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The Energy Act, 2019 passed in March, 2019 introduced various changes highlights of which were discussed in our last article titled ‘Highlights of Kenya’s Energy Act, 2019’ which was published in the May edition of the E|News newsletter.
Of the changes introduced by the Act, a more significant one concerned the introduction of net-metering. This development has been long awaited by stakeholders given the potential of benefits net-metering has with regard to managing energy costs. It is an attractive prospective especially in the current context of the plummeting cost of solar PV technology and the ever increasing oil prices that factor in the cost of grid supplied electricity.
Net-metering by the most optimistic projections holds great promise for consumers of reduced or even non-existent electricity bills and increased agency over ones energy consumption and obtaining a measure of control back from the national utility, Kenya Power that enjoys a monopoly over electricity supply.
Net metering most simply is a system that allows a person who generates electricity to sell excess capacity back to the grid with the intention of offsetting the cost of the electricity they consume from the national grid.
Net metering is defined more formally in the Energy Act, 2019 in section 162 as follows:
As you will note from the broad definition, any system that can measure the energy output from the consumer end and their consumption from the grid and provide some means of accounting for and compensating the consumer for the electricity they have supplied to the grid will qualify as a net metering system.
The Act has set conditions for a customer’s participation in a net metering arrangement.
Section 162 of the Act provides that:
The Act sets limits on the plant generation capacity that is permitted to qualify for net metering. Section 162 sets the limit at a capacity of one megawatt (MW). The limit on the permitted capacity may have been set at this level for various reasons.
Firstly, net-metering is primarily aimed at a market who consisting of households and businesses looking to manage and/or offset the cost of their energy expenses. If a consumer were to be generating and supplying more than 1 MW of electricity back to the grid, they would begin entering the realm of independent power producers who should sign a power purchase agreement (PPA) with the licensed off-taker Kenya Power. The limit of 1MW is what may be considered a justifiable plant size for consumer or business level applications of the net metering system.
Also the limit may serve as a means of regulating, in the first instance the added capacity that may come on board following the operationalization of net-metering system. There is a need to ensure that there is available demand for the extra capacity that may become available from net-metering.
Despite the foregoing it is not anticipated that there will be a rapid and widespread rush by consumers to acquire renewable plants due to the costs that we expect will be attached to their participation in net-metering.
It is expected that Kenya Power will probably charge additional fees for the cost and labour associated with the installation of the net-metering equipment, as well as recurrent connection or service charges. This will be in addition to the amounts that the consumer is required to pay in order to purchase/lease the equipment.
These fees are likely to restrict uptake unless manufacturers and suppliers of solar PV and other renewable energy generation systems offer competitive prices or financial assistance to customers and also if Kenya Power offers a fair rate for the electricity they are supplied with both in order to provide a sound financial justification for customers to acquire the generation systems.
We expect that much of the initial demand will be driven by the commercial and industrial sector as opposed to domestic consumer sector. The commercial and industrial sector has the financial ability to purchase renewable energy generation systems and has the greatest motivation to achieve the cost savings made possible by net-metering. The cost-savings to households might be marginal considering their generally low consumption and electricity bills as compared with the overall cost of purchasing or financing the purchase of a renewable energy generation system.
The provisions in the Energy Act, 2019 are not sufficient to enable the deployment of net-metering. It will be necessary for the regulations to be made under the Act to provide a clear framework regulating how consumers on the one hand and Kenya Power on the other will participate in a net metering program.
As at the time of the writing of this article we are aware that the Ministry of Energy has set up an ad-hoc committee to work on the implementation of the new Act. The Ministry of Energy will, upon consideration of the committee's recommendations and upon consulting all relevant stakeholders, develop the necessary regulations and guidelines. This process will take time and it would be foolhardy to give a prediction on when it will be completed. However once the necessary regulatory framework is in place, it will fall to Kenya Power to make net-metering available as a product to the market, setting the tariffs, providing the necessary equipment and technical support to enable full deployment.
Net-metering has the potential of increasing the uptake of renewable energy generation technology in Kenya. Net-metering eliminates the need for consumers to purchase expensive storage systems batteries, and thereby reduces the cost barriers to adopting renewable energy. It also presents an opportunity for consumers to reduce their energy costs which have been mounting in the face of increasing oil prices. It therefore presents business opportunities for manufacturers and suppliers of renewable energy systems.
There may be a low initial uptake of net-metering however it should be noted that it is not generally the intention that every consumer be encouraged to enroll in a net-metering program. The general intention is for it to be possible for a consumer to supply excess capacity to the grid if they so choose but not for every consumer to do so. This is because it will erode the retunes of the public utility which has large long-term financial obligations such as power purchase agreements and other debts that must be paid. However the commercial and industrial sector shall present a ready market for manufacturers and suppliers due to their financial ability and greater need to reduce energy costs.
We shall continue to provide updates on further developments in this matter in future newsletters.
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Penninah Munyaka
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