National Energy Policy - Final Draft - 14 Nov 2013

4.0 – ELECTRICITY4.1 BACKGROUND1. Electricity is a secondary source of energy generated through the consumption of primaryenergy sources namely fossil fuels, renewable energy and nuclear energy. By virtue of itsversatility in application, it is crucial to economic growth and is the most sought after energyservice by society. Access to electricity is associated with rising or high quality of life.2. The electricity supply industry (ESI) value chain consists of four elements, as shown below.Figure 4.1 – The Electricity Industry Value Chain3. First, there is generation, requiring both a fuel source (e.g., hydro, geothermal, petroleum orwind energy) and a power plant to convert the fuel source into electrical energy.4. Second, the generated electricity is transformed (stepped up) for transmission over highvoltage power lines; and matching end user requirements (demand) with energy availability(supply), referred to as system operations.5. The third element is distribution where electricity is transformed again (stepped down) toenable delivery or supply of electrical energy to end users or consumers via a vast network ofpower lines and substations.6. Finally, there is delivery or supply which entails retailing of electrical energy to consumersthrough a series of commercial functions – procuring, pricing, selling, metering, billing andrevenue collection.7. Generation, transmission, system operations and distribution are physical functions, whilewholesaling and delivery/retailing are merchant or commercial functions.8. Competition in the industry generally means competition in the generation of electricity, as wellas in the commercial functions. The transportation (transmission and distribution) as well assystem operation functions are natural monopolies as it does not make economic,environmental or aesthetic sense to build multiple sets of competing systems in any one area.System operations is also non-competitive, since the system operator has to control all theplants in a control area, otherwise the system would not function efficiently or safely.9. The electricity supply industry (ESI) in Kenya has been undergoing reforms and restructuringsince the mid-90s with the aims of, inter alia:(a)Creating appropriate legal, regulatory and institutional framework for the ESI.71 4.0 – ELECTRICITY