Energy Environment

The transition to renewable energy auctions

The expected switch to energy auctioning from the Feed-in-Tariff (FiT) will reshape how we see the energy sector. This move is slowly taking pace after the legislators made some changes to the Energy Act of 2019. However, it is one of the most demanding changes to implement in the current system. New technologies have emerged to ensure that renewable energy production becomes affordable when it comes to the exploration of solar and wind farms.

The solar power bid by Abu Dhabi to Kenya Power and Lighting Company (KPLC) has left the company still paying high tariffs to the energy producers that entered the proposed power purchase agreement. The tariffs range from 0.07/KWh to $0.12/kWh, which is high for such a company with other operations to run. Kenya Power will face the burden of paying these high tariffs through the next two decades if there are no opportunities for restructuring the agreements.

The FiT is the most advocated energy purchase policy because it allows the involved entities to negotiate based on the technology applied in energy production. Additionally, it has proven to offer a sustainable investment environment where energy producers are optimistic about obtaining long-term returns with the national grid’s continued power supply. sIn this contract renegotiating the tariff is unthinkable because it is a fixed payment that remains that way unless the technology is changed. This situation calls for a restructuring of the contract term. KPLC finds it plausible to switch to a bidding system since it will eliminate the high tariffs paid even if the power is not utilized.

Moreover, the problems associated with unbalanced demand for power can be resolved because the bidding system would allow for grid stabilization. The energy developers can implement the energy storage technologies, and the existing energy farms advised to develop storage technologies for the power generated. This move would help in grid stabilization and the elimination of power wastage.

Other countries that adopted the bidding system for their energy sectors have reported reduced cost of power and battery storage technology development supporting their energy demands even in the peak seasons. Energy purchase contracts come into the lowest bidders’ hands, motivating competition for suitable technologies with the private sector. Energy auctions allow the developers to customize the supply to the market to meet the economic circumstances. Moreover, auctions allow for the manifestation of the actual price of the energy entering the market. This feature helps to tie the regulators to the developers to employ the new technologies for high profitability.