This article was written by Nigel Shaw (Partner, Kaplan & Stratton) and Caroline Etyang (Senior Associate, Kaplan & Stratton).
Kenya has an abundance of renewable energy sources in the form of hydro, geothermal, wind, and solar amongst others. There have been initiatives by different players to try and exploit these renewable energy resources in Kenya. Geothermal investment has been in Kenya for many years and continues to develop and expand. Wind power is newer and solar power is in its infancy with some projects having started but nothing has come on stream yet.
Wind power is currently of heightened interest and particularly so, to reduce the country’s dependency on hydro power projects. This paper will focus on the regulatory compliance for investors in wind power projects in Kenya.
Wind Resource in Kenya
According to the ERC and data compiled by WinDForce Management Services Private Limited, there are high winds suitable for wind power projects in certain parts of the country. In 2013, the Ministry of Energy and Petroleum stated in an investment prospectus for 2013-2016, that it plans to boost wind power generation by 630 MW with an intention to increase electricity levels by 5,000 MW by the year 2016.
In March 2014, the Government signed a financing document for the largest private investment in Kenya - The Lake Turkana Wind Project, situated in north-eastern Kenya. In addition to this, there are other wind power projects which are underway in terms of project commencement and these include the Kipeto Wind Project (Rift Valley Province), which will have an approximate capacity of over 100 MW, the 90-MW Electrawinds project in Lamu, and the 61-MW Kinangop wind farm project in central Kenya.
The current wind power projections in Kenya are:
- Coast area - Tana River, Lamu and Kilifi: Good wind speed with maximum value of mean annual wind speed of 8.32, 8.26 and 8.26 m/s and potential area of 38610 sq km, 6878 sq km, and 12310 sq km respectively.
- North-Eastern - Garissa, Mandera and Wajir: have with Maximum of annual mean wind speed of 7.73, 7.73 and 7.75 m/s respectively over potential area of 44459 sq km, 28302, sq km and 53413 sq km.
- Rift Valley - Turkana: Maximum potential area of 61353 sq km with maximum of annual mean wind speed of 7.11 m/s
- Central Area - Nyeri: Maximum value of mean annual wind speed of 7.44 m/s over a potential area of 3359 sq km
- Eastern Area -Marsabit: Maximum of mean annual wind speed of 9.27 m/s with potential area of 75596 sq km. Marsabit is said to have the largest potential.
The Government of Kenya appreciates that the implementation of renewable energy projects will enhance the country’s electricity supply capacity and diversification of generation sources. It has accordingly developed policies that will help boost this process. One of the policies is the Feed-in Tariff Policy which aims at attracting investors by offering a pre-determined fixed price that is reflective of the upfront per unit cost of renewable energy projects. Currently, the policy provides for wind generated electricity at a fixed tariff of approximately USD 0.11 per kilowatt-hour for electrical energy supplied in bulk to the grid operator at the interconnection point.
In addition to this, parliament enacted the Energy Act 2006 (the “Act”) to promote the development and use of renewable energy technology. This is the primary legislation in the renewable energy sector. Through the Act, the Energy Regulatory Commission (‘ERC’) was established to regulate inter-alia, the importation, exportation, generation, transmission, distribution, supply and use of electrical energy with powers to inter-alia, issue, renew, modify, suspend or revoke licences and permits for all undertakings and activities in the energy sector.
Some of these requirements and procedures for operating a renewable energy project include:
1. Change or extension of user:
Most of these wind power projects are situated in land that is described as ‘agricultural land’ or land with a use other than power generation. Where there is an intention to start a wind power generation project, certain approvals have to be obtained. A statutory form P.P.A.1 is completed and submitted to the local county government where the land is situated. The intended use is then advertised in at least two local daily newspapers inviting any objections of questions. These have to be received within 14 days of the date of publication in the daily newspapers and where there is no objection, an approval is granted.
It is important to note that, where the land in question is agricultural land and the prospective investor is a non-Kenyan citizen, it is necessary to obtain a change of user (as opposed to an extension of user). Foreigners or privately owned companies whose shareholders are not all Kenyan citizens are not permitted to acquire agricultural land unless where such transaction has been exempted from the provisions of the Act by the President of Kenya. It should be possible to obtain such an exemption where the project is of national interest such as a wind power project but we are not aware of any such exemptions having been granted.
2. Approval for Expression of Interest and Feasibility Study:
The approval for expression of interest and feasibility study is important to allow the Ministry of Energy and Petroleum to determine how the proposed power plant can be incorporated into the national power provider and to determine the suitability of the plant location.
3. Environmental Impact Assessment Licence
The Environmental Management and Coordination Act, 1999 (“EMCA”) provides for general compliance requirements relating to environmental matters. Under the EMCA, the wind power project must before implementation undergo an environmental impact assessment study and an Environmental Impact Assessment Licence should be issued by the National Environmental Management Authority in respect of such project.
The approval for expression of Interest and Feasibility study must be obtained before applying for the Environmental Impact Assessment Licence. The assessment is important as it identifies the effects of the development not only on the environment, but on the people living in the area and their property. If the negative impacts outweigh the positive, it is unlikely that an Environmental Impact Assessment Licence will be issued.
4. Kenya Civil Aviation Clearance
The main purpose of this clearance is to ensure air navigation and safety is maintained with the erection of the turbines. The investor will submit an application in a prescribed form together with the requisite fees. The Kenya Civil Aviation Authority then considers the application taking into consideration the location of the any turbines that are erected for the purposes of wind power generation.
5. Special Use Licence
A special use licence is required only where a power plant is situated within the land under the mandated supervision of the Kenya Forest Servicesand allows the access to and out of where the power plant is situated. Land declared under the Forests Act 2005 as “forest area” is managed by the Kenya Forests Services. Accordingly, prerequisite approvals for any project situate in the forest areas have to be obtained.
6. Way Leave authorization
Where there are transmission lines which cut across land to get to the actual power plant, way leave agreements will be required. If the land is owned by individuals, a way leave agreement is signed by both the land owner and the project owners.
7. Negotiations with Kenya Power
The Kenya Power is a state corporation licensed to purchase electricity and to transmit and distribute electricity in the Republic of Kenya. Any investor in energy can only sell the energy produced to Kenya Power. The parties negotiate the terms on the agreement setting out the price, risk allocation and the obligations of the parties. The negotiations are important in order to secure the the power offtake in relation to the energy supplied to the grid. It also ensures that energy is priced fairly. The first step in the negotiation process will see an investor seeking approval from the permanent secretary in the ministry of Energy to negotiate with Kenya Power on the anticipated project. The Permanent Secretary then grants the approval for the investor to enter into negotiations. Once the negotiations are concluded, the power purchase agreement is passed on to the Energy Regulatory Commission for approval before it is executed by the parties.
8. Electricity generation and distribution licences
The energy supplier must obtain these licences to ensure that they comply with the Act and the Electricity Licensing Regulations published in 2010. These licences are issued by the ERC and will be issued subject to the approval of the Power Purchase Agreement with Kenya Power and Lighting Company and the payment of the requisite fee.
9. Development Permit
Before any development is undertaken on land, the developer/proprietor is required to apply for development permission pursuant to the Physical Planning Act (Cap 286 Laws of Kenya). The applications are made to the local authority responsible for the particular area the land is situated. A Certificate of Compliance under Section 30(7) of the Physical Planning Act must be issued by the Director of Physical Planning before approval for Development Permission is granted. This requirement ensures the safety of the buildings erected and also helps with planning in the area.
Risks relating to land lease terms
There certain risks that may be associated with these wind power projects such as the uncertainty associated with the renewal of a lease once the term on the lease expires and death of landowners at the time of renewal of the lease necessitating (lengthy) probate proceedings.
In the case of expiration of a lease term whilst the project is still ongoing, the government can come in and acquire the land compulsorily if the land owner is unwilling to renew the term of the lease. Once the national or county government is satisfied that there is need to acquire land, the respective Cabinet Secretary or County Executive Committee submits an application or a request to the National Land Commission to acquire the land on its behalf. There is quite an elaborate process set out under the Land Act 2012 for compulsory acquisition. Once the land is vested in the government, a lease can be granted to the power project owners.
Kenya continues to encourage innovation in renewable energy. More investors are now negotiating with the relevant parties for these wind power and other renewable energy projects. The zero rating of imported renewable energy equipment and accessories has greatly encouraged both foreign and local investment. Africa is on a fast track to tap its wind power potential and Kenya is taking up the challenge.