Kenya triples long-term power target for renewable energy

Amid surging demand for power and the need to support industrialisation, Kenya has tripled its long-term target for expanding its renewable energy capacity.

The plan calls for an increase in the power generating capability from the current amount of about 1,500 megawatts to 5,500 MW.

This will include 2,000 MW of nuclear power alongside 700 MW of hydropower and new geothermal projects.

The move will strengthen the country’s position as a global leader in renewable energy, with Kenya already producing 93 per cent of its electricity using renewable sources.

But with the government providing limited direct subsidies to cushion prices, experts say the move might not results in more affordable power for consumers.

They say this will require the authorities to reform utility contracts, electricity grids, financing, and pricing.

Renewable generation costs are largely competitive, but consumers ultimately bear the burden of financing costs, transmission and distribution losses, taxes, and foreign exchange movements.

Lawmakers have been pushing the government to reduce electricity rates. In July, the parliament directed Energy Minister Opiyo Wandayi to develop a policy for renegotiating electricity supply agreements with major power producers.

They said lower wholesale prices could create more leeway for Kenya Power to cut consumer rates without damaging its finances.

Energy experts say Kenya needs to focus less on building new generation capacity than on making electricity cheaper.

“The answer to this conundrum is not as straightforward as it may seem,” said Mugwe Manga, climate finance lead at the non-profit FSD Kenya.

“One must look at the entire energy system holistically to understand the drivers of the end cost of power,” he said.

One of the biggest inefficiencies keeping electricity costs high lies in the distribution network itself, Manga said.

More than 20 per cent of electricity is lost to technical failures and illegal connections, compared with a global average of 8 to 10 per cent, he said.

“That offers a great low-hanging fruit to improve efficiency and pass that efficiency dividend to end consumers through reduced tariffs.”

High financing costs are another problem.

Renewable energy developers across Africa borrow at significantly higher interest rates than their counterparts in wealthier economies because investors perceive view projects as having greater risks. Those extra borrowing costs ultimately are passed on to consumers.

Kenya’s power purchase agreements have also come under renewed scrutiny.

Independent power producers supply about 40 per cent of total capacity under long-term contracts signed after electricity generation was liberalised in the late 1990s.

Some contracts include “take-or-pay” clauses that require Kenya to make agreed-upon payments even when contracted electricity is not fully consumed.

Critics argue such arrangements force consumers to pay for surplus electricity, although Manga said such guarantees were necessary to secure financing for capital-intensive projects.

“Kenya’s renewable resource base is a major advantage, but electricity prices are determined by the whole system, not only by the cost of power generation,” said Albert Nganga, senior regulatory manager at CrossBoundary Energy.

“They also reflect how power is contracted, transmitted, distributed and recovered.”

Recently proposed open-access electricity market reforms could increase competition by allowing large consumers to purchase electricity directly from power generators, he said.