The following article is written by Ms Flavia Nasambu, a Kenyan attorney, who interned at my office.
Impact of Automation of Power distribution through Use of Advanced Technology-‘Smart Grid’- on the Economy
This paper looks at the use of technology in combatting/reducing power shortages and managing the cost of electricity by consumers. The analysis seeks to show how power is a major determinant of investment hence industrialization, the effect of regular power shortages on the income of the business and incorporating up to date technology in grid management will ensure more efficient and stable power supply.
The subject area is of interest majorly because Kenya is an emerging economy on the verge of industrialization hence its take off is highly dependent on electricity as a major input. If there is stability in electricity supply (less spasmodic) and the cost is relatively cheaper it will encourage investment and consequently industrialization.
First, we will take a look at the energy sector setup and what necessitates the need of updating the grid management, thereafter the proposed technical specifications of the modified grid, how to go about executing the idea and reiteration of the benefits at the conclusion phase.
The objective is to ascertain if the proposed smart grid/virtual power plant will reduce power shortages in Kenya and manage electricity cost as well, whether as a result of the technical proposal, the cost of production will actually decrease. The aforementioned will be achieved through the following means; assessing the current electricity supply and shortage; assessing the impact of electricity shortage on trade, and assessing the impact of usage of alternative source of power as a result of power shortage on cost of production through producer price index; assessing and estimate the level of price elasticity of demand for electricity; and finally doing a descriptive and quantitative analysis to ascertain how the incorporation of the new technology (IOT) on the grid will reduce the power shortages. The increase of the manufacturing sector of GDP is used as a proxy for measuring the increase in foreign direct investment and local investment.
The findings will play a major role in policy making, promotion of technological advancement in the energy- electricity- sector as a foreign direct investment incentive tool, and planning of electricity expansion in terms of the different generation sectors.
Energy, more specifically, electricity is an essential input in production. Kenya being an emerging economy on the verge of takeoff significantly requires a consistent/stable supply of electricity for economic growth through an increase in manufacturing.
The government of Kenya has realized the essentiality of electricity on economic development i.e. increase in output through FDI and domestic investment, increase in employment opportunities and consequently reduction of poverty, this is further detailed in government development plans ‘vision 2030’ which highlights the intent of achievement of a certain level of industrialization by then to improve the economic welfare of the population and the continued effort of realization of the Sustainable Development Goals. At the same time, it is acknowledged that energy will play a very major role in the industrialization as an input. To the effect, a target of 10,000MW was set. Equally the government has proceeded to give various incentives that would attract increase in investment and exports but to date none can be linked to electricity directly: this includes, tax waivers, less bureaucratic requirements, risk guarantees et al. In the energy sector, more specifically electricity, various measures have been put forth that are more geared towards generating more electricity and accessibility of electricity (noting the comparatively high electricity cost in Kenya) but much is yet to be said of reliability of the supply of electricity:
The Vision 2030 is structured in line with the SDG, and to the effect, the government made various reforms on the existing institution to ensure accomplishments of the goals which are increase accessibility of electricity, provision of comparatively less priced electricity, use of clean energy. Various state corporations were dis-bundled and incorporated to ensure attainment of the goals.
Figure 2.1 Energy Sector Institutional Structure
Initially, Kenya Power and Lighting Company was the sole entity in charge of the electricity sector-generation, transmission, and distribution. With time the government deemed it fit to re-distribute the functions among different entities for purposes of efficiency and price control. Different companies were given the mandate to generate-KeGen, GDC and Independent Power Producers Kenya Power and Lighting Company is the tasked with distribution of electricity to the consumers, Rural Electrification Authority was incorporated to ensure accessibility of subsidized-installation cost- electricity in the rural areas but the mandate of grid management is still under Kenya Power and lighting while Kenya Electricity Transmission Company is tasked with transmission of electricity.
Increase in generation capacity
Currently the generated capacity stands at about 2,279MW with the government putting emphasis on renewable energy to combat high electricity costs and pollution from use of thermal energy, to the effect, Geothermal Development Company was incorporated in the year 2009 and it was tasked with the mandate of exploration and development of geothermal and selling the steam to independent power producers for generation purposes. This reiterated the government’s intention on focus on renewable energy. 5,000MW out of the projected 10,000MW by the year 2030 is to be sourced from geothermal.
Figure 2.2 Generation Capacity
Improve Efficiency and Financing Gap
To bridge the technical know-how and the financing gap, Independent Power Producers (IPPs) were allowed to come in and do the generation through Public Private Partnership (PPP). Various incentives were offered by the government: the issue of guarantees and insurance to cover both political and commercial risks and attractive tariff rates to ensure a return on investment.
Various regulatory reforms were equally made to support the plan, the enactment of the National Environmental Coordination Act in 1999 for more thorough safeguards on the environment and incorporation of a statutory body and courts to ensure enforcement of the law.
The Feed in Tariff Policy was adopted for renewable energy to encourage the use of clean energy, and to offer a guarantee to Independent Power Producers ensuring returns for their investment. Tax statutes were revised to allow for tax exemptions including allowance for an exemption for geothermal equipment imported for purposes of geothermal development. All the aforementioned measures illustrate the government’s intention and commitment to providing more, least cost and environmentally friendly source of energy.
Pursuant to Kenya Power’s ‘Grid Development and Maintenance Plan of 2016’ –being the entity responsible for grid management-various technological transformations are to be made on the grid-existing SCADA system- as well as the transmission line through automation and modernization of generation to ensure minimal power losses on transmission as well as stabilizing the voltage and electricity supply. This is based on the growth projections estimates as detailed below pursuant to which adjustments will be made on the current system to be able to accommodate the increasing demand, peak load demand in line with the generated capacity:
Table 2.1 Peak Load Projections estimates
Planned and unplanned power outages is an everyday occurrence in Kenya ranging from eight hours of power loss to more. From various publications, it has been noted that increased electricity shortage is detrimental to economic growth. Firms which use electricity as an input will opt to self-generate electricity which requires an extra cost for purchase of generator and fuel or purchase the intermediate goods that were previously used to produce directly or shift to neighboring regions with a more reliable supply of electricity. Either of the choices leads to reduced total factor productivity. Overall it is noted that availability and reliability of electricity shape the productivity of a country hence its economic growth.
The intention is to develop a system that will integrate all the information from the power plants, sub-stations, transmission lines and incorporate projections and daily usage of electricity from consuming units for better decision making on the amount of power to be supplied, where to and at what time.
Technology needs to be considered and planned within the context of a utility’s capability model but in general, the following areas need to be looked at for purposes of attaining a smart grid. Basically, this will take two approaches, from the supply side: sensors that can monitor the power supply from different generators and the capacity available at the substations. From the demand side, sensors that monitor power usage by consumers, sensors at the sub-stations potential problems that could trigger power supply disturbances and consequently isolate the problem and with the help of human operator or automatically, mitigate or stop the occurrence of the event. All this sensors, communication devices are to be centrally intergrated for better management.
The intention is to manage the grid in real time which will require more monitoring and increased interaction. Data gathering sensors need to be deployed in power stations, sub stations, and transmission lines. Proper linkage should be established among the human operators, installed computer systems, and the data collecting sensors not forgetting the need for proper communication networks. Sensors that can indicate intended occurrence of black out should be laid out and a proper response system established to the effect-intelligent alienate the problem and processors that can reconfigure power flows.
The system will be on the lookout for potential problems that could trigger disturbance i.e. overheating transformer, increasing demand of power then identify corrective action based on possible impact of the problem.
Based on the available real time data, resort to load shedding or resource ramping in instances where the source of energy supply is spasmodic in nature i.e. solar, wind and hydro power
Energy storage: Inclusion of batteries that can store energy to be made available on the grid later upon demand.
Smart metering: This for purposes of provision of more information and real time data.
Data transmission in real time; capability to communicate Price signals is of importance. Price signals should be communicated to consumers meaning consumers can consume electricity most when it is favourable to them, this addresses the cost aspect of electricity. Communication of intended blackout should equally be communicated on a regular basis upon notification to avoid losses occasioned by power loss.
Smart metering: for purposes of consumption monitoring and regulating self-consumption to off-peak hours.
In line with the Kenya Power and Lighting Strategy as detailed herein, the prospective supplier can;
- Bid for tender upon advertisement by Kenya Power and Lighting Company as under and EPC contract or through Public Private Partnership arrangement;
- Directly approach the company or the ministry of energy and propose the solution.
Demand of electricity fluctuates, the reliance on hydro power, increased installation of wind and solar power plants occasioning intermittent generation requires a solution that can balance the greed during change in generation pattern and/or demand. This will equally address the growing network of connected system through the recent measures adopted by the government.
Kenya is known to be among one of the countries with the highest electricity cost and use of alternate sources of power resulting from power shortages or outsourcing some of the goods for production further increases the cost of production by about 20% with electricity as an input. This makes the output expensive both for consumption and trading reducing the economic growth of the country through reduction in manufacturing, employment opportunities consequently, decrease in exports and increase in imports. A look at various publications and reports indicate that electricity supply and stability is a major determining factor for increased investment and industrialization.
Upon assessment of the current system and noting the shortfalls, adjustments can be made to the proposed solution to suit the needs of the company. The proposed project is feasible since it addresses a current need/shortfall that is in line with the government’s strategy.
Modernizing/automation of the grid to make it more efficient and resilient-smarter- through the use of cutting-edge technologies, modernized equipment, and controls that work together to deliver electricity more reliably and efficiently will: reduce the frequency and duration of power outages by a significant margin, reduce negative impacts of system failures, ensure faster restoration of services upon occurrence of power outages and instances of reduced peak load on the part of the distributing agency, on the other hand consumers can better manage their own energy consumption and costs-increased consumption of electricity when it is not peak hours- since there is ease of accessibility to individual data on consumption.
https://www.energy.gov/oe/services/technology-development/smart-grid accessed in July, 2017
http://smartgrids.conferenceseries.com/ accessed in July, 2017
Alby, Philippe, Jean-Jacques Ditherier, and Stephane Straub. 2011, ‘Let There be Light! Firms Operating under Electricity Constraints in Developing Countries,’ Toulouse School of Economics Working Paper 11-255.
Karen Fisher-Vanden Erin T. Mansur Qiong (Juliana) Wang, ‘Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages’ NBER Working Paper No. 17741, January 2012
World Bank. 2005, ‘Demand-Side Management in China’s Restructured Power Industry: How Regulation and Policy Can Deliver Demand-Side Management Benefits to a Growing Economy and a Changing Power System.’ Energy Sector Management Assistance Program.
 Section 4 of the Environmental and Land Court Act CAP 12 of the Laws of Kenya
 Rosen and Houser (2007) and IEA (2006) reported that some firms and residents installed diesel-powered self-generation in response to the electricity scarcity. This occasioned a 16% increase in oil demand in 2004,