COUNTRY PRIORITY PLAN AND DIAGNOSTIC OF THE ELECTRICITY SECTOR - Kenya
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COUNTRY PRIORITY PLAN AND DIAGNOSTIC OF THE E LECTRICITY SECTOR Kenya
Acknowledgements
This Report is a product of the AfDB’s Power, Energy, Climate Change &
Green Growth (PEVP) Complex, which is directed by Mr Kevin Kariuki, vice
president of the AfDB. It has been produced under the strategic guidance
of Mr Wale Shonibare. The coordinators and lead authors are Mr Callixte
Kambanda and Mrs Rhoda Limbani Mshana. The Tony Blair Institute for
Global Change (TBI) supported the Bank in the preparation of the report.
Thanks go out to NESS Communication S.n.c. for editing and layout.
The AfDB acknowledges the collaboration of the Government of the
Republic of Kenya, which made possible the finalization of this report.
Disclaimer
The findings, interpretations and conclusions expressed in this report
are those of the authors and do not necessarily imply the expression of
any opinion whatsoever on the part of the Management or the Executive
Directors of the African Development Bank, nor the Governments they
represent, nor of the other institutions mentioned in this study. In the
preparation of this report, every effort has been made to provide the
most up to date, correct and clearly expressed information as possible;
however, the authors do not guarantee accuracy of the data.
By making any designation of or reference to a particular territory or
geographic area, or by using the term “country” in this document, AfDB
does not intend to make any judgments as to the legal or other status of
any territory or area.
Rights and Permissions
All rights reserved. Reproduction, citation, and dissemination of material
contained in this information product for educational and non-commercial
purposes are authorized without any prior written permission from the
publisher, if the source is fully acknowledged. Reproduction of material
in this information product for resale or other commercial purposes is
prohibited.
© 2021 African Development Bank (AfDB) Group
3
CONTENTS
Purpose of this document 05
Section 1: Country Priority Plan 06
Government strategies and targets 07
Priority areas for the energy sector 09
Section 2: Diagnostic of the sector 18
Institutional framework in the sector 19
Generation outlook 21
Challenges 22
Transmission and distribution 24
Challenges 25
Energy access and off-grid electrification outlook 27
Challenges 27
Donors involvement in the power sector 29
Detailed list of donors’ interventions 33
4
Purpose of this document
The Kenya Country Priority Plan (“CPP”) will be the reference document adopted
by the Government of Kenya (“GoK”) and the African Development Bank (“AfDB”) to
summarize the priority reforms and projects that will be presented during the fifth
edition of the Africa Energy Market Place (“AEMP”).
The AEMP is a flagship AfDB forum that is held every year and to showcase investment
opportunities in the energy sector of selected African countries and facilitate
dialogue on key policy and regulatory challenges. AEMP is an output focused event
which leverages AfDB’s convening power to bring together the public and private
sector along with development partners to propose solutions and advance funding
to deliver priority investments and reforms.
In preparation for this event, the AfDB has asked the Tony Blair Institute for Global
Change (“TBI”) to coordinate the development of Priority Plans for the selected
countries. These plans consist of two parts:
• The identification of AEMP Priorities (investments and reforms) to be advanced
through the AEMP process.
• A Sector Diagnostic providing background on the sector including statistics,
successes and challenges to ensure a common understanding across AEMP
participants and provide for richer dialogue during the AEMP event.
5
1 SECTION 1: Country Priority Plan
Country Priority Plan
Government strategies and targets
The Government of Kenya (GoK) has an overarching Vision 2030 to transform
Kenya into an industrialised middle-income country offering a high quality of life
to all citizens. It Is being implemented through successive five-year medium term
plans, the current of which is the Third Medium-Term Plan (MTP III, 2018-22).
The MTP III has been aligned with the Jubilee Manifesto 2017 to focus on the
“Big Four” initiatives of President Uhuru Kenyatta’s second administration. These
are: industrialisation, manufacturing and agro-processing; affordable housing; food
and nutrition security; and universal health coverage. Underpinning all four Is the
provision of adequate, affordable and reliable electricity. The MTP III also explicitly
states several energy related targets:
• Power generation: Installed power generation capacity of 5,221MW by 2022,
and the development of a legislative and regulatory framework as well as site
identification and capacity building for Kenya’s nuclear power development
programme.
• Greening the power sector: Prepare a renewable resource inventory; promote
use of municipal waste for energy production; develop a strategy for coordinating
research; develop capacity to manufacture and install bio-digesters, solar
systems, turbines.
• Commercial demand stimulation:
o Reduce the cost of off-peak power by 50% to heavy industries to
catalyse the manufacturing sector.
o Improve power reliability by 20% by 2022 by replacing overhead
distribution power lines across major towns with underground distribution power
lines and by conducting system audits to identify weak points in the network.
• Power transmission: The construction of 5,121km of power transmission lines
and 77 high voltage substations, a modern National System Control Centre, and
construction of transmission lines in off-grid townships.
• Power trading: Regional interconnector transmission lines to be constructed
with Ethiopia, Uganda and Tanzania.
• Energy access:
• Connection of 5 million households to electricity through grid and off-grid
solutions, and connection of 15,739 public facilities other than primary schools.
• Add to the distribution network: Construct 116 new primary distribution
substations with a distribution capacity of 2,809 Megavolt-Ampere (MVA) and
1,244 km of associated 66kV and 33kV lines, 20 new bulk supply substations and
installation of 336.5 Megavolt-Ampere Reactive (MVAR) power compensation
equipment in 15 transmission substations.
7
Since the publication of the MTP III, the power generation target has been suspended
due to concerns that Kenya’s power generation may exceed demand. A Presidential
PPA Taskforce has been established to consider how to manage signed Power
Purchase Agreements.
The Government of Kenya has made rapid progress in greening the power sector,
with 94% of energy purchased by KPLC being generated by a portfolio of hydropower,
geothermal, wind and some solar power.
In terms of demand stimulation, KPLC has halved the off-peak tariff of power to
heavy industries as outlined in the MTP III and we understand has also improved
reliability in certain areas.
In terms of power transmission objectives, KPLC’s annual report for 2020 shows
that 3,800km of medium and high voltage transmission lines have been built since
the financial year of 2017/2018, which gets close to the objective of 5,100km of
power TLs by 2022.
Power trading remains an unresolved issue.
In terms of energy access, KPLC’s website informs us that KPLC was selling electricity
to over 8 million customers as of June 2020.
Legislation, plans and strategies supporting these overarching goals include the:
• Energy Act 2019
• Least Cost Power Development Plan (LCPDP) 2021-2030Kenya National Energy
Policy 2018
• Kenya National Electrification Strategy 2018
• Kenya National Energy Efficiency and Conservation Strategy (KNEECS) 2020
• Bioenergy Strategy 2020-2027
• National Climate Change Action Plan II (2018-2022)
• Renewable Energy Auctions Policy 2021
• Feed-in-Tariffs Policy on Renewable Energy Resource Generated Electricity
(Small Hydro, Biomass and Biogas) 2021
• PPP Bill 2021
8
Session 1 – Generation and demand
# Project and importance Potential donor intervention
Generation project
Using auctions to contract renewable energy Policy dialogue on:
1 • The short and medium-term needs for
Under Kenya’s Renewable Energy Auctions Policy additional intermittent power domestically
2021, all wind and solar projects >20MW without a and in countries with which Kenya shares
signed PPA will transition to the Renewable Energy interconnections.
Auction framework. Qualified wind, solar and other
RE projects will bid on a USD/kWh basis and will be Secure funding for:
stacked in ascending price order until KPLC’s target
volume is achieved. • Study on the additional intermittent energy
load a) the grid can take as it is and as it will be
with the PPAs the Presidential PPA Taskforce
recommends continuing to execute and b) KPLC
will be able to sell.
2 How can KPLC and captive power coexist to drive Policy dialogue on:
development in Kenya?
• How captive power and KPLC can best be
leveraged in harmony to deliver the lowest cost
Priority areas for the energy sector
Because in the past KPLC has failed at delivering its reliable power to drive economic growth while
customers reliable energy, private developers are maintaining KPLC’s solvency.
offering cheap renewable captive power solutions.
Secure funding for:
But this eats into the demand KPLC was forecasting
and threatens its financial sustainability. • Identifying future prospective customers for
TABLE 1 LONG LIST OF PRIORITY AREAS FOR KENYA’S ENERGY SECTOR
Based on these, we suggest AEMP panel discussions in section 2 of this report.
captive power. On the basis of this, addressing
their needs through the grid.
could help with developing reliable, affordable and sustainable energy for all in Kenya.
The table below sets out in detail reforms and enabling environment priorities that
9
# Project and importance Potential donor intervention
Stimulating demand
3 Stimulating industrial demand. Policy dialogue on:
Stimulating industrial demand is key to achieving Kenya’s Vision 2030 • How to stimulate industrial demand?
and has the benefit of helping reduce KPLC’s unit cost-recovery tariff
for delivered energy. This would feed into the cost of service and tariff Secure Funding for:
study focused on positioning Kenya for industrial growth.
• Lines of finance for power consuming industrial equipment.
A Ministry of Energy official thought increasing industrial demand and
powering EVs had the greatest potential for increasing demand, rather
than rural electrification.
4 Executing planned flagship projects. Policy Dialogue on:
At the same time, energy supply has been predicated to some extent • Should the Standard Gauge Railway still take budget priority in a post
on Vision 2030 flagship projects being executed. Where these projects COVID19 world?
still make economic sense and are still a priority, these should be followed
through with.
5 Support Kenya to accelerate exporting low-cost renewable power. Dialogues on:
• Potential benefits, outstanding challenges, and what is required
The Ethiopia-Kenya-Tanzania interconnection projects’ objectives were to to advance trade (e.g. open access transmission, revenue risk
improve the supply, reliability, affordability and carbon efficiency of electricity mitigation); how can Kenya play a leadership role in the region in
in the partner countries as well as in the region through power trade. The this.
Ethiopia-Kenya and Kenya-Tanzania electrical interconnections were to be
completed by 2017 at the time that the AfDB approved their loans.
10# Project and importance Potential donor intervention
5 Other potential power deficit markets exist in the region and could help KPLC
achieve financial sustainability, especially if the credit rating of counterparty utilities
can be enhanced and green finance can incentivise utilities to not use domestically
available fossil fuels.
Officials in Treasury and the Ministry of Energy still believe there is potential to
export power (e.g. they cited a long standing export agreement to Rwanda which is
not required).
Support Kenya to accelerate exporting low-cost green commodities. Secure funding for:
6
• To establish a forum through which Kenya can engage with
KenGen is proposing to create energy park at Olkaria-Naivasha near its purchasers of green commodities.
geothermal power plants to offer industry affordable, renewable and
reliable power, steam and brine in order to facilitate industry in meeting
• For a study on the market potential of mineral extraction,
growing demand for green commodities.
hydrogen production and industrial process potential of the
Olkaria geothermal power plants.
7 Cost of service and tariff study focused on positioning Kenya for Secure funding study of what is and what will be the cost-of-service
industrial growth. under various scenarios and what an optimal tariff structure would
look like that drives industrialisation while also safeguarding KPLC’s
financial viability.
A tariff review is due. A current and prospective cost-recovery tariff
review will better inform policy on how to drive demand while helping • Supply scenarios: Align with PPA Taskforce recommendations.
KPLC achieve financial sustainability.
• Demand scenarios: Various growth rates of domestic demand:
Director of Economic Regulation at EPRA flagged the need for this. latent demand from industrial parks, latent market from abroad;
SWOT analysis against competition; price elasticities by customer
segments. Revenue implications of increasing last-mile grid
connections.
• Exogenous variables: Foreign exchange rate, price of oil.
11Session 2 – T&D, sector structure, implementation of new laws
# Project and importance Potential donor intervention
Transmission and distribution
8 Reduce transmission & distribution losses. Policy Dialogue on:
• How to tackle aggregate technical and commercial losses.
T&D losses are as high as a quarter of power generated and cost KPLC
KSH 16B in revenue. This represents huge inefficiencies: Secure funding for a T&D loss reduction programme:
it results in a higher cost-recovery tariff, in higher required capacity, in
higher emissions. • Study to assess the extent to which metering, billing systems and
CRM is/will still be inadequate; offer options analysis of costs vs
The World Bank’s KE Electricity Modernization Project aims in part to benefits of installing differing qualities of metering by customer
address non-technical losses by accurately metering consumption by segments. Follow-up funding to act on recommendations.
medium and large customers.
• Study to identify transmission infrastructure that should be
USAID Power Africa is also providing advisory and technical support to upgraded to reduce technical losses.
reduce aggregated technical, commercial and collection losses through
improvements in energy accounting and energy balancing, business
intelligence and data analytics and improved commercial business
processes
9 Aligning preconstruction and construction stages of transmission Policy Dialogue on:
infrastructure; improving procurement and contract management of
contract work • How to better align preconstruction and construction work.
KETRACO has indicated that because of a misalignment between Secure funding for:
construction and preconstruction in terms of timelines, ownership and
financing sources, there are delays to the start of construction. • Capacity building at KETRACO in procurement and contract
administration of projects, e.g. support the establishment of a
project management office.
12# Project and importance Potential donor intervention
10 Improving procurement and contract management at KETRACO. Policy Dialogue on:
• Learning from procurement and contract management challenges
We have heard and read about gaps in procurement of reliable faced.
contractors and project management of their contracts.
Secure funding for:
• Enhancing existing capacity at KETRACO in procurement and
contract administration of projects, e.g. support the establishment
of a project management office.
Sector structure
11 Creation of an independent system operator for all transmission Policy Dialogue on:
infrastructure and transfer of transmission assets from KPLC to it.
• The envisaged benefits of the wider sector reform, and what is
needed to complete the reform and realise these benefits.
Introducing an independent system operator could allow for impartial
arbitration between power generation and distribution, rationalise Secure funding for:
resources in one system operator and allow them to focus on upgrading
the entire system, and could allow for the breaking up of KPLC’s • Implementing separation of assets and accounts.
monopoly if desired in the later future.
• Any remaining upgrading of systems required and capacity
For KPLC, offloading its transmission would mean that it can focus on building to manage dispatch centres to enhance planning and
reducing distribution losses. deliver efficiencies.
The Energy Act 2019 allows for EPRA to designate a system operator • Developing a roadmap for the creation of a wholesale market.
responsible for matching consumer requirements with electrical energy
supply and arranging for dispatch.
13# Project and importance Potential donor intervention
11 The Director of Economic Regulation at EPRA and Director of
Renewable Energy at the Ministry of Energy seem keen on KETRACO
taking over as the system operator to move to a UK grid model of
creating a wholesale market. The Head of Legal for PPPs at Treasury
seemed to indicate that KPLC might take up low voltage transmission
from KETRACO in the separation of assets.
Operationalising laws
12 Operationalising the Energy Act 2019. Policy Dialogue on:
• Update from the Energy Act Task Force with a schedule for
Implementing the Energy Act is key to Kenya achieving its Vision 2030 implementation of the various subsidiary legislations and
and in meeting SDG7.
identification of the necessary support to develop/ implement
Beyond what has been mentioned elsewhere in this table re REREC, them.
transmission and capacity building at the county level, GoK may • Potential technical assistance to
require assistance in other domains.
• Kenya Bureau of Standards, KPLC and EPRA on metering
An introduction to William Mbaka, Chairman of the Energy Taskforce on equipment and guidelines.
the Implementation of the Energy Act 2019 would be helpful.
• EPRA with development of an energy efficiency and conservation
programme, and operationalising and implementation of the Grid
Code, and all other outstanding regulations to support the Act.
13 Operationalising the PPPs Bill 2021. Secure funding for
• Advisory to the Cabinet Secretary on regulations regarding the
The Head of Legal for the Treasury’s PPP Directorate said they would new PPP Project Facilitation Fund; on guidelines on how to set
like assistance with implementing the PPP Bill 2021. limits on contingent liabilities; on regulations prescribing a code of
conduct for members, officers, employees of the PPP Committee
and PPP Directorate.
14# Project and importance Potential donor intervention
11 The new PPP law allows for rapid implementation of PPPs, non- • Capacity building of PPP Directorate in determining value-for-
competitive procurement. money through direct procurement; of PPP Committee on what
constitutes a sensible PPP and contingent liability; of county
governments in how to appraise and execute PPPs.
Session 3 – Electricity access
# Project and importance Potential donor intervention
Institutional support at the local level
14 Capacity building at the county level Secure funding for
• Assessing capacity gaps in energy planning, industrial park
The National Energy Policy 2018 identified inadequate institutional planning, street light planning, disaster management plans,
capacity to negotiate energy contracts. regulation; identifying private investment
The Energy Act 2019 requires Kenya’s 47 counties to develop county
barriers (e.g. securing rights of
energy plans outlining their energy requirements. It is likely that county
governments require assistance in energy planning, in facilitating private way, licensing processes).
investment and in negotiating off-grid investments.
• Delivering capacity building interventions to address those gaps
and barriers.
15# Project and importance Potential donor intervention
Coordination on last-mile responsibilities
15 Addressing the negative financial impact of low consumption Policy dialogue on:
rural connections on KPLC.
• How to efficiently expand access and link access with
economic development.
prioritisation conversations.
The Energy Act 2019 established the Rural Electrification and a. How to manage existing rural low-consumption customers on
Renewable Energy Corporation to succeed the Rural Electrification KPLC’s balance sheet.
Authority. REREC’s responsibilities for overseeing implementation • Potential for increased consumption with electric cooking?
of the Rural Electrification Programme will be funded by the Rural • Potential for Rural Electrification Programme Fund to compensate
Electrification Programme Fund, which will consist of electricity KPLC for losses on rural customers?
sales levy of up to 5%, as well as other sources. • How to advance with receivables overdue from the GoK under the
RES?
KPLC’s continued responsibility for last mile grid extension to b. How will REREC, county governments and KPLC work
unprofitable customers is not going to help it achieve financial
together? How can financial risk for KPLC be minimised?
sustainability as T&D capex and O&M costs rise greatly while
revenues increase only incrementally per added customer. At the
same time, OGS companies would want certainty of where they Secure funding for:
can operate.
• A study on KPLC’s losses incurred from its existing and
forecast base of rural low-consumption customers.
• A study on the potential for uptake of electric cookstoves in
rural, low-consumption, grid-electrified households.
it will take to deliver this impact in figure below. This is intended to facilitate further
Each of these priorities has been assessed for the impact it will deliver and the time
16FIGURE 1 - PRIORITY PROJECT MAPPING
High
8
13 15
6 14 1
2 3 7
11
Feasibility
12
10
5
4
9
Low
Low High
Impact
Longlist of priority reform and projects Key
1. Using auctions to contract renewable energy | 2. Captive power coexist with KPLC | 3. Simulating industrial demand
4. Executive planned flagship projects (railway) | 5. Support Kenyan power exports | 6.Support Kenyan green commodity Electricity access
exports | 7.Cost of service and tariff study | 8. Reducing T&D losses | 9. Aligning preconstruction and construction of Generation and demand
transmission infrastructure | 10. Enhance capacity at KETRACO on procurement and project managment of contractors T&D, sector structure,
11. Unbundling transmission from KPLC | 12. Operationalising Energy Act | 13. Operationalising PPPs Act | operationalising
14. Capacity building at the country level | 15. Addressing negative financial impact of last mile customers on KPLC new laws
Source: TBI elaboration
171 SECTION 2: Sector Diagnostic
Section 2: Diagnostic of the sector
Institutional framework In the sector
FIGURE 2 KENYA’S ELECTRICITY SECTOR INSTITUTIONAL STRUCTURE AND KEY ACTORS
Source: TBI
Kenya’s Ministry of Energy is the overarching government body responsible for the
energy sector. The Ministry is responsible for developing and implementing policies that
create an enabling environment for the efficient operation and growth of Kenya’s energy
sector1. Policy pertaining to nuclear power research and development is delegated under
the Energy Act 2019 to the Nuclear Power and Energy Agency, formerly known as the
Nuclear Electricity Project Committee2.
The Ministry of Energy is accountable for the use of natural resources to the rest of
government through the Renewable Energy Resource Advisory Committee (RERAC).
RERAC is an inter-ministerial committee established by the Energy Act 2019 that
advises the Cabinet Secretary on matters concerning the allocation of renewable energy
resources, management of water catchment areas and development of multi-purpose
projects such as dams and reservoirs. It is constituted of the principal secretary (PS)
of the Ministry of Energy, the CEO of Kenya Power and Lighting Company (KPLC), the
Managing Director of Geothermal Development Company, the MD of Kenya Electricity
Generating Company (KenGen), the Attorney General, the PS for the Treasury and the PS
for natural resources3. Regulating, monitoring and assessing activities do not degrade
Kenya’s environment is the National Environment Management Authority (NEMA).
Regulating the energy sector is the Energy and Petroleum Authority (EPRA). The Energy
and Petroleum Tribunal arbitrates disputes between parties in the sector, succeeding
19the Energy Tribunal under the Energy Act 2019.
The are several actors in the power generation subsector. Leading them is Kenya
Electricity Generation Company (KenGen), which is 70% owned by the Government of
Kenya and 30% publicly listed on the Nairobi Stock Exchange4. With 1,818MW of installed
capacity as at the time of writing its 2020 annual report, it represented 65% of Kenya’s
installed capacity, operating primarily across four modes of generation: hydro (826MW),
geothermal (713MW), thermal (254MW) and wind (26MW)5. Geothermal Development
Company (GDC) is another state-owned actor in the generation sub-sector, tasked
with developing steam fields and selling geothermal steam for electricity generation
to KenGen and private investors. Its mission is to develop 1,065MW of geothermal
resources by 20306. GDC does not sell energy directly to the power utility Kenya Power
and Lighting Company (KPLC); instead, its generated energy is sold to KenGen which
sells it onto KPLC. The Rural Electrification Programme established under the Energy
Act 2019 is overseen by REREC and also sells generated energy to KPLC7. Besides state-
owned actors within the space, almost a quarter of energy sold in 2019/20 to KPLC was
from Independent Power Producers8.
There is also power generation at the premises of customers, where the power is being
sold directly to customers without KPLC as an intermediary. Direct B2B energy sales
are occurring with captive power. B2C sales are occurring mainly to rural domestic
customers with off grid solar home systems and mini-grids.
To assist KPLC in contracting with IPPs, Treasury’s Public Private Partnerships (PPP)
Directorate offers transactions support. Under the PPP Bill 2021, the PPP Committee
will approve contingent liabilities, the limit of which will be set by the Cabinet Secretary9.
In electricity transmission, there are two actors: Kenya Electricity Transmission Company
(KETRACO), a 100% state owned corporation established in 2008 responsible for
planning, designing, constructing, owning, operating and maintaining the high voltage
electricity transmission grid and regional power interconnectors; and KPLC, which has
retained its transmission network prior to the establishment of KETRACO10.
In distribution, KPLC has a monopoly. KPLC is 50.1% government owned and 49.9%
publicly listed on the Nairobi Securities Exchange11. It has over 8 million customers
according to its website12.
In terms of rural electrification efforts, KPLC is the management agent for the Rural
Electrification Scheme (RES) on behalf of the Ministry of Energy. Since the RES’ operational
and maintenance costs generally exceed the RES’ revenues, the accumulated deficit is
recoverable from the Government of Kenya under the 1973 Mercado agreement signed
between KPLC and the Ministry of Energy (KPLC, 2020, p.113). KPLC has also mentioned
in its 2020 annual report that restructuring its business operations into county business
structures is expected to enhance business performance and efficiency.
The Rural Electrification and Renewable Energy Corporation (REREC) was established
under the Energy Act 2019 and has been charged with responsibilities for increasing
electricity access in implementing the Rural Electrification Programme, in managing
the Rural Electrification Programme Fund, in developing and updating the rural
electrification master plans in consultation with County governments, and in developing
and updating the renewable energy master plan. REREC is contracting projects to
KPLC13.
20Generation outlook
Power generation in Kenya has rapidly grown in the past decade. In 2020, generation
capacity stood at 2,753MW, with peak demand of 1,976MW in 2020 as compared to
1,533MW installed capacity and with peak demand of 1,178MW in year 2010. KPLC
purchases power from several sources: KenGen, directly from IPPs, from the Government
of Kenya Rural Electrification Programme (REP) and the Rural Electrification and
Renewable Energy Corporation (REREC) which manages the REP, and from Emergency
Power Producers (EPPs). It has also consistently been importing 150-180GWh of energy
over the past four years from Uganda’s power utility UETCL and to a lesser extent from
the Ethiopian utility EEU 1.8-4.5GWh energy from Moyale.
Renewable energy generation has shown significant improvement of the total generation
mix. In the FY 2019/20, renewable energy (hydro, geothermal, solar, wind, cogeneration
and biomass) accounts for 94% of total energy generated by KenGen, IPPs, the REP,
REREC and EPPs in comparison to the 68.5% of the total energy generated in 2010. This
increase has been driven by an increase in the contribution of geothermal from 20% in
2010/11 to 47.4% in 2019/20 and wind from 0.2% in 2010/11 to 11.4% in 2019/20. All
these increases have dropped the contribution of thermal (heavy fuel oil (HFO)) plants
from 31.4% 2010/11 percent in to 7.8% in 2019/20. Power losses remain a significant
challenge for the sector as they stood at 23.5% as at June 2020.
FIGURE 3 THE EVOLUTION OF ENERGY GENERATED OVER THE PAST DECADE
Generated energy in 2010/2011: 7,272GWh; in 2019/2020: 11, 462GWh. Source: Document
shared by AfDB. Similar figures to what we find in KPLC’s annual report for the year ended in 30th
June 2020. For the FY 2019-20, KPLC’s annual report shows that KenGen, IPPs, the REP and
REREC generated 11,098GWh energy, 94% of which was from renewables.
21Kenya has an ambitious climate strategy, encompassing renewable energy penetration,
emissions reductions, and energy access. The intention of Kenya’s National Climate
Change Action Plan II (2018-2022), which is the implementation framework for the
country’s Nationally Determined Contributions (NDC) under the Paris Agreement, is to
reduce greenhouse gas (GHG) emissions by 30% from 2030 business as usual (BaU)
levels. This is equivalent to a total emission limit of 100 MTCO2e since in 2015, BAU
emissions were predicted to reach 143 MTCO2e by 2030. Further, Kenya’s LCPDP
(2020-2040) envisages the gradual replacement of thermal power with renewable
energy sources in line with the country’s strategy of diversifying its energy mix as well as
Kenya’s National Climate Change Action Plan II (2018-2022). Kenya has the capacity to
meet its commitments due to its advanced energy mix, excellent renewable resource,
and ambitious expansion plans.
Challenges
There are concerns14 that the current pipeline of generation investments may lead to
a power surplus that KPLC is unable to sell, which will either result in KPLC’s increased
financial distress or an increased electricity tariff that makes Kenyan manufacturing less
cost competitive, or both.
Concerns about future excess power capacity have resulted in the creation of a Presidential
Taskforce to Review PPAs (power purchase agreements)15. The taskforce has been
charged with a broad remit, including to assess the compliance of PPAs with Kenyan
laws, to review their sustainability, and reviewing the take-or-pay model. A moratorium
was placed on all PPAs not concluded by 29 March 202116, and it is understood that
the Taskforce is also considering postponing PPAs under which construction has not
yet commenced. At least one equity investor expressed a willingness to negotiate their
capacity charge17.
What should be of particular concern is that growth in KPLC’s sales has declined to
its largest customer segment, commercial and industrial customers who account for
more than half of energy sales. While COVID19 may be an explanation for the most
recent decline, a decline in energy consumption was not observed for small commercial
customers during the same period, and the commercial and industrial segment also
consumed less energy in FY 2017/18 than it did in FY2016/17 (this was not the case for
other customer segments).
A key competitor for C&I power consumption is captive power, which is able to operate
without the need for licenses and permits by structuring through leases (interview with
a private developer). During daylight hours, contracted solar power is proving cheaper
than the grid. It is understood that captive power is now costing KPLC USD 2 million in
lost revenues per year. As of February 2019, there were 22 captive power plant license
holders with a combined Installed capacity of 152MW of power from solar, solar and
diesel hybrid, diesel, hydro and diesel, hydro, cogeneration, biomass, geothermal and
coal power plants18. Captive power was being used by food processing firms, flower
farms, tourist lodges. Six schools and five shopping malls had also been identified as
using captive power19.
Looking at KPLC’s revenues20, less than 1% has been generated from exports, with the sales in
2019/20 being the lowest they have been in five years. This represents a potential growth area.
22TABLE 2 KPLC SALES OF ENERGY IN GWH BY CUSTOMER CATEGORY
Source: KPLC, 2020 annual report, p.144; TBI
analysis
Type of challenge Description Bridging the Gap
Power Power generation capacity Support measures on both the
oversupply and take-or-pay contracts demand and supply side to keep
supply and demand in line.
forecast to exceed demand
and put KPLC into financial
difficulties.
Allowing homes Captive power solutions can Analytical, policy and regulatory
and business help industry and domestic work to clarify the respective
users mitigate the negative roles of KPLC and providers of
to benefit
captive power.
from captive impacts of power outages and
power without reduce their energy costs. But
compromising they can also contribute to
KPLC’s financial oversupply of power by KPLC
viability since lead times to commission
extra power lag more agile
captive power solutions.
23Transmission and distribution outlook
The total length of the transmission and distribution network was 243,207 kilometers
for all voltage levels in 2019/20, up from 59,322 kilometers in 2014/15. This growth
has been greatly influenced by Kenya Electricity Transmission Company (KETRACO),
who have accelerated the development of transmission infrastructure within their
mandate, consisting of 132kV, 220kV and 400kV lines. Table 3 provides transmission
and distribution line lengths between 2014/15 and 2019/20.
TABLE 3 TRANSMISSION AND DISTRIBUTION LINE LENGTHS IN KILOMETRES, FY 2014/15-2019/20
Source: KLPC 2020 annual report, Table 19.21
From 2015 to 2020, generation substations increased in capacity from 3,025MVA to
3,878MVA, transmission substation capacity increased from 3,144MVA to 4,942MVA,
while distribution substation capacity increased from 3,572MVA to 4,563MVA.
Distribution transformers increased in capacity from 6,384MVA to 8,174MVA.
TABLE 4 TRANSFORMERS IN SERVICE, TOTAL INSTALLED CAPACITY IN MVA AS AT 30TH JUNE, 2020
Source: KLPC 2020 annual report, Table 20.
24Challenges
Kenya’s commercial and technical transmission and distribution losses have been rising
since 2015 to almost a quarter of power generated in 2020, and a loss of KSH 16 billion
in revenues22. This might in part be explained by KPLC’s rapid growth in connections.
“KPLC’s losses are due to poor equipment; lack of insight into what is happening on the
grid because of a lack of metering; stretched out transmission lines; transmission lines
with lower voltage than they should have to reduce losses because of lack of substations
to step-up and step-down the voltage; theft; and functionaries taking payments to reduce
customers’ bills.”
FIGURE 4 KENYA POWER, TOTAL LOSSES 2012/13 TO 2019/20 (%)
Source: Mercados-Aries International, 2021
Incomplete transmission infrastructure is stifling economic activity by preventing higher
quality, lower cost power and are also stifling greener power from being evacuated to
places such as Laikipia and western Kenya. In the case of the 132kV Nanyuki – Rumuruti
underground cable, this has been caused by issues with contractors23. With completion
of the project, Laikipia County would be less beset by power outages (it is currently at the
end of an 80km 33kV line), which would benefit its horticultural sector (interview with a
private developer, 20th August 2021). The AfDB has financed the project24.
Challenges in aligning necessary incentives and regulations at the regional level
(e.g. transmission charging and third party transmission access) and rigidly drafted
agreements (the Kenya Ethiopia Power Purchase Agreement and Transmission System
Agreement) not being signed are causing delays in the integration of the Eastern African
Power Pool (EAPP), which could deliver customers in the power pool greener, lower
cost and more climate resilient energy, and which could earn Kenyan utilities foreign
exchange.
The Energy Act 2019 allows EPRA to designate a system operator for Kenya’s
transmission infrastructure. It is understood that the government is minded to house
the independent system operator at KETRACO. EPRA is in the process of preparing the
regulations required for this to happen. Having an independent system operator would
allow for the creation of a wholesale market in the long term and would alleviate KPLC
25of the pressure to reduce transmission losses. Costs may be cut as functions between
KETRACO and KPLC are rationalised. KenGen and IPPs would also benefit from an
impartial arbiter between power generation and distribution.
Type of challenge Description Bridging the Gap
T&D losses Commercial and technical Tackle technical losses, power
T&D losses have grown to theft resulting in lost revenues by
improving monitoring at a more
almost a quarter of energy
granular level.
generated and a loss of KSH Segregation of technical losses
16B in revenues. in the system, identifying the
gaps and methodology for
intervention. Improving the
accounting, energy balance and
accountability for energy in the
distribution side.
Incomplete Hold-ups on key transmission KETRACO to be supported in
transmission infrastructure is preventing an the procurement and project
increased quality and reduced management of contractors.
infrastructure
cost of power for Kenyan
populations.
Incomplete Challenges aligning necessary Flexible market arrangements to
interconnection incentives and regulations at a better align with the commercial
regional level (e.g. transmission and technical needs of Kenya
infrastructure
and Ethiopia for these hold ups
with charging and third party
to be resolved.
neighbouring transmission access); rigidly
countries drafted agreements not being
signed (PPA, TSA).
26Energy access and off-grid electrification outlook
In the Kenya National Electrification Strategy of 2018, the Government of Kenya
committed itself to achieving universal electricity access by 2020 (KNES, 2018), which
was modified to 202225. One of the Government of Kenya’s last mile connectivity
strategies is to use the existing distribution transformers and extend the low voltage
network to customers located in the vicinity of these transformers.
Over the period 2013/14 to 2019/20, the number of KPLC and Rural Electrification
Programme customers increased by 4 million, at a compounded annual growth rate
of 16%.
FIGURE 5 NUMBER OF CUSTOMERS WITH ACCESS TO ELECTRICITY THROUGH KPLC AND REP
Source: KLPC 2020 annual report, Table 15.
Challenges
While passing through the costs of the price of oil and foreign exchange losses help
maintain KPLC’s financial sustainability, they create uncertainty in forecasting utility
costs for customers, and make captive power more attractive.
The onset of COVID-19 pandemic in the second half of the 2019/20 financial year
and subsequent government containment measures created economic shocks,
adversely affecting the energy sector. During this period, peak electricity demand
declined from 1,926MW in February 2020 to 1,765MW in April 2020, a decline of 9.1%.
The steep decline was followed by a gradual recovery as the government eased the
containment measures enabling resumption of various economic activities. Peak
electricity demand increased to 1,938MW in October 2020.
On top of exacerbating losses, there are concerns about the impact last mile
connections are having on KPLC’s profitability. KPLC is the management agent for
the Rural Electrification Scheme (RES) on behalf of the Ministry of Energy. Since
27the operational and maintenance costs of rural low-consumption customers
served by KPLC under RES generally exceed revenues26, the accumulated deficit
is recoverable from the Government of Kenya under the 1973 Mercado agreement
signed between KPLC and the Ministry of Energy27. However, KPLC’s receivables
from last-mile debtors increased from 2019 to 202028, while KPLC liabilities for the
last-mile project increased from 2019 to 2020 (Note 28b, p.118). KPLC is petitioning
the government to release funds owed to KPLC for the management, operations,
and maintenance of the RES network29. The Auditor-General has warned that KPLC
risks losing KES 16B (approximately USD 146M) owed by the government under the
RES since the balance is long outstanding30. Compounding the government’s failure
to meet KES liabilities are various other government departments and agencies are
also neglecting their payments to KPLC31.
The Rural Electrification and Renewable Energy Corporation (REREC) was created out of
the Rural Electrification Authority under the Energy Act 2019 to intensify the expansion
of electricity access. It is using KPLC to implement projects on a contract basis32.
KPLC has mentioned in its 2020 annual report that restructuring its business
operations into county business structures is expected to enhance business
performance and efficiency.
With all of this in the background, there is also an issue of what is a cost-recovery
tariff, versus what tariff would help stimulate demand if appropriate accessories
such as right-sized electric cookstoves were made available.
Type of challenge Description Bridging the Gap
Complicated Several charges appear on an Public awareness campaign,
electricity bill. clarifying language.
tariff structure
COVID19 Containment measures reduced Ensure that containment
demand measures go as far as they need
impacting
to and not beyond.
demand
Decreasing Decreasing consumption per Assess going forward potential
capita with rural customers as KPLC customers’ commercial
profitability
opex per capita remains steady viability. Assist demand
with last mile stimulation.
connections
28Donors involvement in the power sector
Name of active Donors in the country Activities there are mostly involved
into
AfDB Development of renewable energy
resources and Transmission Infrastructure,
Electricity Access (on grid & off-grid
systems), Regional Integration and
Technical assistance
AFD Development of Generation,
Transmission & Substation
Infrastructures, Electricity Access (on
grid & off-grid systems) including last
mile connection, Regional Integration
and Technical assistance
Australia Technical assistance in development of
renewable energy resources
Belgium Reinforcement of transmission system
and distribution network for electricity
access and technical assistance
China Renewable energy (Solar, Geothermal),
transmission lines and oil sector
Department for International Electricity access (Green Mini-grid
Development (DFID) facility), Renewable Energy and
Adaptation to Climate Technology,
Promote low carbon private sector
development through award of co-
financing, Provide targeted financing
and capacity building support to
entrepreneurs and SMEs to scale up
and deploy innovative clean technology
solutions and technical assistance
European Investment Bank (EIB) Development of renewable energy
generation resources, transmission
lines, Electricity Access (off-grid
systems), Support private sector
actors through jointly investing in
off grid solar projects, and technical
assistance
European Union (EU) Development of renewable energy
resources (wind, solar etc.),
community-based electricity access
(off-grid systems), technical assistance
network control & transmission system
reinforcement, support private sector
actors (enterprises) through jointly
investing in solar project, alternative
29Name of active Donors in the country Activities there are mostly involved
into
European Union (EU) energy, energy efficiency and technical
assistance. Also support for county energy
planning.
Through the ElectriFI financing instrument,
the EU is supporting private companies
offering captive power solutions to C&I.
Energy efficiency is part of this. As for demand
stimulation, the EU is fostering productive
usage of energy under the Green Mini-Grid
Facility Kenya. The EU-supported BRT project
will also contribute to increase electricity
demand through e-buses. In the framework
of the Green Hydrogen Working group, the
EU works in close coordination with GIZ
and other partners to support the Ministry
of Energy in developing a green hydrogen
agenda, through technical assistance and
studies. Through the Reinforcement of the
Electricity Transmission Network (RETNet)
project, in blending operation with AFD, the EU
will provide technical assistance / capacity
building to Ketraco and the future system
operator to strengthen their capacities in
operation and maintenance of transmission
lines and more specifically of the new national
System Control Centre (NSCC). The EU is
supporting Kenya to reach universal access to
electricity, both on-grid (Last Mile connectivity
Project, in blending with AFD and EIB) and
off-grid (ElectriFI, Green Mini-Grid Facility).
Clean cooking (including e-cooking, which
may indeed stimulate domestic demand)
and biogas (bio-digesters) are also eligible
to our support to the private sector. Under
the Sustainable Energy Technical Assistance
(SETA) programme, the EU is strengthening
capacities in County Governments through
capacity building / training programme
in the SEforAll areas (renewable energy,
energy efficiency, energy access) and in the
elaboration of their County Energy Plan.
30Name of active Donors in the country Activities there are mostly involved
into
German GIZ Development of solar hybrid mini-grids,
access to modern energy services,
specifically improved cookstoves and small
solar systems and technical assistance
German KfW Development of renewable energy
resources (geothermal), Electricity
Access (off-grid systems), and
technical assistance
Japan International Cooperation Development of renewable energy
Agency (JICA) resources (geothermal, hydro),
Transmission system, regional
integration, and technical assistance
Netherlands Support private sector actors through
jointly investing in solar project, access
to modern energy services, specifically
improved cookstoves and small solar
systems
Norway & Norfund Equity investment in Generation
(wind, solar), Access to modern
energy services, specifically improved
cookstoves and small solar systems
and technical assistance
Spain Expansion of wind generation plant and
electricity access to public utilities
Sweden Access to modern energy services,
by supporting SMEs on renewable
Energy, adaptation and climate change
technology and technical assistance.
United Nations Development Program Climate change in the area of low
(UNDP) Emission and Climate resilient
development , establishing energy
efficiency standards for appliances,
United Nations Environment Program Development of renewable energy
(UNEP) resources, energy efficiency &
conservation and technical assistance
United Nations International Off-grid decentralized electrical
Development Organization (UNIDO) energy service on renewable energy
technologies standalone and hybrid
systems, technical assistance
in energy efficiency and cleaner
production
31Name of active Donors in the country Activities there are mostly involved
into
USAID/PA Development of Generation Infrastructure
, Electricity Access (on grid & off-grid
systems), and Technical assistance
for PPP’s, cross-border trade, gender,
community engagement, environmental
management and institutional
performance.
UN Development of renewable energy
resources (small hydro, cogeneration
etc.), regional project targeting
promotion of geothermal energy
development in several countries in the
rift system
World Bank (WB/IDA) Development of renewable energy
MIGA (WB/IFC) resources and Transmission
Infrastructure, Electricity Access (on
grid & off-grid systems), Regional
Integration and Technical assistance
- MIGA Guarantee to
Geothermal Generation
32PROJECT FUNDER VALUE STATUS GAPS
Generation
Capital Investment
Aperture Green Power
50MW wind, Limuru,
Kiambu County
Quantum Power AfDB UA 21,586,260.89 Approved
Menengai 35 MW
Geothermal IPP
Partial Risk Guarantee AfDB UA 9,071,428.56 Pending according to AfDB Would only become
staff effective once all
for the Menengai three power plants
Geothermal Power have achieved
Project their Commercial
Operations Dates
Lake Turkana Wind AfDB Pending KPLC looking to
Project PRG change PPA.
KenGen Guarantee World Bank USD 180M Closed To support
investment in
Project Kenyan renewable
energy power
Detailed list of donors’ interventions
generation
Electricity Expansion World Bank USD 330M of USD Closed in 2017 4 components:
1,390M i. expansion of
Project capacity of existing
first Olkaria
geothermal power
station by 140M,
new fourth Olkaria
geothermal power
station of 140MW;
ii. transmission;
iii. distribution; iv.
operational support.
33PROJECT FUNDER VALUE STATUS GAPS
Generation
Capital Investment
Garissa 50MW solar PV Chinese Exim Bank USD 136M Commissioned in 2016
Geothermal exploration Chinese Exim Bank USD 382.5M Closed: 2012-2016. Maturity year 2033, KenGen Integrated 89 wells drilled
report 2020end of 2021
Kipevu 1 diesel HFO Japan Bank for JPY 2.1B Maturity year 2025, KenGen Integrated report 2020
plant, 6x 12.5MW International Cooperation
Sondu Miriu, 60MW Japan Bank for JPY 2.37B, JPY 8.3B Maturity years 2027, 2044, KenGen Integrated
hydropower station International Cooperation, report 2020
JICA
Sangoro hydropower Japan Bank for JPY 3.8B Maturity year 2047, KenGen Integrated report 2020
International Cooperation
Olkaria I & IV geothermal JICA , KfW, IDA, AFD, JPY 21B, EUR 31.3M, Maturity year 2040, 2026,
EIB, USD 27.9M, EUR 66.7M, 2035, 2031,
IDA EUR 4.8M, USD 52.7M 2037, 2041 KenGen Integrated report 2020
Olkaria V geothermal JICA JPY 27.4B Maturity year 2046, KenGen Integrated report
2020
Kindaruma hydropower KfW EUR 15.6M Maturity year 2024, KenGen Integrated report
2020
Ngong Phase II, 13.6MW Spanish loan EUR 17.5M Maturity year 2030, KenGen Integrated report
wind 2020
Ngong Phase I, 6.8MW National Bank of EUR 6M Maturity year 2020, KenGen Integrated report
wind Belgium 2020
KenGen - various projects Public infrastructure Reached maturity Maturity year 2019, KenGen Integrated report
bond 2020
34PROJECT FUNDER VALUE STATUS GAPS
KenGen term loan Cooperative Bank KES 2.3B as of Maturity year 2022, KenGen Integrated report
30/6/2020 2020
Olkaria II Unit 3 AFD EUR 6.7M Maturity year 2024,
Standard Chartered USD 6.5M 2021, KenGen Integrated report 2020
Bank
Rigs HSBC USD 13.5M Maturity year 2024, KenGen Integrated report
2020
Wellheads 75MW CBA USD 78.4M Maturity year 2027, KenGen Integrated report
2020
Kopere 40MW solar PV + AfDB, Scaling-Up Renewable USD 64M Envisioned
33/132 kV substation + Energy Program (SREP –
funded by FCDO and Gov.
1.8km transmission line Netherlands+), European DFI
Kipeto Wind DFC – reinsurance by USD 50 M of total Commissioned
OPIC project of USD 320 M
Feasibility Studies: USTDA $8.85 M between 2016 Studies completed
- Siaya Solar Project Battery – 2019
Storage Integration
- Olkaria Geothermal Power Total
Flow Topping Unit
- Saigrene Energy 17MW Small
Hydropower Projects
- Virunga Hydropower Project
- Siruai 50 MW Wind and Battery
Storage Project
- Gitaru 10 MW Solar Power Plant
- Lamu Gas-to-Power
- Isiolo 40 MW Power Plant
Akiira Geothermal
35PROJECT FUNDER VALUE STATUS GAPS
Power trade
Capital Investment
Ethiopia – Kenya AfDB UA 75M of UA 134M Implementation Lack of court
Electricity Highway Remainder from the precedents to
Government of Kenya guide wayleave
Project + EUR 26.51M and compensation
supplementary financing payments on
transmission lines,
which has affected
the disbursement
rate and the
completion date.
AFD USD 101.3M for electrical Started in 2016 Additional financing
interconnection because of an
underestimation of
the required system
reinforcement
works identified by
the initial feasibility
study and design.
A 500 kV high-
voltage direct-
current transmission
line with a total
length of 1,068 km
and converters at
substations. There
is also a component
to strengthen the
Kenyan transmission
system, as well as
provide technical
assistance and
capacity building for
management and
maintenance of the
DC network.
36PROJECT FUNDER VALUE STATUS GAPS
Kenya-Tanzania AfDB 51% of UA 199.86M
Interconnection Project Remainder from the
Governments of Tanzania and
Kenya
PROJECT FUNDER VALUE STATUS GAPS
Transmission and Distribution
Capital Investment
Mombasa – Nairobi AFD USD 66.6 M Started in 2009 to construct the HV line between
Transmission line project Nairobi and Mombasa
Nairobi Ring Project AFD USD 87.1 M Started in 2012 to construct key substations in .
Nairobi area
Kenya - Last Mile AfDB UA 90M of UA 99.2M Completed according to AfDB staff
Connectivity Project - 1
Kenya - Last Mile AfDB UA 94,390,151.57 Implementation according to AfDB staff
Connectivity Project II
Kenya - Last Mile AfDB Not yet approved according to AfDB staff
Connectivity Project III
KE Electricity World Bank USD 200M + USD Active Also include off-
Modernization Project 250M grid interventions
and T&D TA. Aims:
to increase access
to electricity; to
improve reliability;
to reduce revenue
losses.
37PROJECT FUNDER VALUE STATUS GAPS
438km Loiyangalani- USD 271M Completed In 2018 Capacity to
Suswa transmission line transmit 1,200MW.
connecting north Kenya
to national grid
KETRACO/PT/010 /2012- Indian Exim Bank USD 61.6M Consolidated in KETRACO's 2019-20 (latest
LOT 1A available) annual report
KETRACO/PT/010 /2012-
LOT 1B
KETRACO/PT/010 /2012-
LOT 3A
KETRACO/PT/010 /2012-
LOT 3B
KETRACO: Olkaria-Lessos- JICA JPY 12.41B Consolidated in KETRACO's 2019-20 (latest
Kisumu transmission line available) annual report
KETRACO: Nanyuki- KBC Bank, Belgium EUR 14M Consolidated in KETRACO's 2019-20 (latest
Isiolo-Meru transmission available) annual report
line
KETRACO: Sondu- KBC Bank, Belgium USD 16M Consolidated in KETRACO's 2019-20 (latest
Homabay-Ndhiwa-Awendo available) annual report
KETRACO: Kenya Power Chinese Exim Bank RMB 677M Consolidated in KETRACO's 2019-20 (latest
Transmission Expansion available) annual report
Project
KETRACO: Mariakani ADB USD 24M Consolidated in KETRACO's 2019-20 (latest
Substation available) annual report
KETRACO: Nairobi Ring AFDB EUR 78.5M Consolidated in KETRACO's 2019-20 (latest
(Suswa – Isinya and available) annual report
substations)
KETRACO: Lessos - AfDB UA 21.4M Consolidated in KETRACO's 2019-20 (latest
Tororo (Equatorial Nile available) annual report
38
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