Powering Kenya: Understanding the Landscape and Exploring Possibilities for Investments

Abstract

Kenya has a power generation system that is highly dependent on hydro sources, while frequent droughts cause dramatic drops in water levels at many reservoirs supplying the country's hydroelectric plants. This combination results in severe power shortages across the nation, which cascade down the power supply chain and provoke a series of distortions in the system. There is an indispensable need for a more reliable, more cost-competitive, and more accessible electricity system if the country wants to sustain its economic growth and meet future electricity demand. This paper identifies specific investment niches, including: - the modification of diesel and gasoline generators to run on methanol or ethanol - off-grid solar systems, particularly home solar electric systems - the erection of 5,000 km of transmission lines - innovative financial solutions to finance connection fees to the electric grid Finally, several recommendations are offered for key stakeholders to consider: - the simplification of complex regulatory requirements - assessment of the experience of IPPs (independent power producers) to create the conditions for more and improved IPPs - the procurement of power in a more competitive manner, not as a consequence of direct agreements " the standardization of the favored power technology for different counties in Kenya through clear protocols according to the most cost-efficient criteria - the mapping and segmentation of the population that lacks access to electricity and the subsidizing of the difference between what households can afford and what electricity costs This paper stresses the need to address two challenges: - Expanding access to electricity, given that more than 50% of the Kenyan population is deprived of this development enabler. - Guaranteeing a reliable power system, capable of sustaining growth and meeting internal demand in the medium and long term. With renewed efforts from policy makers to revamp the energy sector, the current scenario offers an unprecedented opportunity for investment, especially in renewables. However, several challenges remain to be solved: - Electricity equity. In rural areas, there is extremely low access to electricity (6.7% of the population). With less than $9 a month available to spend on energy, 50% of the households that currently have no access to electricity do not reach the minimum boundary at which access to electricity can be granted, which is around $15 a month. - Transmission and distribution losses account for 1.56 thousand GWh per year, enough to provide electricity to 1.3 million households for a year. - The frequency of power outages and blackouts causes companies to register losses equivalent to 5.6% of their annual sales.