The Legislative Requirements and Regulations for ESCO’s in Kenya

BY LINDA MANYALA

ESCO’s in Kenya were introduced after the entry of Kenya’s Energy Management Regulations of 2012 and the recent Draft Energy (Energy Management) Regulations of 2020.

The requirements in accordance with the provisions of the Act include;

1. ESCO’s must be accredited by the Authority, entitling them to undertake audits of high or medium energy use facilities; and develop, design, finance, and implement energy conservation projects.
2. ESCO’s must employ at least one category EAMV accredited energy auditor.
3. Every accredited ESCO shall take out and maintain professional indemnity insurance cover with a licensed insurance company of a value determined by the Authority.
4. ESCO contracts must meet Schedule 10 requirements and should be submitted to the Authority to ensure compliance i.e.
5. The Scope of the work; how to measure energy and financial savings and target savings and; Mode of payment; specify the percentage for ESCO and Client and the repayment period (how long the ESCO will earn from the project).
6. Every accredited ESCO shall submit information regarding energy audits/conservation projects implemented in the prescribed intervals and manner prescribed.
7. Accreditation applications shall follow the form set out in Schedule 8 of the Draft Regulations.
8. The applicable accreditation fees paid as listed in Schedule 9 below;

The Vision for Victory and The Intended Outcomes

The Data collected from respondents after review of the Energy Act of 2019 captured the following recommendations for amendments in the Draft Energy (Energy Management) Regulations 2020:

1. Review the number of years between cycles of energy audits. To be conducted once in 4 years.
2. Publication of energy consumption benchmarks for designated facilities.
3. Introduction of White Certificates – if the energy performance indictor is better than the published best indicator for the sector.
4. Introduction of Green Certificates – if the energy performance indictor meets the published allowable benchmark for the sector.

The certificates will have tradeable credits determined by the annual energy savings from implementation of measures.

• The regulations to include accreditation of energy managers that work in designated by facilities for ease of implementation of the identified energy-saving measure and ensure quality audits.
• Authority to add a third category of energy auditors, who will facilitate measurement and verification in the ESCO market.
• Authority to license Energy Service Companies (ESCO’s).

Advantages of adopting the proposed amendments

Financial institutions disapprove uncertainty hence the hesitation in financing ESCO related projects. All is not lost, this regulation provides a means to recognize and regularize ESCO’s in Kenya which is a step towards compliance and mitigation of issues arising within the contractual framework.

How would this work? Once incorporated into the Regulations, the amendments will improve compliance levels leading to the following highlighted benefits;

• ESCO’S will create a pipeline of projects and finances, which will mostly be through foreign direct investments leading to the creation of high productivity and more jobs.
• Licensing of energy managers for facilities will build capacity for facilities to have a better understanding of energy efficiency, adopt the best energy management practices, and act as advisory to management on implementation of energy efficient projects.
• The increment of audit period from 3 years to 4 years will give facilities adequate time to measure, verify, document, report, and appreciate the importance of carrying out audits.
• Introduction of the requirement to define performance benchmarks will help companies strive towards meeting targets, to benefit from the White and Green Certificate markets.

Alternatives to The Proposed Regulations

Self-regulation is the considered alternative to implementing the regulations. It would require non-government agencies or associations to come together and work towards improving their trade, for the benefit of the energy sector.

• Energy auditors, who should be licensed by the Authority, shall be licensing themselves, through a professional association.

Unfortunately, no such association currently exists with the frameworks for professional accreditation for auditors and energy firms.  The two that come closest – Association of Energy Professionals of Eastern Africa focuses on offering training while Kenya Association of Manufacturers (KAM) unites industrialists and has no mandatory registration.

• The facilities should form or have an association that can assist with checks and balances, with measures where there is a mandatory requirement to conduct the audits and eliminate the concept of autonomy that may be present within such associations.
• The ESCO’s will also have to form a self-regulating mechanism that will help them work well with other facilities. There must be regulatory tools to ensure a fair level playing field between the ESCO’s and the facilities.

It simply cannot be emphasized enough that; ESCO’s will have the technical capacity, knowledge and the financial ability to invest in the implementation of recommended saving measures (ECM’s) provided in audit reports on a larger scale eliminating the constraint faced by most facilities to do so.

ESCO services are necessary and efficiency is important now more than ever. It may not possible to achieve the projected benefits without having a regulation in place as a step to increase the number of accredited ESCO’s in Kenya. The overall energy consumption, costs and carbon emissions will reduce significantly upon implementation of ESCO’s in the country.

Creating awareness on the benefits of recognizing and accrediting ESCO’s by all stakeholders in the Energy sector in Kenya would generate the visibility necessary to drive the agenda for energy efficiency and conservation.

Eenovators has partnered with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH for (i)DPPP- We for food (WE4F): Building ESCO Models for Promotion of Food Security through Water and Energy Management with a Focus on Youth Empowerment- the WESCO model which creates an ‘operating system’ for energy and water services, processes and contract templates needed to deliver energy and water efficiency projects to the food sector industry.

Other Partners in this project are;

EnergyPro Ltd (EPConnect) based in the U.K, providing its innovative solution to energy efficiency projects through the ‘ESCO in a Box Model’. A ‘tool kit’ for energy services, incorporating all the systems, processes, and contract templates needed to deliver energy efficiency projects like this one to SMEs, based on internationally established good practice,

Enso Impact Ltd based in the U.K, which is running point on project development, monitoring and fundraising,

Institute of Energy Professionals Authority (IEPA) based in South Africa, in charge of training, assessment and examination of the graduates in the course work training and,

LifeSkills Consulting Ltd, based in Kenya, a major contributor in furnishing the graduates with training in essential skills and project impact assessment.

More about the project.

We have been able to identify 10 facilities within the Agri-food sector in Kenya for this project and selected ten (10) young graduates to go through this programme. The graduates have been trained and equipped with skills to properly manage water and energy efficiency projects.

They have completed a two (2) month Energy Audit Technician Course with training on essential skills, and assessment. The next phase in the programme involves placing the graduate trainees in the ten (10) identified facilities for a period of six months for practical Energy and Water Audits.

Youth empowerment programmes are a necessary means to build capacity, create employment opportunities and boost economies across different regions and, such Regulations provide open, transparent, and accessible guidelines and mechanisms for dispute resolution within the sector.

The adoption of the Draft Energy (Energy) Management Regulations 2020, will go a long way to assist the energy sector in Kenya to achieve energy efficiency goals.

Contact us to learn more about our ongoing ESCO Projects and Services.

Suite 103/104, Repen Complex, Mombasa Road

Phone: +254 791 839 959; +254 0105521859

Email: info@eenovators.com

Work Cited:

The Draft Energy (Energy) Management Regulations, 2020.

The Regulatory Impact Assessment study on the Energy (Energy Management) Regulations, 2012; published June 2020 by Energy and Petroleum Regulation Authority Kenya (EPRA).