New law a boost to small private power producers

Francis Ngunjiri

Eng. Francis Ngunjiri at his power plant in Gaikundo, Nyeri County on May 4, 2016. 

Photo credit: Nicholas Komu | Nation Media Group

Small private electricity generators have been given a boost after a new law that lowers their investment costs came into place yesterday.

The amendment to the law allows all small private power producers to qualify for 100 per cent investment deduction on equipment, machinery and buildings for use in electricity generation.

The amendment, which was introduced by the Finance Act, 2021 in July but its implementation was pushed to January 1, amends the Income Tax Act to remove the requirement that the electricity produced by the firm is supplied to the national grid.

Most mini-grid operators of capacities below one megawatt (MW) are not connected to the grid, which means they do not qualify for the deductions which are crucial to lowering investment costs under the previous laws.

This will boost investment in small private electricity generation projects, especially from solar, wind and hydro for both household and business use.

A notable section of the Kenyan population is not connected to the national grid especially in far-flung rural areas that are served by local mini-grids which the government is betting on to accelerate its plans for universal access to electricity.

Private companies

The government has stepped up efforts in recent years through law amendments to lower the cost and supply of electricity, especially to rural areas that are not connected to the grid.

“This is an additional incentive for private companies seeking to generate electricity for private use or for direct sale to their customers without going through the national grid,” said audit firm KPMG on expected impact of the new law.

“It will encourage the growth of small renewable energy power plants, which is an important step towards increasing competition and reducing the cost of electricity,” it said.

The Energy and Petroleum Regulatory Authority (Epra) has also drafted the draft Energy (Mini-Grid) Regulations, 2021 that seek to break Kenya Power’s monopoly over power distribution.

Small private power generators

The proposed regulations give small private power generators the option to sell their electricity to Kenya Power when the grid reaches their areas of operation.

It also gives them the option to buy electricity in bulk from the utility and then resell it to local customers.

“A mini-grid operator may in the event of a main grid arriving at the mini-grid area, apply to the Authority for modification of their licence to operate as a power producer selling to the distribution licensee,” say the regulations.

Kenya is planning to incentivize private firms to build 280 mini-grids in the next few years to supply electricity to about 34,700 households.

However, Bowmans Kenya in its analysis of impact of the regulations say the private electricity producers operating in the remote areas will struggle to maintain their operations in case the grid reaches their areas unless the government protects them from the comparatively cheaper power supplied by Kenya Power.

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