Kenya’s power sector has experienced steady growth over the last two decades. Moreover, Kenya has remarkable renewable resources as evidenced by its track record as one of the lowest cost developers of geothermal power in the world. Kenya has also aggressively tried to increase access to the power grid, having more than doubled electricity access from 32% in 2013 to 75% of households in 2022.
The access rate for urban areas stands at 100%, while rural Kenya stands at 65%. The national electrification strategy target aims to achieve universal access at an acceptable quality of service level by the year 2022.
The COVID-19 pandemic had negative effects on the sector, with power demand declining as companies scaled down operations and businesses grappled with staying afloat. The GOK is keen to renegotiate existing power tariffs with IPPs to help cushion the population from rising costs of goods.
Additionally, the Finance Act 2020 and the Tax Amendment Act 2020 abolished tax exemptions previously enjoyed by businesses in the renewable energy sector. The two acts introduced a combined 14% value-added tax (VAT) charges on supplies imported into the country for use in the construction of power generating plants and off-grid solar power equipment. This will result in increased capital expenditure costs for IPPs and the imposition of 14% VAT on solar home system equipment.
Generation: Kenya’s installed electricity capacity as of 2021 stood at 2,990 MW, a significant growth from 1,800MW in 2014, but still low for a country with a population of over 50 million. The GOK is pursuing efforts that will increase power demand and supply and lower the cost of electricity by injecting cheaper renewable energy sources such as geothermal, wind, solar, and the addition of natural gas into the energy mix while weaning off the more expensive heavy fuel oil (HFO) plants. It is expected that generation will reach 5,000MW by the year 2030, with the bulk of it coming from geothermal, natural gas (imports), wind, and solar. Kenya has long-term goals of developing nuclear power with the first project expected to start in 2035. The sector presents opportunities for trade and investment, especially in renewable sources like geothermal, solar, and wind.
Around a third of Kenya’s installed capacity is owned and operated by IPPs across several plants, including small-scale hydro plants, geothermal, biomass, wind, solar, and heavy fuel oil plants. The remaining capacity is owned and operated by Kenya Electricity Generating Company (KenGen), which is 70% government-owned.
Renewable Sources: Over 80% of Kenya’s electricity is generated from renewable/clean energy sources. Of these, geothermal remains the most significant source with an estimated potential of 10,000MW, but it remains relatively unexploited with a current installed capacity of less than 863MW. This notwithstanding, Kenya is the eighth largest geothermal producer in the world and is home to the single largest geothermal power plant, the 280MW Olkaria IV plant. Most generation is being carried out by the government with only one IPP operating in the sector, the U.S. firm Ormat, producing 140MW, and the rest produced by KenGen. Government efforts in geothermal production seem to be paying off with various projects currently underway by both the public and private sector that should realize over 1,100MW capacity.
Wind energy is another key growth area. Kenya is estimated to have a wind power potential of 3,000MW. The Lake Turkana Wind Power Plant is the single largest wind power generation plant in Africa supplying 310MW to the grid. Additionally, GE Energy is the technology supplier for the 100MW in Kipeto wind power plant, a DFC-funded project that was commissioned in late 2021. KenGen’s 80MW wind project in Meru has been put on hold owing to permit and land rights issues. It will be important for future investors to engage early with communities to ensure acceptance and ownership at the community level.
Kenya has a high potential for solar power given the high irradiation levels available throughout the year. Kenya added 120MW of solar power to the grid in 2021, raising the total generation to 172MW. There are various other solar projects in different stages that are envisioned to come online from 2023. There is huge untapped demand for off-grid solar that will connect communities located far from existing transmission infrastructure. Plans are also underway to convert off-grid diesel stations to solar hybrids to lower power costs.
In 2015, Kenya signed a nuclear power cooperation agreement with China, enabling Kenya to obtain expertise and technical support. In addition, Kenya signed a partnership agreement with three South Korean nuclear power firms and cooperation agreements with Russia and Slovakia. Kenya is also pursuing a similar cooperation agreement with the United States. All this is in readiness for Kenya’s plans to become a nuclear power producer by 2035. Kenya is working together with the IAEA as it builds capacity toward this end.
Transmission: Kenya experiences approximately 16% system loss of generated power due to aging transmission and distribution networks. To address this, Kenya Electricity Transmission Company (KETRACO) is constructing 4,500 kilometers of new power lines, more than doubling the transmission network and introducing Kenya’s first high-voltage 400kV and 500kV DC lines, as well as three major regional interconnectors to Ethiopia, Uganda, and Tanzania. Beyond these lines, KETRACO is planning a further 4,200 kilometers of lines to expand and strengthen the grid.
Distribution: Kenya Power (KP) is currently the sole distribution company in Kenya, and operates Kenya’s interconnected grid, as well as several off-grid stations in the northern regions of the country. Impressively, KP more than doubled access in Kenya from 26% of households in 2013 to 77% in 2018, meeting best-in-class benchmarks globally. KP has been assisted in this effort by Rural Electrification and Renewable Energy Corporation (REREC). Founded in 2006, REREC’s mandate has been to accelerate the pace of rural electrification across Kenya. Since its inception, REREC has helped move rural electrification from 4% to 32% of rural households, largely through its efforts to connect 60,000 public facilities (mostly primary schools) around the country and all household consumers within 600 meters of those facilities.
Together, KP and REREC have four major objectives to develop distribution and access in Kenya:
- Reach near-universal access by 2022, by adding one million new customers to the grid each year. The plan is to achieve this largely through the Last Mile Connectivity Program (connecting all consumers within 600 meters of an existing transformer with a subsidized connection price), and through further subsidized connections for consumers in informal settlements. The World Bank has partnered with Kenya in providing financing for this program.
- Build a stronger and more flexible grid by building in redundancies, reducing losses, and adding in smart technologies. Current transmission losses are 4.5%, and distribution losses are 15%.
- Increase renewable off-grid access. Currently, there are 19 off-grid diesel-powered stations, but there are plans to convert these to solar-diesel hybrids as well as to add 43 greenfield solar “mini-grids” through the Scaling Up Renewable Energy Program (SREP).
Oil and Gas: Kenya is an increasingly promising player in the booming east Africa oil and gas market. The multiple onshore discoveries announced by Tullow Oil since 2012 have led exploration and production companies’ optimism about the country’s potential. A total of 63 oil exploration blocks have been announced, of which 37 are licensed to international oil companies (IOCs) and one to the National Oil Corporation of Kenya (NOCK). A total of 78 wells have been drilled so far, with 10 showing oil discoveries and two with natural gas flows. Tullow estimates current crude oil recoverable reserves at approximately 750 million barrels. The company has allocated $100 million for pre-development spending in Kenya, in addition to $125 million for exploration and appraisal spending with a potential for another $75 million.
Current Energy Mix: Kenya’s energy mix predominantly consists of green energy with geothermal, hydro, wind, and solar accounting for roughly 81% generation 2021. The remainder is filled by thermal, biomass, and imports. Geothermal will continue to grow as more investments are put toward weaning off expensive HFO plants and less reliant on hydroelectricity, which suffers greatly in drought years.
Source: Kenya National Bureau of Statistics
Electricity Sector Institutions: The key public-sector institutions involved in managing and regulating the Kenyan electricity sector are the Ministry of Energy and Petroleum, the Energy and Petroleum Regulatory Authority (EPRA), KP (the sole power distributor), Kenya Electricity Generation Company (KenGen), the Geothermal Development Company, the Kenya Electricity Transmission Company (KETRACO), and the Rural Electrification and Renewable Energy Corporation.
Power Africa is a market-driven, U.S. Government-led public-private partnership aiming to double access to electricity in Africa. It offers private sector entities tools and resources to facilitate doing business in Africa’s power sector. In Kenya, Power Africa is supporting the development of the energy sector through financing, grants, technical assistance, and investment promotion. Power Africa helps advance power projects in the pipeline by raising debt and equity financing, assisting in power project agreement and government letter of support negotiations, and providing technical and financial advisory services. More information about how Power Africa is partnering to address key challenges in Kenya’s electricity sector and supporting private sector investment in power infrastructure is available at https://www.usaid.gov/powerafrica/kenya.
Although installed capacity is relatively small, Kenya is the leading generator of electricity in eastern Africa. The REREC is focused on connecting major town centers, schools, and hospitals to the grid, as well as looking at off-grid solutions such as diesel-fired power plants. REREC has been issuing tenders to convert these plants to hybrid solar Photovoltaic (PV) plants. Opportunities also exist for mini grids to solve power needs in county development plans.
The Solar Home Systems (SHS) segment has experienced significant growth over the last ten years, and SHS have been widely disseminated in both urban and rural Kenya. They contribute greatly to rural electrification and access to clean energy. Players in the sector have had to innovate to increase uptake such as the “Pay As You Go” (PAYG) model, a credit financing system where one pays very low daily rates over a long period of time to own the system. According to a World Bank-funded study, Kenya has now become the world’s second largest stand-alone SHS market after India, with millions benefiting from the off-grid lighting solutions. Kenya has also adopted national standards for solar equipment, thus ensuring the quality of products offered in the market.
The four leading SHS companies in Kenya by volume sold are all U.S.-registered (BioLite, d.Light, Greenlight Planet, and M-Kopa). They hold 42% overall market share. With the government’s target of universal access by this year (2022), the SHS segment will continue to play a significant role in powering rural Kenya.
Solar power is increasingly in use in rural Kenya where there is no or poor access to the grid. This creates a great opportunity for solar power systems; however, there is a great influx of low-cost Chinese imports that have flooded the market. Some establishments, such as hotels, are turning to solar lighting and water heating to reduce their power bills. This presents an opportunity for high end products from U.S. firms.
The best prospects for U.S. exporters include drilling materials and related equipment, generation, substation, transmission and related equipment, electric and electrical cables, transformers, electric meters, electric poles, switchgears, wind turbines, solar thermal and solar PV equipment, inverters, deep cycle batteries, smart grid systems, and consultancy services.
The GOK is focused on developing the geothermal power potential in Kenya with a 10-year $2.6 billion geothermal exploration plan that will involve sinking 566 wells in the Rift Valley. KenGen plans to add 560MW of geothermal power to the grid through joint ventures, in addition to 80MW of wind, and various solar installations at their existing hydro sites. GDC plans to develop 2000MW from the Bogoria-Silali geothermal block and has received a $89 million in concessional loans from the German Development Bank for this development, part of which will be applied to drilling of exploration wells. Numerous other exploration activities are underway in 10 other blocks.
Both KETRACO and KP are undertaking extension of the transmission and distribution grid network. In addition, the live line maintenance of distribution networks will require live line equipment where American companies have an advantage. The same applies to the expansion of the underground cabling system, where U.S. firms can compete to provide the necessary equipment/materials.
KETRACO plans to construct over 10,000 kilometers of high voltage transmission infrastructure including lines, switch gears, and sub-stations over the next four years. These will be financed either by the Kenyan government, development partners, IFIs, and through PPPs. These projects will also require consultancies and advisory services.
REREC is implementing solar mini-grids in the off-grid areas in Kenya to serve households and provide other socio-economic benefits such as education, health, water, and food preservation. In addition, the World Bank funded Kenya Off-Grid Solar Access Project (KOSAP) will electrify 14 low-density, remote and traditionally underserved counties that represent 20% of the population. The project, a flagship program of the Ministry of Energy, will implement mini-grids, standalone solar systems, solar water pumps and clean cooking solutions. These are being implemented through the private sector.
One key challenge in the sector is the delay by EPRA in approving PPAs and the GOK reluctance to issue letters of support, which are a key component in projects getting to financial close. The delays may be because Kenya now has surplus power and may need to stagger new connections to the grid to manage electricity costs.
- Kenya Ministry of Energy
- Kenya National Bureau of Statistics
- World Bank
For more information on the Energy sector please contact:
Senior Commercial Specialist
U.S. Commercial Service, U.S. Embassy Nairobi
U.S. Department of Commerce | International Trade Administration
Tel: +254 (20) 363-6063; Mary.Masyuko@trade.gov