Thursday, 31 October 2013

CRITICAL ANALYSIS OF THE LEGAL AND INSTITUTIONAL ARRANGEMENTS ON THE DEMAND SIDE MANAGEMENT IN THE ELECTRICITY SECTOR IN KENYA AND PROPOSED REFORMS



INTRODUCTION
Demand Side Management (DSM) is the implementation of policies and measures which serve to control, influence and generally reduce electricity demand. DSM aims to improve final electricity-using systems, reduce consumption, while preserving the same level of service and comfort. DSM is a proven method of meeting economic goals in an environmentally sustainable way, and it is also a fast and effective way to address power shortages.
Energy is considered to be one of the infrastructural enablers of the three pillars of Vision 2030 in Kenya. The level and intensity of commercial and industrial energy use is a key indicator of the degree of economic growth and development. A key message of Vision 2030 is that Kenya must generate more energy and increase efficiency in energy consumption. Vision 2030 flagship projects focus on expanding energy infrastructure, increasing electricity generation capacity and diversifying energy sources.
Demand for electricity has shown an upward trend since the year 2004 due to accelerated economic growth. Peak demand increased from 899MW in 2004/05 to 1,194MW in 2010/11, while the number of electricity consumers more than doubled from 735,144 in 2004/05 to 1,753,348 in June 2011. As at 30th June 2011, 28.9 % of the population was connected to electricity compared to only 15% as at 30th June 2004. The peak load is projected to grow to 2,511MW by 2015 and 15,026MW by 2030. To meet this demand, the projected installed capacity should increase gradually to 19,199MW by 2030.
To meet the projected demand, the system expansion over the Vision 2030 period indicates that the total installed capacity will be obtained from geothermal - 26%, nuclear plants - 19%, coal plants - 13%, hydro plants - 5%, thermal plants - 9%, gas turbines - 11%, wind plants - 9%, while imports will provide up to 8%.
Currently the power generation capacity in Kenya is too small to meet demand from the industry and private households. Import of electricity from surrounding countries has eased the situation somewhat, but load shedding is used on a routine basis. For the electricity energy which is available, most of it is being lost through inefficient lighting systems, electricity water heaters and other poor energy management practices.
The reduction in energy demand in Kenya electricity sector has not been met since DSM remains underutilized because there are powerful barriers to customer and utility investment in energy efficiency. In addition to well known barriers such as capital, lack of information about DSM potential and benefits, and prices that do not reflect the full direct and indirect costs of power, Kenya has its unique barriers among them the following;
  Ø  Kenya lacks the legal basis to adopt effective DSM policies. There is no effective government driven programmes on DSM apart from the Demand Management Unit created by Kenya Power in 2009 which is not that effective.
  Ø  Kenya lacks an adequate and stable DSM funding mechanism. International experience shows that public and/or utility funding for DSM is critical to DSM success.
  Ø  Shortage of talented DSM professionals. Talented people play a pivotal role in DSM. They are needed to develop DSM policy, programs and finances, develop technology, launch publicity and conduct surveys. Currently specialised DSM staffs do not exist to implement broad scale DSM programs in Kenya.
  Ø  Unavailability of high quality energy efficient products. The ones sold on the market have quality problems. For example, energy saving CFLs of both good and bad quality are available in the market place and consumers have no way of knowing the difference. Poor quality deprives the consumer of any economic benefit and injures the reputation of energy saving lamps and appliances.
Ø  No incentive mechanisms for energy saving and unwillingness to adopt energy conservation measures such as new technologies under the DSM program by consumers due to low income and house size.

Legal and Institutional Arrangements in the Electricity Sector in Kenya
Sessional Paper No. 4 of 2004 and the Energy Act No.12 of 2006 restructured the electricity sector in a bid to facilitate high level performance. The Policy has enabled increased private sector participation in the development of the sector whilst simultaneously focusing on improved management and delivery of energy services. This was intended to enable the sector address its mission of providing clean, sustainable, affordable, reliable and secure energy services at least cost while protecting the environment. The following are the key actors in the sector:-
1. Ministry of Energy (MoE)
The Ministry is responsible for formulation and articulation of energy policies through which it provides an enabling environment for all stakeholders. Its tasks include national energy planning, training of manpower and mobilization of financial resources. Overlapping mandates has been a big challenge for the Ministry in regulating demand-side management (DSM).
2. Energy Regulatory Commission (ERC)
It was established as an energy sector regulator under section 4 of the Energy Act, 2006, with responsibility for economic and technical regulation of electric power, renewable energy, downstream petroleum sub-sectors and standards that encourage energy efficiency as well as broader promotion of energy efficiency measures, for example, in buildings and for appliances. A new department for renewable energy and energy efficiency was created in the commission in 2010. Its functions also include tariff setting, review, licensing, enforcement, dispute settlement and approval of power purchase and network service contracts.
The functions outlined in section 5 of the Act seem not to have been achieved yet.

3. The Kenya Power & Lighting Company Limited (KPLC)
KPLC is a State Corporation with Government of Kenya shareholding of 50.1% and private shareholding  of 49.9% as at December 2011. It purchases electrical energy in bulk from KenGen and other power producers such as Independent Power Producers (IPPs), Tanzania Electric Supply Company Limited (TANESCO), and Uganda Electricity Transmission Company Limited (UETCL) and carries out transmission, distribution, supply and retail of electric power.

IPPs are private companies which generate power and sell electricity in bulk to KPLC. As at 2011, they accounted for about 26% of the country’s installed capacity and play an important role in bridging the demand gap. By December 2011, the operating IPPs were:- (a) Iberafrica Power (E.A.) Company Limited ;(b) Tsavo Power Company Limited ;(c) Mumias Sugar Company Limited ;(d) Orpower 4 Inc ;(e) Rabai Power Company Limited; and (f) Imenti Tea Factory Company Limited.
The advent of IPPs has had some negative impacts on energy efficiency. By definition, an IPP implies a certain amount of vertical unbundling, which complicates attempts to implement integrated resource planning (IRP)—a key platform for promoting demand-side management (DSM).

The unbundling of the formerly vertically integrated Kenya Power and Lighting Company (KPLC) as per the recommendations under Sessional Paper No. 4 of 2004 establishing Kenya Electricity Transmission Company Limited (KETRACO) to be responsible for the development of the national transmission grid network and also to be in charge of extending the national grid countrywide and building inter-connectors responsible for facilitating regional power trade through its transmission network has not bore fruit to meet DSM. The effect of unbundling is that the separation of generation (KenGen) and distribution (KPLC) segments means that the distribution utility is at liberty to obtain electricity from different sources (IPPs). The general response by distribution utility to increases in electricity demand appears to be seeking additional suppliers of electricity rather than embarking on demand-side energy efficiency programmes. The need for additional electricity generation appears to have in turn encouraged a focus on large-scale thermal IPPs. As a result, opportunities for both energy
efficiency through DSM and distributed generation (offered by renewables such as small hydro, cogeneration and geothermal) have not been fully exploited.

KPLC set up a Demand Side Management (DSM) unit in 2009. This unit has implemented several strategies to reduce consumption, especially at peak times. Strategies include the provision of 1.25 million free compact fluorescent lamps (CFLs) to the population and introduction of a specific tariff for peak hours.  Compact Fluorescent Lamp (CFL) light bulbs provide an energy efficient alternative to traditional Tungsten filament light bulbs. Replacing incandescent bulbs with CFLs decreases energy consumption by 80 percent per bulb, and CFL bulbs last roughly ten times longer. In Kenya there is no detailed data on the current uptake of CFL, but it can be safely assumed that, especially in urban areas, the penetration rates are relatively high already. Incandescent light bulbs may be prominent in rural areas, but the low level of rural electrification limits the potential for large energy savings. This has been contributed by inadequate funding and limited use of renewable energy.
However, there is no motivation for the utility to enhance demand-side energy efficiency as it requires additional investment and could potentially lead to lower revenue levels that can negatively impact profitability.

4. Kenya Electricity Generating Company Limited (KenGen)
KenGen is a State Corporation with GoK shareholding of 70% and private shareholding of 30% as at December 2011. It is responsible for electric power generation and produces the bulk of electricity consumed in the country. The company utilizes various sources to generate electricity ranging from hydropower, thermal (petroleum) and geothermal accounting for 53%, 29% and 14% of installed capacity.
However, the large dependency on hydropower on the supply side which is vulnerable to variations in hydrology and climate change has made KPLC and KenGen to pay little attention to the demand-side management of electricity and they are only concerned with supplying electricity and making profits without much thought to reduction of energy consumption.

5. Rural Electrification Authority (REA)
REA was established under section 66 of the Energy Act as a body corporate with the principal mandate of extending electricity supply to rural areas, managing the rural electrification programme fund, mobilizing resources for rural electrification and promoting the development and use of renewable energy. Section 67 of the Act provides for the functions of REA.
However, most rural areas do not have electricity yet and the programme has not yet met the demand side management since it has failed to promote use of renewable energy sources including but not limited to small hydros, wind, solar, biomass, geothermal, hybrid systems and oil fired components taking into account specific needs of certain areas as per Section 67(d).

Other institutions in the electricity sector include ;-(i)Geothermal Development Company Limited (GDC); and (ii)The Nuclear Electricity Project Committee (NEPC).

Beyond these national bodies there are many international organisations active in supporting the Government of Kenya and other stakeholders in the field of energy efficiency including the International Finance Corporation, AFD and the German International Development Agency (GIZ). The activities of these organisations target different end user groups and energy carriers.
The Kenyan government has introduced regulations that promote conservation and demand management. An example is the Kenya Solar Water Heating Regulations issued by the Ministry of Energy that mandates the installation and use of solar water heating systems for all buildings with a capacity for hot water requirements of more than 100 litres a day. There is amble evidence to show that Solar Water Heaters (SWHs) play a very crucial role in demand side management (DSM) in many countries. SWHs can be used to flatten out the maximum demand curve for any utility. The technology can also be used to cut down the actual demand, and this can have various implications for a country. Depending on the circumstances, this can mean delayed investment in power generation or reduction of the import bill for those countries that import power or fuel.
A second example is the Draft Kenya Energy Management Regulation of 2011 that makes it mandatory for facilities to undergo energy audits and encourages them to implement at least 50 percent of the identified energy efficiency potential. Enforcement of these regulations remains a challenge, although some supportive policies have been launched.

Administrative Reforms
The Kenyan government needs to embark upon comprehensive programmes of broader economic and administrative reforms which will have far reaching impacts directly and indirectly, on the pattern of demand for electricity services in Kenya. There is need for the government to diversify electricity supply and demand management options, as well as the institutional and financing mechanisms to help address the growing gap between supply and demand. At the same time, many other factors gaining prominence need to be accommodated, such as the change in decision-making approaches that stem from the economic reforms and associated political change as witnessed with the enactment of the 2010 Constitution, and more widespread and growing public awareness of environmental and social issues.

There is a need to review the tariff policy in order to minimize consumer subsidies and instead channel public resources to long term infrastructure investments. Therefore, the tariff has to progressively reflect the economic cost of power supply. Subsidies will be applied only in the short term to avoid a tariff shock. The increase in tariff will be managed through demand side management in households, industries and commercial enterprises. This will help consumers to reduce on the quantity of electricity utilized with a net effect of having the final bills nearly equal to what they were previously paying. The policy measures outlined below should be adopted on the tariff:
• The preferential tariff for the industrial consumers should not be applicable in the medium term.
• The tariff will be increased in a stepwise manner to reflect the economic cost of providing electricity services.
• The resultant rise in tariff will be managed through energy conservation measures.

The Kenyan government policies should typically aim to maximize the use of alternative energy resources in the country such as coal, gas, oil, biomass, solar, wind, and hydro with considerations of energy security. However, a proper regulatory framework needs to be put in place to adequately regulate the use of indigenous energy sources to prevent environmental degradation such as pollution and desertification in the long term.

Energy audits should be carried out and use of on-site renewable energy should be encouraged. Energy audits in industries, commercial buildings and institutions which the Ministry has been carrying out should continue both in the short and medium term. Steps should be taken to use the energy audits generated over the last decade in large- and medium-sized commercial and industrial facilities in Kenya to identify concrete low-cost follow-up actions for larger end-users. These end-uses could be supported with access to capital and technical assistance in implementing the required investments. Such an approach is currently successfully implemented by the Regional Technical Assistance Program aimed at providing support for the financing of selected investments in renewable energy and energy efficiency projects, especially in the agricultural and hospitality sectors. AFD and the Kenya Association of Manufacturers implement the program and funds totalling Ksh 3.3 billion are available through CFC Stanbic and Co-op banks. The program not only provides loans but also carries out audits that help commercial end-users identify energy efficiency options.

Demand side efficiency approaches include the use of legislated standards to remove low efficiency equipment such as motors, lighting and appliances from the market, the support of innovative market driven approaches to finance high energy efficiency projects from future savings, and the use of performance-based regulation to encourage utilities to undertake DSM in restructured electricity and gas markets.DSM strategies which can be implemented in the country include;-
(1)Use of Alternative Lighting; replacement of all incandescent lamps by compact fluorescent lamps (CFLSs) both in rural and urban areas. The low investment cost of CFL and further cost reductions can lead to high adoption rates in the short term. In 2030 it is assumed that an adoption rate of 100 percent will be achieved through an intervention to phase out incandescent bulbs, leading to 80 percent lower electricity consumption for lighting versus the reference case by 2030. Energy consumers should be encouraged to switch off lights during the day as a potential strategy.
(2) Peak Load Reduction or Conservation; Peak load “shaving” in the power system thereby minimizing the need for huge investments to meet peak demand, which lasts for only a few hours in a day. This would be applied to all hot water systems. The action is either to switch off hot water systems when not in use or to replace all with solar hot water systems.
(3)Energy Efficient Appliances; Large differences exist in the energy efficiency of electric appliances. Over the past two decades, there have been major improvements in the energy performance of most appliances. In the United States, for example, refrigerators in 2012 use about 60 percent less energy than 20-year old models. In Mexico, refrigerators sold between 1995 and 2000 were estimated to consume 30 percent more electricity than those of the same size sold between 2001 and 2007. In developing countries, energy efficiency of electric appliances is often lower than in developed countries, especially if there is a significant market for second hand inefficient models or if efficient models are not available or significantly more expensive. Second hand, energy inefficient refrigerators from Europe have traditionally been exported in large numbers to Africa.
Current situation in Kenya: Replacing appliances such as refrigerators, air conditioners and televisions in households and commercial facilities with more modern efficient units can lead to substantial energy savings. The high prices of new appliances in Kenya, combined with the large influx of older cheaper second-hand appliances from the EU, mean it often unattractive to purchase new models.
(4)Energy efficiency improvements across industries – Results from energy audits undertaken in different commercial and industrial facilities in Kenya show that with measures of payback times of less than two years, savings in electricity consumption of between 8%(for a tourist resort) and 26 % (for a tea factory) could be achieved through measures such as the use of more efficient pumps and motors. However, it is difficult to encourage SMEs, which form a significant part of Kenyas commercial and manufacturing sector, to invest in energy efficiency without interventions or support programs. Taking all these factors into consideration, a 15 percent energy efficiency improvement by 2030 is assumed.


 Structural Reforms in the Electricity Sector
Kenya has been working from the former single, vertically integrated state monopoly KPLC in the electricity. Current reforms have created new challenges and are generally seen to contradict/hinder efficiency through regulations especially in cases where distribution utility still enjoys monopoly. For example, requiring a single distribution utility such as KPLC to reduce consumer demand for electricity through energy efficiency is inconsistent with introducing competition as it might appear to affect profitability of the utility due to the reduction in electricity sales. Consequently, this may be viewed as a potential trade-off before enhancing energy efficiency and competition.
 A more open market with private sector participation and competition is needed in order to meet the demand side management. This will require the following reforms;-
  Ø  ensuring that the regulatory framework promotes more efficient use of electricity and enhancement of environmental and social benefits;
   Ø  setting up an autonomous regulator or providing for a clear separation of policy and regulatory functions within government with a transitional programme towards independent regulation;
    Ø  vertical and horizontal restructuring of the state power entity.

Policy and Regulatory Framework in the Electricity Sector
The following legislations and regulations are recommended to support Demand Side Management;-
    Ø  an Energy-Efficiency Act enabling the setting of minimum efficiency standards and codes, with regularly updated regulations to raise the bar of minimum efficiency;
   Ø  power utility regulation through an independent agency or board, which regulates utilities in the public interest, with rules that encourage DSM investment by utilities, and applies a mandated public benefits charge to finance DSM;
    Ø  Strategic Planning process for all new investments in electricity supply and demand, which uses a life cycle approach for assessment of options and full environmental impact; and
    Ø  Regulation would be required to phase out incandescent light bulbs, create a labelling scheme for electrical appliances, and provide standards and codes for the use of solar water heating. The ability of these regulations to be enforced is critical to their success.

CONCLUSION
Energy efficiency in Kenya is generally given a low priority, both at the industrial and domestic level.
Electricity sector reform has not adequately supported the promotion of energy efficiency in the sector.
However, there is need for extensive publicity and to enlist the support of all households on the benefits of DSM. This can be done through media publicity and exhibitions of energy efficient devices to showcase their applicability and potential energy savings.

REFERENCES
 (1)Energy Act No. 12 of 2006
(2)Sessional Paper No. 4 on Energy of 2004
(3)National Energy Policy, Third Draft of May 2012
(4) Kenya’s Climate Change Action Plan: Mitigation on Energy Demand, August 2012.   
(5) Kozloff, K. (undated), Electricity Sector Reform in Developing Countries: Implications for
Renewable Energy

No comments:

Post a Comment