ENERGY/ELECTRICITY TARIFF

Energy tariff is the pricing structure a retailer charges a consumer for energy consumption. The energy
tariff is the price unit at which electricity is sold and it is measured in kilowatt per hour of power
consumed. (kWh).

TYPES OF TARIFFS
z = Total amount of the bill for the period considered,
x = Maximum demand in Kw,
y= Energy consumed in kWh during the period considered,
a = Rate per kW of maximum demand,
b = Energy rate per kWh, and
c = constant amount charged to the consumer during each period. This charge is Independent
of demand or total energy because a consumer that remains connected to the line incurs
expenses even if he does not energy.
1. FLAT DEMAND RATE

Z=ax

The bill depends only on the maximum demand irrespective if the amount of energy consumed. It is
based on the consumer’s electric devices.it is one of the early systems of tariffs based upon the total
number of lamps installed and fixed number of hours of use per year. Therefore, the rate could be
expressed as price per lamp or unit of installed capacity

Currently, this tariff is restricted to signal systems and street lighting where the number of hours are
fixed and the energy consumption is easily predicted.

The unit of energy cost decreases with an increase in energy usage since total cost remains constant.
Meter reading and meter equipment are redundant hence the account costs are minimum.

2. BLOCK METER RATE

Z=by

The bill depends on the energy used. Charge per unit (kWh) is constant. The disadvantages of the
straight meter rate are that the consumer using no energy will not pay any amount though he has
incurred some expenses to the power station and this method does not encourage the use of
electricity unless the tariff rate is very low

3. STRAIGHT METER RATE

The block meter rate charges the consumers on a sliding scale. This means that a certain specified
price per unit is charged for all or any part of such units. The reduced prices per unit are charged for
any or part of succeeding blocks of units, each such reduced price per unit applying only for a
particular block or portion. This tariff removes the inconsistency of the straight meter rate.

The block meter rate accomplishes the purpose of decreasing unit charges with increasing
consumption. Its main disadvantage is that it does not consider the consumer’s demand.
 4. TWO-PART TARIFF (HOPKINSON DEMAND RATE)

The consumer is charged according to his maximum demand and energy consumption.

Z=a +by

This tariff requires meters to record the maximum demand and the energy consumption of the
consumer. It is generally used for industrial consumers

5. THREE PART TARIFF (DOHERTY RATE)

The consumer is charged according to his maximum demand, energy consumption and a customer
charge. It consists of a customer/meter charge plus demand charge plus any energy charge.

= ax+ by + c

This tariff is sometimes modified by specifying the minimum demand and minimum energy
consumption that must be paid for, therefore the customer charge is incorporated with demand and
energy component.

6. WRIGHT DEMAND RATE

This tariff was introduced by Arthur Wright (of England) in 1896.This rate intensifies the inducement
by lowering both the demand and the energy charge for a reduction in maximum demand or in other
words an improvement in load factor. This rate is usually specified for industrial consumers who have
some measure of control over their maximum demands.

The rate is modified by stating a minimum charge which must be paid if the energy of the billing period
falls below the amount by such charge. For allowing fair returns some adjustments in the rate reforms
are provided which include;

(i) Higher demand charges in summer (due to longer days in summer).

(ii) Fuel adjustment to provide a rate change when fuel prices deviate from the standard.
(iii) Wage adjustment (iv) Tax adjustment
(iv) Power factor adjustment
(v) Discount to be given to the customers for prompt payment of the bills.

COMPONENTS OF TARIFFS
The structure of the tariff is designed to facilitate the recovery of the costs imposed on the system by
consumers. These are the capacity related costs, energy related costs and consumer related costs,
respectively.

Capacity related costs

These are generation and usage related costs. They are costs which are incurred as a result of a change
in the level of peak demand on the system, and hence include costs of future additions of generation,
transmission and distribution capacity as well as fixed operations and maintenance.

Energy related costs

These are design-demand related costs. They are costs which are incurred in the supply of an extra kWh
of energy whenever it occurs, hence are dominated by expenditure on fuel and variable operations and
maintenance.

Consumer related costs

They are also known as customer-related costs. They are costs incurred on behalf of each consumer
regardless of their electricity consumption and include metering, billing and revenue collection.

Capacity and consumer related costs are typically recovered in a fixed monthly charge, while energy
related costs are usually recovered in a per unit energy charge

CONSUMPTION TARIFFS VS FEED IN TARIFFS FOR DOMESTIC AND

LARGER CONSUMERS
FEED-IN TARIFFS
A feed-in tariff is a guaranteed price established for a utility company that intents to sell renewable
electricity to the grid and guarantees that they will have access to the grid. The tariff is set so that a
profit is guaranteed, thereby ensuring the collective capital resources of the entire system to be part of
the renewable energy market. Any increment cost of purchasing the renewable energy is shared among
the consumers.

Feed-in tariff typically assures utilities of payment from the government for the electricity generated.

CONSUMPTION TARIFFS
This are prices, rates, costs and all other charges including adjustment formulae and other terms,
conditions and information given by the energy producer. Electricity prices depend on the price of
generation, government subsidies, government taxes, weather patterns, transmission and distribution
infrastructure and industry regulations. These prices vary from time to time.

This tariffs ensure profit for the utility company. Electricity tariffs vary for different consumers, i.e.
domestic/residential, commercial and industrial consumers. The prices are normally highest for
domestic users because of the additional cost incurred to step-down the distribution voltage. The price
power for industrial consumers is wholesale because they consumer power at high voltages and in bulk.

Contribution to peak load is also a factor that can influence the price of electricity. Consumer loads are
characterized as off peak, peak, seasonal and base load. Peak load consumers are normally highly
charged as utility companies encourage consumers to change into off peak loads. In Kenya, commercial
and industrial users operating at 100% production capacity during peak and off peak time are given 5%
discount. There is also a discounted time of use tariff that is applicable only during off-peak period only.

FEED-IN TARIFFS IN RWANDA, CHINA, INDIA AND GERMANY

RWANDA
Rwanda introduced feed-in tariffs through the Renewable Energy Feed-in Law by the Rwanda Utilities
Regulatory Agency(RURA) in Kigali on 9th February, 2012.The feed-in tariff applied to only small hydro
plants with a maximum of 50 MW and a minimum of 50KW. Since 2012,3. MW of eligible hydropower
come online.

This policy expired in February 2015 after a period of three years and currently it has been replaced by
renewable energy tenders. The feed-in tariff is paid in USD. To obtain a feed-in tariff, the supplier must
apply for an energy production license from RURA and then apply for feed-in tariff from the Agency.

CHINA

China’s National Energy Administration issued the first national solar FiT on August 2011 at about
0.15USD/kWh and for the four categories of onshore wind projects according to regions. The agency
announced on May, 2019 that a total of 5.2 gigawatts (GW) of solar was installed during the first
quarter, made up of 2.4 GW of ground-mounted solar and 2.8 GW of distributed generation projects,
while, at the same time, the Price Bureau of China’s National Development and Reform Commission
finally published its solar Feed-in Tariff policy for 2019.

China’s new solar FiT have been effective since July 1,2019. For centralized ground-mounted solar
systems in Region 1 RMB0.40 per kilowatt-hour (kWh), for Region 2 RMB 0.45/kWh, and for Region 3
RMB 0.55/kWh. (China introduced its regional bracketing back in 2013, where Region 1 accounts for
mostly northern China and Inner Mongolia, Zone 2 for mainly western and central China, and Zone 3 for
the remainder of the country.) The Feed-in Tariff for “village-level” poverty alleviation solar PV power
projects remain unchanged at RMB/kWh 0.65, 0.75, and 0.85 for Region 1, 2, and 3 respectively.

The FiT for Commercial and Industrial (C&I) distributed solar PV power projects designed for “self-
consumption + excess power feeding back into the grid”, prosumers, sits at RMB0.10/kWh. Residential
solar PV systems — regardless of whether or not the projects are for self-consumption + excess feed-in
or feeding 100% into the grid — are entitled to a Feed-in Tariff of RMB 0.18/kWh and are included in the
2019 FIT subsidy budget.
INDIA
In February,2018 the Ministry of Power in India issued final competitive bidding guidelines for wind and
small solar projects. The feed-in tariffs apply to solar projects of less than 5MW and wind projects with
less that 25 MW.

arge-scale solar power has been primarily procured through a reverse auction process since the
inception of the National Solar Mission. The only time a large quantity of solar projects was procured
through the feed-in tariff process in the country was when Gujarat -led by then Chief Minister Modi –
announced in 2010 the procurement of 968 MW of solar PV at a feed-in tariff rate if ₹15/kWh for the
first 15 years and ₹5/kWh for the next 15 years. Later the government cut the tariff rate it paid to
projects claiming excess profits from project owns. Since then government agencies in India have not
used the feed-in tariff mechanism to procure solar power.

GERMANY
Feed-in tariffs in Germany were introduced in 2001 to encourage the development of renewable energy
technologies, reduce external cost and increase security of energy supply. The production of electricity
from renewable sources in Germany was only 6.2 percent in 2000, increasing to 23.7 percent by 2012
and up to about 28 percent in 2014.The renewable power producers receive the feed-in priority of
green power compared to conventional electricity. The tariffs are lowered every year to encourage
more efficient production of renewable energy. The support duration is 20 years including the year of
commissioning therefore the generous feed-in tariffs are set to in the 2020s.

16,000 MW of onshore wind power capacity as well as over a million small cable solar PV producers will
stop receiving guaranteed payments in 2021

PROSUMERS
Exploitation of non-renewable energy sources result to pollution of the ecosystem therefore energy
usage is shifting to renewable energy sources. In addition to this, to manage the fast growing demand,
the provider-consumer unidirectional model is transforming into a bidirectional model.

A prosumer is an energy user who generates renewable energy in his domestic environment and either
stores the surplus energy for future use or trades it to interested energy customers in the smart grid.
The objective of prosumers is to produce and consume energy, as well as share and redistribute excess
energy to other users in the grid.

The shift from being passive consumers into active consumers maximizes economic, operational and
environmental benefits in areas of micro-generation, demand reduction, demand response, data
management and energy storage.

Factors that influence this include;

 new technologies, smart meters and advanced metering infrastructure, energy displays and
smart appliances
 implementation of cost effective energy having measures
 government incentive schemes to encourage participation in energy system
 strong public stance to alleviate harmful environmental effects

Prosumers could intergradient the energy markets through three engagement models. One involves a
decentralized, autonomous and flexible network where the prosumers are directly connected with each
other. Another is the prosumer –to-grid model that involves prosumers providing services to either an
independent micro grid or a microgram connected to the main grid. The third is the organized prosumer
group model which is composed of multiple groups of prosumers. The groups work together and pool
resources for community benefit or can become large enough to form a prosumer virtual power plant.

CONSUMPTION AND FEED IN TARIFFS IN KENYA

FEED-IN TARIFFS IN KENYA
The feed in tariffs policy for wind, biomass and small hydro was published in March 200 following
approval by the Public Procumbent Oversite Authority. The feed-in tariff policy covered wind, small-
hydro and biomass sources, for plants not exceeding 50MW,10MW and 40MW respectively. Revised
version of the policy in January 2010 included new tariffs for geothermal, biogas and solar sources.
Feed-in- tariffs in Kenya are technology specific and depend on;

a) The investment costs for the plant, including the costs of feasibility studies, site development,
construction costs, and the costs of connecting to the transmission system including transmission lines,
substations and associated equipment

b) The Operations and Maintenance (O&M) Costs

c) Fuel costs where applicable

d) Financing costs, including interest during construction, and a fair return on the invested capital. The
availability of concessionary finance will be taken into account when estimating such costs;

e) Estimated lifetime of the power plant

The table 1 below contain the feed in tariff policy in Kenya.

TABLE 1: FEED-IN TARIFF POLICY FOR RENEWABLE SOURCES OF ENERGY IN KENYA

CONSUMPTION TARIFFS IN KENYA
The schedule of tariffs is set by the Energy Regulatory Commission for the supply of electrical energy by
Kenya Power and Lighting Company from both interconnected system and the off grid systems.

The domestic-lifeline, domestic ordinary and non-domestic small commercial consumers are supplied
electricity at 240 or 415 volts. Domestic consumers-lifeline shift to domestic consumers ordinary if the
average three months’ consumption including the current billing cycle is greater than 10 kWh/billing
cycle and vice-verser

Commercial and Industrial (CI)consumers pay demand charges for their monthly peak demand. The
commercial and industrial consumers have a discounted time of use tariffs that are applicable during
off-peak period. During off-peak periods, CI consumers are charged half the normal energy charge per
unit consumed. Their supply voltage levels are as follows;

 CI1 at 415 V
 CI2 at 11KV
 CI3 at 33KV
 CI4 at 66KV
 CI5 at 132KV

The table 2 below shows the approved charges in 2018/2019 for different consumers in Kenya
TABLE 2: APPROVED CHARGESD IN 2018/2019 FOR DIFFERENT ENERGY CONSUMERS IN KENYA

The surcharges applied on all tariff categories are as follows:

ERC LEVY: It is currently set at 3 cents per kilowatt-hour.

REP LEVY: This is 5% levy on the cost of the units of power consumed by a customer. It is passed on to
the Rural Electrification Authority (REA) for implementation of the rural electrification projects.

FUEL ENERGY COST (FEC): Variable rate per kWh, published monthly in the Kenya Gazette. It is reflective
of the cost of generating electricity from thermal sources during the previous month. This money is
collected by KPLC and all of it is passed on directly to electricity generation companies, who in turn pay
fuel suppliers.

WRMA Levy: Water Resources Management Authority Levy. 5 cents per kilowatt-hour charged on the
cost of all units generated from hydropower plants above 1MW. The rate is variable per kWh and
amounts collected are passed on to WRMA.

INFLATION ADJUSTMENT: Variable rate per kWh, with the consumer price index as the underlying factor

FOREIGN EXCHANGE RATE FLUCTUATION ADJUSTMENT (FERFA): This component is related to the
fluctuation of hard currencies against the Kenya Shilling for expenditure related to the power purchasing
agreement between Kenya Power and the Power Producers. VAT: 16% Value Added Tax on total bill
incurred excluding levies.

ROLE OF ERPA IN TARIFF SETTING

According to Energy Act,2019 Section 11(b), the Energy and Petroleum Regulatory Authority(EPRA) shall
set, review and adjust electric power tariffs and tariff structures and investigate tariff charges, whether
or not a specific application has been made for a tariff adjustment.

Tariff review involves;

1. Demand forecasting for bulk and retail markets

2. Generation and transmission planning to meet the forecast demand
3. Determination of the sector revenue requirements based on forecast of costs likely to be
incurred for generation, transmission, distribution and supply of power
4. Determination of marginal cost of generation, transmission, distribution and retailing of
electricity
5. Allocation of total revenue requirement among approved customer classes on the basis of
marginal cost and price sensitivity
6. Computation of all initial retail tariff proposals
7. Sensitivity analysis of the proposed retail tariffs
8. Public exposure, public debater and hearing of proposed tariffs
9. Determination of the final retail tariff

MINIGRIDS IN KENYA
In Kenya, KPLC operates 20 minigrids, all publicly owned and developed. REA developed and built these
mini-grids from generation to distribution. When the construction was complete, KPLC took over their
maintenance and operation.

There at least 21 minigrids privately owned. The private companies build the generation and distribution
network, and operate and maintain these assets for 7 to 10years.the minigrid customers are charged a
regulated tariff paid to KPLC. The private companies receive their monthly payment from KPLC as
dictated in the Power Purchase Agreement

The figure 1 below shows KPLC minigrid customers and nominal and effective capacities. The off grid
stations are ranked from the largest to the smaller effective capacity, hybrid stations are visualized with
an asterisk (*) and the number of consumers indicated which range from 80 in Eldas to 4,100 customers
in Wajir.
FIGURE 1: KPLC MINIGRID CUSTOMERS AND NOMINAL AND EFFECTIVE CAPACITIES

GENERATION AND LOAD DEMAND

Minigrids are located in different counties in Kenya which include Homa Bay, Isiolo, Lamu, Marsabit,
Samburu, Tana River, Garrisa and Turkana.There are 4 minigrids in Mandera and 3 in Wajir. Hola Power
Station located in Tana River County has distribution networks till Masalani Town in Garissa County.

The stations with the largest electricity generation in 2014 were Mandera (7,149 MWh), Wajir (5,577
MWh) and Lower (5,513 MWh) followed by Marsabit (4,220 MWh), Hola (3,005 MWh) and Mpeketoni
(2,450 MWh). Wajir (3.40 MW) has the largest installed capacity and runs on diesel. Second to it is
Mandera (2.35 MW) which is a solar-diesel station.

The table 3 below shows energy generation and maximum load demand in 2014
TABLE 3: ENERGY GENERATION AND MAXIMUM LOAD DEMAND IN MINIGRIDS (2014)

INVESTMENT COSTS

The table 4 below provides an overview of the KPLC minigrids where retrofitting or hybridization took
place. The costs include the generation, integration and associated equipment components. The amount
includes all distribution system components but not customer connections and metering. The
economies of scale are evident, Solar PV rages from USD 5,100 to USD13,575 per Kw installed.

Other factors such as the supplier, integration equipment, logistics and year of procurement also have
an influence.
TABLE 4: KPLC MINIGRIDS CAPITAL COST

FUEL CONSUMPTION AND COST

Specific Fuel Consumption(SFC) is the ratio between the amount of fuel consumed and the electricity
generation, the amount of fuel used to generate one kWh. The stations are divided into 4 groups;

A. Stations with the lowest SFC (0.29-0.34 L/kWh) due to more efficient or larger generators that
are operating at a higher efficiency. These are Mandera, Lodwar, Marsabit, Hola, Habaswein and
Mpeketoni
B. Stations that have similar total energy generated to group C but significantly lower SFC AT 0.36-
0.4 L/kWh. These are Lokichoggio, Elwak, Baragoi and Mfangano.
C. Stations with high SFC, between 0.48 to 0.21 L/kWh. These are Merit, Rhamu, Takaba and Eldas.
D. For Wajir, even though the significant amount of energy generated implies an efficient use of
fuel, the SFC was similar to those in group B at 0.41 L/kWh.

The figure 2 below shows KPLC Stations grouped by specific fuel consumption
FIGURE 2: SPECIFIC FUEL CONSUMPTION OF MINIGRIDS IN KENYA

RENEWABLE ENERGY GENERATION

The KPOF-grid stations have been hybridized with solar and /or wind. In 2014, Elwak had the highest
proportion at 11%, followed by Merti at % and Mandera at 7%. Lodwar, Hola and Taraba had the
lowest renewable energy production. Lodwar and Hola generated 94 MWh and 83 MWh
respectively. Mandera generates significantly more renewable electricity at 505MWh than others
with its 350 KW solar PV system. Marsabit with two wind turbines totaling 500 KW generates 180
MWh.

The figure 3 below shows renewable generation(MWh/year) and share (%)

FIGURE 4: KPLC MINIGRIDS RENEWABLE GENERATION(MWh/year) AND SHARE (%)

The table 5 below gives an overview of renewable energy resources availability at KPLC sites.
TABLE 5:RENEWABLE ENERGY RESOURCES AVAILABILITY AT KPLC SITES

The table below indicates diesel and renewable capacity of off grid stations in Kenya as of 2014.
TABLE 6: RENEWABLE ENERGY CAPACITY AND DIESEL CAPACITY IN MINIGRIDS