Ministry of Energy officials are set to get sweeping powers to award multi-billion shilling electricity generation contracts to investors in an impending policy shift that is intended to yield lower consumer tariffs, but is also fraught with the risk of conflict of interest.
New draft regulations expected to come into force in three months’ time give the Ministry of Energy bureaucrats the power to select electricity generation projects and award them to bidders who offer to charge consumers the lowest tariffs.
“We are transitioning to the auction model and will give projects to investors with the lowest pricing and highest efficiency,” the Energy Regulatory Commission (ERC) director of electricity, Joseph Oketch, said.
The competitive bidding window, according to Mr Oketch, is a sure-fire policy tool to slash electricity bills.
The auctions will replace the current feed-in-tariff (FiT) system, where investors identify potentially viable power projects and then acquire licences to operate them at pre-determined rates without any requirement for tendering.
Energy ministry officials said the new system is intended to introduce competition among investors and give consumers the benefit of paying the lowest possible electricity tariffs.
Critics of the plan, however, argue that the auctions could also present potential conflict of interest where bureaucrats only clear the way for projects in which they have vested interests.
“We expect the auction system to take effect in the next three months. It will help us plan since we will only auction what the country needs as opposed to the current regime where private investors set the agenda,” said Energy principal secretary (PS) in charge of electricity, Joseph Njoroge.
Mr Njoroge denied there would be conflict of interest under the new regulations, arguing that the auctions will be based on competition that should see contracts go to lowest bidders.
The current feed-in-tariff offers investors pre-determined rates for wind power, geothermal, solar, hydropower and biomass energy sources, which take into account the cost of their investment and offers headroom for a profit margin.
All power supply tariffs signed between power producers and the electricity distributor, Kenya Power are approved by the ERC.
Critics, however, argue that there will be need for a high level of transparency in selecting and approving viable projects because any secrecy will give room for bureaucrats to flog only projects of their choice and not necessarily those that offer the best price to consumers.
“People might hide behind the auction window to award politically correct companies or serve selfish interests,” said an investor, who is developing a solar park but requested anonymity to avoid antagonising the Energy ministry officials.
The new system of awarding power generation contracts is set to place Kenya in the league of nations that use auctions to develop renewable energy sources, including South Africa, Morocco, Brazil, Zambia and the United Arab Emirates (UAE).
More than 60 countries have embraced the auctions, according to International Renewable Energy Agency (IRENA), which cites South Africa and the UAE as success stories where the auctions have significantly slashed solar power prices.
Credit: Business Daily