Transcript ENABLING ENVIRONMENT FOR BIOFUELS DEVELOPMENT IN …

RENEWABLE ENERY & BIOMASS COGENERATION TRAINING – KENYA
BY
LEWIS B. MHANGO
Energy Sector Legal Framework
ENERGY FRAMEWORK LAWS
Electricity
Act
Coal
Act
Liquid
Fuels and
Gas Act
RETs
Act
RE
Act
Regulatory
By-laws
Regulatory
By-laws
Regulatory
By-laws
Regulatory
By-laws
Regulatory
By-laws
SECTOR-WIDE
ENERGY INDUSTRY REGULATOR
Economic Regulation
(Pricing)
Technical Specifications
Legal
(Licensing, Environmental
Impact, Promotion)
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In the short term, the existing generation assets will be owned
and operated by a publicly owned company, the National
Electricity Generation Company (NEGEC). In the medium
term, an Adviser will be engaged to review the operations and
ownership of the NEGEC and offer advice on the next stages of
the reform process;
IPPs shall be allowed to develop and own generating capacity
under build, own and operate (BOOs) and other arrangements,
and operate the same as a private concern in a competitive but
regulated market;
The development of new capacity, including co-generation, by
major industrial plants (especially in the Sugar Industry), will
be encouraged and a tariff will be developed to encourage sales
of energy and capacity to the transmission operator.
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New energy trading opportunities are now available under
SAPP & EAPP through which countries in the region, like
Malawi, can export their excess power and import in time of
need.
As a consequence governments in the region should consider
their participation in the power pool markets a matter of
strategic importance in exploiting import and export trading
opportunities.
In the interests of national security, the extent of supply met
through imports should be subject to prudent limits
depending on the number of interconnections and the risks
associated with each.
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Malawi has considered various options for its restructuring
and ownership.
Based on its review, Malawi is convinced that transmission
(66kV and above) is a natural monopoly and should therefore
be maintained as one entity with assets owned by the public
and operated under a long-term concession by a
Transmission/ Dispatch Company.
The functions of the Transmission/Dispatch Company will
among other things include managing Power Purchase
Agreements (PPAs) with Generation and Distribution
Companies.
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Reforms are expected to attract new Independent Power Producers (IPPs) and
Independent Power Distributors (IPDs) who will participate in the ESI as
competitors. In order to encourage competition and ensure that demand is met at
least cost, the new energy laws permits third party access to the grid.
A cost reflecting and non-discriminatory tariff will be developed to encourage
IPPs, private generators including cogeneration, small hydro power generators
and others to sell energy to the Transmission/Dispatch Company. This tariff will
be subject to review and approval by the Energy Regulatory Authority in case of
Malawi - MERA.
According to the Reform Strategy in Malawi, in the short-term, direct sales by
generators to specified large consumers will not be permitted but, in the mediumterm, when the market has grown adequately, a Transaction Adviser will examine
the possibility of such contracts.
However it is envisaged that cogeneration and small hydro power generators near
sugar factories and tea estates respectively, will be allowed to sale power to the
factory for purposes of enhancing generation capacity in the country.
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Malawi has considered various options in reforming the distribution network such as service
contracts, leasing, concessioning and asset transfer. Malawi is convinced that the private sector
must play a major role in distributing and selling electricity if the objectives set for the new ESI are
to be met. The following opportunities have arisen from the reforms:
Due to the small size of the distribution network, and political sensitivities around the ESI, Malawi
has decided to retain, in the short term, the existing distribution network as a single entity, but to
transfer its management to a private operator under a long-term concession of no more than 20
years. The concessionaire will operate under specific investment obligations and targets for new
connections country wide.
The Distribution Company will buy electricity from the Transmission/Dispatch Operator under a
bulk supply tariff, which will be reviewed and approved by the regulator.
IPDs will be allowed to develop and operate own distribution networks in specific geographical
locations under exclusive geographical license from MERA and enter into PPAs with the
Transmission/Dispatch Company.
In the long run, the Transaction Adviser will advise on the horizontal separation of the existing
concessioned distribution network to allow the participation of multiple distribution companies
but in distinct geographical markets. However, common ownership of these distribution companies
will be limited in order to spur effective competition by comparison.
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The small size of the power sector in many countries
in the region like Malawi
Political sensitivities around the ESI for most
governments in the region.
Regulatory issues regarding appropriate tariffs to
attract private sector participation (especially during
election years).
The global financial crisis affecting private investors
in the power sector - need for local investors
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Malawi was included on the AFREPREN study to look at
cogeneration potential in the region.
The results helped to inform the country about the large
potential that exist in the two sugar mills.
Malawi is now ready to participate in the regional
cogeneration project and can generate more than 20MW from
cogeneration & supply to the grid.
Sugar mills have started refurbishing their boiler systems to
improve their efficiency in readiness of the opportunities that
the power sector reforms have brought.
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According to the Electricity Act No. 23 of 2004,
gazetted in January 2008, Under Section 52 power
sector operators are allowed to obtain a license as
follows:
Section 4. and sub section (1) of the Electricity
(Licensing) Regulations 2008 states that
“An application for the issue, renewal, amendment
or transfer of a licence shall be made in form EA1
for generation, form EA2 for transmission, import
or export and form EA3 for distribution and shall
be accompanied by the appropriate application fee
as per regulation 2 hereof”.
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Based on these approved new Energy Laws, GoM employed
Price Water House Coopers as transaction advisers for
Private Sector Participation in the ESI.
According to the report by the transaction advisor on how to
proceed with the power sector reforms, the proposal is to
establish a holding company to be named ESCOM Holdings
which should own three subsidiaries in form of
 ESCOM Generation
 ESCOM Transmission and
 ESCOM Distribution
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This arrangement would enable Malawi to implement the
new Energy Laws without having to amend them.