Improving energy demand for sustainable development

Kenya has made significant progress in expanding its electricity infrastructure in the last two decades. For instance, the installed capacity in the country increased from less than 1,000 Megawatts(MW) in 2000 to the current 3,000MW. In addition, the percentage of the population with access to electricity in Kenya increased from 18% in 2010 to approximately 70% in 2020.

Another notable achievement by the Kenyan Government is being able to diversify its energy  sources from hydropower to other renewable energy resources, specifically geothermal, wind and solar. This has shielded the country from the vulnerability to drought in the generation of electricity which in the past led to frequent power shortages and blackouts. These blackouts had a negative impact on the economy and on the quality of life for citizens. The diversification of energy sources is also aimed at reducing the final tariffs to consumers. Furthermore, the government plans to retire the thermal power plants by 2034 as respective power purchase agreements (PPA) expire, since renewable energy is cheaper than the non-renewable energy from fossil fuels. This will reduce the cost of generating electricity as it will not be subject to the volatility of global fuel prices.

In addition to reducing greenhouse gas emissions, renewable energy presents opportunities for power producers to earn carbon credits which is an extra source of income for the business. Moreover, some of the proceeds of the carbon credits are also used to benefit communities living in the surrounding areas of the power plants.

Despite the above notable achievements, the sector still faces some challenges. One issue being access to electricity is not evenly distributed in Kenya. Urban areas are more likely to have access while many rural communities are still without power despite the country having an installed capacity of approximately 3000MW against a peak demand of approximately 2000 MW. To address the access to electricity and low demand challenges, the Kenyan government implemented a program called "Last Mile Connectivity" which aims to provide electricity to remote rural areas that are not connected to the national grid. However, this has not resulted in significant increases in demand since most of those being connected are domestic users who average 10 units of electricity in a month.

Further, the sector has also faced the challenge of high electricity costs. The cost of generating electricity and its distribution is borne by consumers. Unfortunately, these costs are spread over approximately only 8.9 million customers, 95% being domestic consumers (KPLC Annual Report, 2021-2022). Given that the costs are shared per the units consumed, the retail price is inevitably high since the consumption from domestic consumers is low. One way to address the challenge of high electricity tariffs is to stimulate industrial growth and create more consumption of electricity to increase the base for sharing electricity costs. In this regard, over the years, the electricity peak demand has increased from 1,512MW in 2014/15 to slightly over 2,000MW in 2022. This is a step in the right direction but more needs to be done to stimulate industrial demand.

Over and above that, the sector has challenges with the transmission and distribution of electricity attributed to ageing infrastructure. This leads to high transmission losses which are costly for the offtake. These transmission challenges also mean that there is an increased need for additional step down and step up transformers. The government has entered into a Private Public Partnership (“PPP”) arrangement with private investors to develop, finance, construct, and operate the 400kV Lessos – Loosuk and 220kV Kisumu – Musaga transmission lines. This is expected to improve the power system reliability and promote electricity access in the Western region. We expect that a similar approach should be adopted to fast track the upgrading of the transmission network throughout Kenya. We also recommend that the Government provides more incentives to investors engaged in transmission and distribution infrastructure. For instance, tax incentives such as exempting goods used in the construction of the transmission and distribution infrastructure from taxes such as VAT and import taxes. This will ultimately lead to improving the transmission infrastructure in Kenya which in turn reduces the system losses and improves access to electricity for all

The current state of the energy sector in Kenya is marked by both progress and challenges. Access to electricity has increased significantly in recent years, but there are still significant barriers to expanding access, particularly in rural areas. However, there is a need to stimulate more industrial demand and bring down the high cost of electricity. Kenya should continue scaling up renewable energy generation in the country in order to achieve sustainable development.