Project Overview

Statement of the issue in relation to inclusion and brief introduction

Prior to 2015, the electricity connection fee, at a fixed price of USD 398, was unaffordable for households in low-income areas. In addition, households had to pay the upfront inhouse wiring costs^[11], buy electric appliances and pay the electricity bills. Many people viewed the connection as a luxury and were not willing to pay for it, even if they could afford it^[12].

In many low-income households, the electricity they use will be for lighting. Based on 2005 and 2006 data, the median monthly expenditure per household on kerosene for lighting was USD 1.55 (KES 156), while the median expenditure on electricity per household was USD 3.30 (KES 332)^[13]. The difference created a perception that electricity costs are high, and many households preferred the cost of continued use of kerosene for lighting.

The demand for electricity connections remained low, especially in rural areas, because of the economy, household income and expenditure structure. The need for food and clothing was prioritised over the use of electricity. Even when households were given financial assistance and offered subsidised connection fees, the electrification rate in rural areas was just 39% in 2016^[14].

There were other challenges too, including a shortage of investment and difficult geography.

The communities are remote and far apart, which led to higher construction, implementation and operating costs. Private sector participation was limited due to the higher risk of financial loss and the large investment needed with uncertain return.

How inclusivity has been addressed

The identified practice is the lowering of the electricity connection fee and the availability of loan products to help increase the access rate.

Selection of communities

Communities were selected by constituency representatives and Members of the County Assembly (MCA), who shared the information with the Rural Electricity Authority (REA). The key criteria were whether the community already had access to electricity and its technical readiness^[15]. Before houses could be connected, they needed to be technically ready, and cables and power points had to be installed before construction work started. The prioritisation of communities depended on the county’s willingness to support certain communities. The REA’s priorities were based on technical rather than social criteria – for example, Phase I included households within 600 metres from the existing grid, and in Phase II, this was extended to include all communities one to two kilometres from the existing grid. The second criterion to be met was a minimum population density per new transformer (included in Phase II), which had to be within a 600-metre radius of that transformer. The location of the new transformer was determined following a survey.

Determination of an affordable connection fee

Prior to the Program, the initial connection fee was USD 398 per household. In 2014, the World Bank, the Berkeley Energy and Climate Institute, and the Development Impact Lab, together with the Rural Electricity Authority (REA) and Kenya Power, responded to concerns that it was too costly. They conducted research to support the REA’s estimate of a more appropriate connection fee and set up a database for subsequent projects. To support this process, a baseline survey was conducted in relation to 150 installed transformers^[16] in Busia and Siaya counties, identified as locations with vulnerable groups, in terms of economic development, low electrification rate and relative high-density population.

The research team visited communities and conducted surveys to build a sample database, which consisted of 12,001 surveyed unconnected households. As per the REA construction cost management plan, households that were within 600 metres of a transformer and also no more than 400 metres away from a low-voltage line were selected from this database. Based on that threshold, 2,504 households in total (including 2,289 unconnected and 215 connected) were studied in more detail to understand electricity spending patterns and preferences.

According to the results, each unconnected household had an average of 2.99 young people and the monthly lighting spend was USD 5.52, in comparison to USD 15.38 for the connected household. The research results showed that the demand for connection declines rapidly with an increase in connection fee. The theoretically accepted price point concluded from the survey was much lower than the price set by policymakers. Despite large investments in grid infrastructure in the past, the rate of connectivity was low even for relatively well-off households and businesses.

The focus of the practice addressed in this case study is on the connection fee only and does not consider the general electricity tariff and its affordability^[17].

Implementation

Reduced connection fee

In May 2015, the Ministry of Energy and Petroleum announced a reduction in the electricity connection fee from USD 398 to USD 171, which was enabled by public investments and subsidies. The lower connection fee is only applicable to households in communities covered under the Last Mile Connectivity Program, for which the Government of Kenya secured USD 364 million in funding from the African Development Bank, the World Bank and the European Investment Bank.

For those households unable to pay the connection fee at the time of connection, they can pay in instalments over three years. This translates to payments of USD 4-5 (KES 416) per month, which will be added to their monthly bill after they successful apply for a Stima Loan^[18]. The rationale for reducing the cost of the connection fee was the economies of scale that could be achieved - when one additional household connects, the cost per household becomes less expensive. The experimental average total cost (ATC) curve prepared by the research team showed the budgeted ATC per connection decreased as the proportion of the community connected increased. The ATC dropped dramatically from USD 3,500 per installation with no connections, to USD 1,000 with 15 homes connected^[19]. This finding had major implications for the design of the project:

• the location of the transformer needed to cover as many households as possible, with a mandatory requirement to also connect a health centre; and
• the identified transformer coverage was limited to a 600-metre radius due to the technical limitations of the transformer and voltage loss.

The exact location of the transformer (and consequently, the households covered within the 600-metre radius) was determined following a site survey by the REA, which designed the network grid, prepared the budget and defined material requirements.

How inclusivity has been addressed

The identified practice is the establishment of an independent energy regulator and an oversight authority tasked with enhancing connectivity and promoting  socioeconomic development.

Implementation

Independent regulatory body

The most relevant legislation in relation to the project is the Kenya Energy Act No. 12 of 2016. It set up the Energy Regulatory Commission (ERC), an independent regulator responsible for formulating licensing procedures, issuing permits, making recommendations for further energy regulations, setting and adjusting tariffs, approving power purchase agreements (PPAs) and preparing national energy plans.

Electricity oversight and promotion authority

Most relevant for the Last Mile Connectivity program is the Rural Electrification Authority (REA), established to enhance rural electrification in the country. As part of the program, the REA oversees the connection of potential customers located near installed transformers supplying public utilities. The REA became operational in July 2007 with the mandate of accelerating the pace of rural electrification to promote sustainable socioeconomic development.

Energy legislation

Under the Energy Act, the REA is tasked to undertake the following functions:

• manage the Rural Electrification Program Fund;
• develop and update the rural electrification master plan;
• promote the use of renewable energy sources including small hydro, wind, solar, biomass, geothermal, hybrid systems and oil-fired components, considering the specific needs of certain areas. For example, the potential for using electricity for irrigation and support for off-farm income generating activities;
• implementation and sourcing of additional funds for the rural electrification program; and
• management of the delineation, tendering and award of contracts for licences and permits for rural electrification.

How inclusivity has been addressed

The identified practice is the establishment of a dedicated stakeholder engagement team to coordinate with local leaders and members of the community.

Implementation

Community engagement

Public consultations aimed at understanding project impact and benefits, risks and potential mitigation measures started in January 2014.

Before any construction work could start, local communities and other stakeholders were consulted. The same group also participated in screening residents’ actual electricity demand, identifying potential technical constraints to determine the key issues and agreeing how to address the concerns of various parties.

The REA assigned a team of consultants to undertake stakeholder engagement. The team worked with the local Member of the County Assembly and community leaders to organise regular gatherings where all households without access to electricity (including the most vulnerable, such as women and the households with the lowest income) were invited^[20]. At the end of the meetings, the team recorded the names and contact details of attendees. By doing so, the team established communication channels that they could use to secure buy-in as the project developed.

Communities located more than one to two kilometres from the existing electricity grid were not considered for electrification. Households located outside the 600-metre radius of the transformer were also unlikely to benefit. If a household beyond the 600 metres wished to be connected, a request could be made to Kenya Power. Subsequently, a survey would be conducted to identify how many other potential customers could benefit from the connection. A proposal for connecting them as part of a wider scheme is then made to spread the cost of connection among all the potential customers^[21].

Overall community engagement activities identified were general in nature. The case study has not identified any specific focus on women, young people or the extremely poor.