleum and coal activity and for the supply and use of electricity and other forms of electricity.
The new Act has established several new ‘energy sector entities’ that will replace those existing under the repealed laws and has gone further to restate and expand their mandates where this is necessary for them to properly discharge their functions.
ENERGY AND PETROLEUM REGULATORY AUTHORITY (EPRA)
The EPRA is the successor to the Energy Regulatory Commission (ERC), which exercised regulatory control over the energy sector. The objects and functions specified for EPRA will remain fundamentally the same as those of the ERC. It will still retain regulatory control over the energy sector as a whole with the exception of licensing of nuclear facilities and the regulation of downstream petroleum.
THE ENERGY AND PETROLEUM TRIBUNAL (EPT)
The EPT is the successor to the Energy Tribunal. The Energy Tribunal was a quasi-judicial body whose mandate was to hear appeals that may be made to decisions made by the ERC in accordance with the repealed Energy Act. The EPTs jurisdiction is wider; the new Act provides that it may hear and determine disputes and appeals relating to energy and petroleum that may arise under the Energy Act ‘and any other written laws’. This means that it may not only hear disputes that may arise from the Petroleum Act, 2019 for instance, but potentially any other law that may refer such matters to it. The new Act also goes further to provide a clearer legislative framework, as this was not provided before, to guide the EPTs conduct of its business especially so far as its proceduresare concerned.
RURAL ELECTRIFICATION AND RENEWABLE ENERGY CORPORATION (REREC)/RENEWABLE ENERGY RESOURCE ADVISORY COMMITTEE (RERAC)
The new Act has carried over the proposals in the Bill for the establishment of REREC and RERAC.
REREC is the successor to the Rural Electrification Authority (REA). REREC will, in addition to rural electrification, have an expanded mandate in relation to renewable energy that will put it at the centre of policy formulation, research and development, international cooperation and the promotion of renewable energy use amongst the local population. RERAC on the other hand is an inter-ministerial committee intended to advise the responsible cabinet secretary on matters concerning the allocation of renewable energy resources, the licensing of renewable energy resource areas, the management of water towers and catchment areas, the development of multi-purpose projects such as dams and reservoirs and the management and development of renewable energy resources.
NUCLEAR POWER AND ENERGY AGENCY (NPEA)
The NPEA will be the successor to the Kenya Nuclear Electricity Board a state corporation established pursuant to the Kenya Nuclear Electricity Board Order No. 131 of 2012. The NPEA will continue the Board’s mandate to develop and implement Kenya’s nuclear energy programme.
The new Act has adopted the proposal in the Bill to have all renewable and geothermal energy resources vested in the national government. As we had mentioned in our last article, this provision is primarily intended to clarify which level of government has the right to manage these resources. As resources are not evenly distributed across the country, it is considered best to have them vested by the national government who can develop them for the benefit of all Kenyan people and not just the regional county governments and communities where the resources are located. These county governments and communities are however compensated by receiving a part of the royalties charged by the national government for the development of the resources.
Royalties emerged as a hot button issue at the time the Bill was undergoing the legislative process at public participation stage. The tension surrounded the division of the royalties between the three main stakeholders i.e. the communities and county governments from the areas the resources are located and the national government. The local communities and county governments were at the time requesting for up to 45% of the royalties collected.
The Act however adopted the provisions of the Bill despite the protestations relating to the amount of the royalty charged on licensees i.e. between 1% to 2.5% to be paid during the first 10 years of production and between 2% and 5% for the following years. It has also retained the provisions on the division of the royalty by the three stakeholders i.e. the local communities will receive 5%, the county government 20% and the remaining 75% will be taken by the national government.
The Act also adopted the provisions of the Bill permitting the responsible cabinet secretary to vary or waive the amount of the royalty in the interest of promoting investment and development of the resource.
The Act has also adopted the provisions relating to the creation of an inventory and resource map for renewable energy resources by the government through the Ministry of Energy & Petroleum. This inventory and map once created will reduce the burden on prospective investors of conducting exploratory and feasibility studies.
Net-metering did make its way into the new Act as proposed in the Bill. The Act now provides the legislative backing needed to allow consumers to supply any excess capacity they have back to the grid. It is worthwhile to note that the wording in the new Act is to the effect that a licensed distributor or retailer must make available a net metering service to a consumer upon their request. The new Act states at section 162 (2) that:
Each distribution licensee or retailer shall, upon application, make available net metering service to any electricity consumer that the licensee serves as prescribed in regulations.
It remains to be seen how this will work in practice as distributors and retailers will not be too eager to comply with such a mandatory requirement as it may erode their revenues.
The Renewable Energy Feed in Tariff System has been anchored in the new Act providing further legislative backing the ‘Feed-In-Tariffs Policy on Wind, Biomass, Small-Hydro, Geothermal, Biogas and Solar Resource Generated Electricity’ (FiT Policy) developed by the Ministry of Energy in 2008. The FiT is intended to encourage the generation of energy from renewable sources and its supply through localised distribution networks. It is also intended to encourage the uptake and innovation of renewable energy technology and in sum to help reduce the greenhouse gas emissions and Kenya’s reliance on non-renewable energy sources. The FiT Policy and the tariff structures set out therein will continue in force under the new Act pending the development of the necessary subsidiary legislation which may adopt or update the current FiT Policy.
The new Act has introduced under section 166 a system to penalise electricity suppliers and compensate consumers for unwarranted power outages or for their provision of irregular or poor quality electricity which leads to damage to consumers’ property, financial losses and even loss of life. This provision was introduced as a response to the challenges most Kenyan consumers face with the currently available power supply such as regular blackouts and brownouts. The general sentiment has been that Kenya’s main power supplier, the Kenya Power and Lighting Company (KPLC) has taken its customers for granted due to the monopoly it currently enjoys. KPLC has been taking active steps to address consumers concerns and has made great improvements in the past few years. This provision will nonetheless go further to reassure consumers that the legislature has taken the steps to spur the change they demand, which is to have access to steady and good quality electricity.
Now that the Act is now law, it will now fall to the various government stakeholders to take the necessary steps to make it fully operational. For a start, the new Energy Sector Entities establishedunder the new Act i.e. the EPRA, the EPT, REREC, RERAC and the NPEA will have to transition and take over from the entities they replace. As the new entities are fundamentally the same as those they replace, the transition will be mostly be a matter of renaming and retitling themselves and fully adopting their new mandates. The transitional provisions contained in section 225 of the new Act and the Fourth Schedule to the Act bear this out. As an example, the leadership of the ERC i.e. the chairpersons and commissioners, will continue in office in their new roles as Chairpersons and Board members of the board of the EPRA for the remainder of their tenure. The employees of the ERC will also continue on as employees of the EPRA. This means that business will continue as usual.
More fundamentally, all (valid) things done under the repealed Acts shall continue to be valid and in force under the new Act, therefore all current licences issued under the repealed Act shall continue to be valid. Tariffs existing at the commencement of the new Act shall continue until they are replaced. As a final example, subsidiary legislation made under the repealed Act, such as the Energy (Electricity Licensing) Regulations, 2012 shall continue in force under the new Act until new regulations are made.
New subsidiary legislation will nonetheless have to be created under the new Act to provide the detailed legislative framework to govern and support the implementation of various new provisions of the Act.
As a highlight, regulations will have to be created for the administration and implementation of net-metering, the feed-in-tariff system and the charging, collection and distribution of royalties collected under the new Act. It is not certain how long it will take for these to be developed, but we are aware and we expect that the Ministry of Energy and Petroleum and the ERC has been working on drafts of these regulations during the long wait for the new Act to be passed. We therefore hope and expect that these will be rolled out without much delay.
The new Act has set out time limits for the development of some subsidiary legislation. As an example, the responsible Cabinet Secretary is required to develop, within 6 months of the coming into force of the Act, regulations under section 166 on the system to penalise suppliers for failure to provide electricity or for supplying poor quality electricity.
Separately, the new Act has set out a time limit of twelve months for the Cabinet Secretary to commence a countrywide survey and a resource assessment of all renewable energy resources in order to develop the resource maps and renewable energy resources inventory.
In sum, the passing of the Energy Act, 2019 represents the passing of the baton from the legislature to the executive arm of government who now bear the responsibility to further develop the energy sector. It is hoped that they will now seize the opportunities it presents to realise the promise it holds. We will give further updates on the process of the implementation of the new Act as the various regulations we have discussed are published.
Penninah Munyaka
Associate Partner
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