Government reforms cast dark shadow over new dawn for solar power

solar panel and turbine with sunset background. clean energy power in nature concept (Getty Images/iStockphoto)

Kenya has emerged as the single largest market for off-grid solar products globally.

The country, for instance, accounted for nearly a third of all off-grid solar products sold globally between January and June this year.

A report by the Global Association of the Off-grid Solar Energy Industry (Gogla) showed that over the period, manufacturers affiliated to the association sold 3.03 million units of off-grid products across the world.

These included lanterns, television sets, water pumps and refrigeration units as well as complete solar home systems.

The numbers this year were, however, the lowest for six months since 2014 due to Covid-19.

Out of the over three million units sold globally by Gogla affiliates, 870,688 units were bought by Kenyans.

A key enabler for the growth of the off-grid solar products in Kenya is a hire purchase kind of model, where consumers can pay for the products in instalments.

Referred to as “Pay as You Go” or PayGo, the model of selling to consumers accounted for more than half of the units sold in Kenya at 498,485.

Though product costs are higher for consumers when acquired through the PayGo model, they offer users, who are mostly in off-grid areas, flexible payment methods.

The sellers of these products have modalities of collecting their debt when due by having the capability to remotely switch off the equipment.

Firms that have employed this method of distributing their products in the country include Azuri, d.light and M-Kopa.

Other than mobile money that makes it easy to track and enforce consumer payments, government policies have also enabled the proliferation of off-grid solar products.

“Kenya’s place as a leading market for off-grid solar products has been influenced by a few important factors, including deliberate actions by the Kenyan government,” said Patrick Tonui, Head of Policy and Regional Strategy at Gogla.

“While the government has supported solar products for a long time, it took deliberate action in the 2018 National Electrification Strategy to recognise and formally include mini-grid and standalone solutions as part of Kenya’s energy mix, which has allowed for its inclusion in policy planning and support.” 

The government is also implementing the Kenya Off-Grid Solar Access Project (Kosap) together with the World Bank, aimed at increasing energy access in areas yet to be reached by the national electricity grid.

The industry could, however, be headed for tough times as the price of solar products goes up, possibly putting them out of reach for many low-income households that are its key market.

This follows a government move to impose value-added tax and other levies on solar products.

“These changes will undoubtedly affect the sector as consumers prices will increase even as they grapple with a difficult economic situation occasioned by the current Covid-19 pandemic whilst companies in the sector will be forced to balance between affordability of the products and their financial sustainability,” said the Africa Clean Energy – a programme funded by the UK government’s Foreign, Commonwealth and Development Office (FCDO).

A study by Duke University in East Africa that also looked at Kenya demonstrated that a 15 per cent price increase would result in about 40,000 fewer households accessing these products every year.

“The introduction of VAT and some duties on solar products was unfortunate. It is broadly acknowledged by energy access champions that off-grid products are solutions targeted at rural communities who tend to have lower incomes. As such, affordability is going to be key if we are going to reach Kenya’s own universal energy access targets by 2022,” said Tonui.

He added that while the industry has attracted several local and international players, which is seen in the over 370,000 full-time jobs that it offers, it still needs certain incentives, especially on the consumer side.

“The sector’s products are designed to solve energy access for off-grid communities and households. We note even in Kenya today, the grid is subsidised by the government, and the flat-rate connection fee under the Last Mile Programme was enabled by a government subsidy so that people could pay that connection fee,” he said.

“The VAT exemptions were introduced and continue to be needed to keep the prices as low as possible to make sure everyone who needs one can also buy one.”

The industry is also set to come under increased oversight by the energy industry regulator in what some industry players claim is a ploy to protect Kenya Power from competition.

The power distributor recently lamented over the alarming number of its customers switching to solar power.

The Energy and Petroleum Regulatory Authority (Epra) recently published proposed Energy (Solar Photovoltaic Systems) Regulations, 2020 to deepen oversight in the industry.

The proposals have placed requirements on manufacturers and traders of products, including classification of the companies depending on the employees they have as well as the kind of equipment they can sell and installations that they can undertake.

They are also required to register all the components that they trade in with Epra.

The new regulations have seen Epra come under heavy criticism from industry players, who have accused the regulator of stifling the growth of the industry.

No standards

But Director General Pavel Oimeke said the regulations are aimed at further growing the industry while protecting the consumer.

“The purpose in 2012 was mainly to streamline the solar PV industry. Back then, people would buy solar panels, inverters and other equipment and they would not last long, and in other scenarios, they would not work at all. We did not have standards and even trained technicians,” said Oimeke.

“The people who used to install the solar systems were not trained. With the 2012 regulations, we have been able to handle some of the challenges. We developed a curriculum for solar PV professionals and over 1,000 technicians have been licensed. We have experts today who can work even on complex grid-tie solar systems.”

He added that Epra was undertaking review of the 2012 regulations to align the solar PV industry regulations with the Energy Act enacted last year.

Oimeke explained that the regulator published the draft regulations earlier this year but could not undertake public consultation following the breakout of Covid-19 in the country.

“There are new developments in the industry and the old regulations could be limiting for the industry,” he said.

Over the last decade, the amount of solar power that is being fed to the national electricity grid has increased to 250 megawatts (MW) this year from a paltry 12MW in 2012. It is projected to increase to 500MW in 2025.