ADB FINESSE Training Course on Renewable Energy & Energy Efficiency for Poverty Reduction

1. ADB FINESSE Training Course on Renewable Energy & Energy Efficiency for Poverty Reduction 19th – 23rd June 2006 Nairobi, Kenya

2. Module 10Policy and Regulatory Issues in Developing and Promoting RE and EE in Africa Dr. Frederick Nyang

3. Policy Barriers • Inadequate Policy and Legal frameworks • Often lack comprehensive/formal policy statements [White Paper] on energy • Lack of harmony amongst existing policies • Inconsistency in government policy* • Existing policies strongly biased towards non-RE and ignore RE&EE • Sectoral investment and development plan • Lack of comprehensive sectoral development plan

4. Policy Barriers • Weak policy formulation processes • Non-inclusive elitist policy formulation processes which exclude marginalised groups • Inadequate research backup for policy formulation and analysis • Inadequate data-base to inform comprehensive policy making

5. Policy Barriers • Inappropriate incentive systems • Fiscal policies non-supportive of RE/EE • Weak support for local manufacture of RE/EE systems • Poor funding for the development and promotion of RE/EE projects

6. Policy Barriers • Tariff policies • Non-differentiated tariffs • Tariff policies ignoring social and environmental benefits • Science and technology policy • Lack of awareness on existing opportunities, technology, and innovations for promoting RE/EE

7. Regulatory Barriers • Administrative procedures • Onerous licensing and permitting requirements • “One size fits all” approach • High compliance costs • Regulatory Communications • Complex language of regulation • Lack of, or poor consultations with publics including government, research institutions

8. Regulatory Barriers • Technical issues • Outdated or inappropriate technology • Performance standards including interconnection policy • Trading arrangements • Market power, tariffs and subsidies • Bulk tariffs, PPAs

9. Barrier Inadequate policy and legal framework Solutions Energy policy framework must explicitly recognise RE/EE and innovations such as “Green Pricing”; “RE Portfolio Standards”; “Net Metering”; and Public Benefits Funds” Formulate comprehensive energy policy framework appropriately harmonised with relevant existing policies Overcoming Policy Barriers

10. Barrier Weak policy formulation processes Inappropriate incentive systems Solutions Adopt an all inclusive policy formulation process backed by good research based on good data; and include marginalised groups Establish incentive systems that level the “playing field” and recognise the social and environmental benefits of RE/EE systems and innovations Overcoming Policy Barriers

11. Barrier Poor funding Solutions Appropriate policies and government support Adopt innovative funding approaches such as the “Public Benefits Fund” Establish incentives for private sector participation and mobilisation of community resources Overcoming Policy Barriers

12. Barrier Tariff policy Science & Technology policy Solutions Adopt tariffs which capture economic, social, and environmental costs; and where subsidies are required ensure transparent and efficient targeting Formulate S&T policy to facilitate scientific and technological research, development and innovation: RE/EE systems will benefit Overcoming Policy Barriers

13. Barrier Administrative procedures Solutions Tailor regulatory procedures to suit key interest groups (market segments) e.g. light handed regulation where appropriate Fewer and simpler procedures minimise compliance costs (also investor friendly) Overcoming Regulatory Barriers

14. Barrier Regulatory Communications Solutions Regulatory communications should involve public consultations and participation especially with government, marginalised groups and researchers simple everyday language Overcoming Regulatory Barriers

15. Barrier Market power, tariffs, subsidies Technology Performance Standards Solutions Implementation of government social policy should be balanced with economic regulation objectives to achieve optimal outcomes Adopt technical innovations such as Net-Metering to promote RE/EE Localise standards (Mkt segment) Overcoming Regulatory Barriers

16. Developing/promoting RE/EE options:Key policy and regulatory issues to consider • The policy and legal frameworks and the provisions for RE/EE • Sectoral investment and development plan and its provisions for RE/EE • Energy pricing policy, including tax compliance issues • Incentives structure • Local capacity to implement project

17. Developing/promoting RE/EE options:Key policy and regulatory issues to consider • The regulatory framework and its provisions for RE/EE • Licensing and permitting requirements and procedures; including scope of regulation (economic, technical, competition, EHS, public interest) • Trading arrangements and performance standards • Regulatory reporting and compliance • Regulator’s track record

18. Case Study: Geo-thermal Energy in Kenya Olkaria Geothermal Field • Olkaria geothermal field is located in the Rift Valley • In 1970 GoK and UNDP jointly funded investigations and exploratory drilling in Olkaria • Olkaria I: 45MWe plant installed 1985 • Olkaria III: 12MWe IPP plant installed 2000 • Olkaria II: 70MWe plant installed 2003 • The geothermal plant provides base-load generation and 10% of total installed capacity which is RE

19. Case Study: Geo-thermal power in Kenya • Comprehensive legal and policy framework governing geothermal resource development and exploitation • Geothermal Resources Act No. 12 of 1982 • The rolling 20-year electricity sub-sectoral investment and development plan incorporates geo-thermal power • Indicative Update of the Least Cost Power Development Plan (Year) • Sessional Paper No.4 recognises geothermal energy and has special provisions for its development and exploitation

20. Case Study: Geo-thermal power in Kenya • The policy formulation process for geo-thermal power development took into account the rights and cultural heritage of the indigenous Maasai people domiciled in the project area. • GoK and KenGen have developed a highly skilled human resource capacity in geothermal sciences who undertake high level applied research generating data and knowledge utilised by KenGen in the development of the geothermal resource and in operating the power plants

21. Case Study: Geo-thermal power in Kenya • KenGen, now owned 70% by GoK which has fully supported, promoted and funded its geo-thermal activities through budgetary allocations and support from development partners • KenGen receives a flat rate bulk tariff for energy from KPLC, however, GoK fully underwrites its geothermal exploration and development activities • GoK recognises the environmental, social and economic benefits of geothermal energy • Local geothermal research activities are governed by the Science and Technology Act Cap 250 laws of Kenya

22. Case Study: Geo-thermal power in Kenya • geothermal power generation is comparable to non-RE generation sources hence receives the same treatment in terms of inter-connection and performance standards • The trading arrangements are currently governed by an approved PPA • GoK subsidises the cost of exploration, drilling and steam development • The Electric Power Act, 1997 restructured the electric power sub-sector allowing private sector participation in electricity generation. IPP geothermal power plant installed in 2000

23. Module 10Discussion Topics Questions • What policy and/or regulatory barriers are affecting the development and promotion of RE/EE in your country? • How can these barriers be overcome?