Expanding capacity and access across the nation

As with a number of African markets, expanding the capacity of Kenya’s utilities sector is a key part of the government’s blueprint for development. On the power side, the government aims to add 5000 MW of generation capacity to the existing 1672 MW by 2017. Down the road, the government intends to further expand capacity to meet the 17,000 MW of demand anticipated by 2030. By comparison, in the last fiscal year ended June 2013, demand was 1354 MW, according to Kenya Power’s 2013 annual report.

By basing the capacity expansion on cheaper generation sources, electricity costs to the end user are expected to fall (see analysis). Renewables such as geothermal energy and wind are key to this plan. The government is taking a holistic approach to developing the sector: in addition to building generation, upgrading the transmission infrastructure and connecting more customers are also on the agenda.

Water and sanitation services will be expanded as well. Less than half of Kenyans have access to tap water today, and the government is aiming for universal water access by 2030 (see analysis).

Power Structure

The power sector was an integrated monopoly run by Kenya Power until the mid1990s. An overreliance on hydroelectric generation and Ugandan imports led to a capacity crunch and power rationing. Kenya responded by restructuring the energy sector and paving the way for independent power producers (IPPs), and the first tender for IPP generation was issued in 1995. This saw OrPower 4 (a subsidiary of the Nevada-based alternative energy firm Ormat Technologies) and Tsavo Power (a consortium with the Aga Khan Development Network and the International Finance Corporation) enter the market, with geothermal and diesel-based power production, respectively, marking the start of competition in the power sector.

“Investors look for a few factors when they are determining whether to enter the sub-Saharan Africa power market and Kenya checks all the boxes,” according to Amyn Mussa, senior partner at law firm Anjarwalla & Khanna, citing unbundling and favourable legislation as factors investors look for.

In 1997 the sector unbundled as generation, transmission and distribution activities were divided up. Kenya Power retained the transmission and distribution business and remains 50.1% government-owned, with the additional shares publicly trading on the Nairobi Stock Exchange. Majority government-owned Kenya Electricity Generating Company (KenGen) inherited the hydroelectric assets and has some thermal plants, but the company is not focused on significant new generation as Kenya has recognised that the IPP model is a sustainable and cost-effective way to add new power.

Renewables Act 

A landmark change for the sector came with the 2006 Energy Act, which enabled the creation of the Energy Regulatory Commission (ERC) in 2007, marking the start of an independent regulatory regime. ERC’s role is to set pricing, maximise competition, intervene when there is a market failure, promote cheaper renewable energy sources and reduce the thermal share in generation. The feed-in tariff policy that set prices for IPPs investing in renewables is based on the cost of the generation source, and there are some costs that can be passed through to consumers, including inflation, imported fuel costs and fluctuations of foreign exchange. While the prices received by power producers vary based on feed-in tariff calculations, enduser prices are the same across the country because of cross-subsidisation in the power sector.

Aware of Kenya’s 10,000-MW geothermal potential, the government created the Geothermal Development Company (GDC) following the passage of the 2006 Energy Act. This government body operates partnerships with IPPs and is charged with finding and supplying steam to power producers. “Kenya Power is a grandfather,” said Benson Muriithi, the company’s chief manager for energy transmission. “We have had children, like KenGen, who have had their own child, GDC.” Kenya Electricity Transmission Company (KETRACO) was formed out of Kenya Power as a wholly government-owned company in 2008, tasked with building an all-new power transmission infrastructure. Structuring transactions has become increasingly complex, in light of the number of parties involved, and it is therefore slower. “With GDC or KenGen providing steam, KETRACO building transmission and Kenya Power buying power, multiple risks need to be covered,” Mussa told OBG.

A Changing Mix

Kenya’s power generation mix is derived from hydroelectric sources (44%) and thermal sources (43%), with the balance being a mix of other renewables. This balance is set to change, as Kenya seeks to quadruple its generation capacity by 2017. The additional 5000 MW will come from mainly geothermal, coal, liquefied natural gas (LNG) and wind. These cheaper generation sources will help achieve the government’s 40-month plan to bring power costs down by 40% (see analysis).

KenGen owns 1133 MW of the existing 1672 MW of effective capacity. Nearly half of KenGen’s generating capacity is hydroelectric, with the balance being mostly thermal and geothermal. Most new capacity will be driven by IPPs. Traditionally, Kenya’s IPPs have produced thermal power based on expensive imported heavy fuel oil. Existing IPPs include Tsavo Power, Ormat Technologies (through OrPower), Iberafrica (backed by Spanish Union Fenosa), Aldwych International and Burmeister & Wain Scandinavian Contractors. Triumph Power is the newest IPP arrival. It is setting up an 83-MW thermal plant on the Athi River, due to be operational in late 2014.


Recently, IPPs have been shifting from conventional thermal sources to renewable sources such as geothermal and wind. According to a 2014 UN Environment Programme report, Kenya ranks second in renewable investment on the continent, after South Africa. KenGen currently has a small 5-MW wind farm in Ngong Hills near Nairobi, but private operators are focusing on geothermal. While Ormat Technologies was the first IPP to enter the geothermal market with a 100-plus MW plant in 2000, there had not been any other significant geothermal projects undertaken until the establishment of GDC a few years ago. GDC was formed to develop geothermal wells, but Kenya’s geothermal sector does not use the conventional energy licensing model, whereby the investor gets a concession to explore and produce energy. Instead, the government absorbs the exploration risk via GDC, making risk more manageable for investors, said ERC.

The National Treasury allocated KSh12.5bn ($142.5m) in the budget for the fiscal year ending June 2014 to GDC to develop and drill for steam. GDC is tasked with finding, drilling for, extracting and supplying steam to the private sector, which in turn builds power plants and produces electricity. Anjarwalla & Khanna’s Mussa believes that if GDC can find steam efficiently, then this model could potentially even be exported, stating that countries as far as the Philippines are looking to Kenya.

The Rift Valley is the main geothermal zone, where an estimated 10,000 MW of potential energy lies underground. While Kenya’s current geothermal capacity is around 200 MW, many plants in the 100-MW range are coming up to exploit the Rift Valley’s potential. Among the largest wells are Menengai and Baringo, which have potential capacities of 1600 MW and 800 MW, respectively. According to the government’s second medium-term plan – a Vision 2030 action plan covering 2013 to 2017 – 620 geothermal wells will be drilled and developed.

The 100-MW Menengai plant is being constructed by Quantum Power, Ormat Technologies and Sosian Energy. This consortium was chosen in mid-2014 from 12 bids submitted in September 2013, and each company will construct a 35-MW steam plant under a build-own-operate model, at a cost of KSh4bn ($45.6m) each. The plants are expected to be running by the end of 2015, and producers will buy steam from the government at $0.04 per KWh.

Wind & Sun

Although they entail hefty upfront costs, renewables such as wind and solar provide affordable generation sources over the long term if seasonality, storage and predictability can be managed. Wind patterns in Kenya follow the same timings every day, according to Carlo van Wageningen, the chairman of Lake Turkana Wind Power. Van Wageningen told OBG that the technology for wind forecasting is very advanced and wind patterns around the Lake Turkana region are among the steadiest in the world, dying down and starting up again at virtually the same time every day. The 300-MW Lake Turkana wind farm, a Vision 2030 flagship project based on 16,000 ha in Marsabit County, is the most significant of the near-term wind projects. The African Development Bank is acting as the lead among 11 financiers for this KSh73bn ($832.2m) project. Construction will be carried out by British firm Aldwych International and Danish firm Wind Power – both of which are also equity holders – beginning in late 2014. A 20-year power purchase agreement has been signed with Kenya Power, which will start receiving power from the wind farm 32 months after construction begins.

In total, 365 wind turbines will be built, and the farm will have a load factor of 58%. This represents the highest average annual power production for wind, besting a wind farm in New Zealand that has a load factor of 48%. Other parts of Kenya are also on the agenda for wind power production. Construction of a 100-MW wind farm is planned for Meru County in the next few years. Other upcoming wind projects are under 100 MW each.

While the west of the country is the windiest part of Kenya, the east boasts strong sun, according to mapping in Kenya’s Least Cost Power Development Plan 2011-30. However, most solar projects are on a small scale (under 1 MW), and large-scale solar power is not cost effective today as panel prices still need to fall considerably. “Generating with small off-grid solar units will cost 20 cents and large grid units will cost 12 to 13 cents, nowhere near the 8 cent overall power price targeted by the government,” Muriithi told OBG. Another challenge is that solar power is expensive to store, notes Muriithi. As a result, the use of solar power will mostly be limited to local consumption and off-grid hybrid generation until prices come down.

In mid-2014 a 1-MW solar power plant opened in Changoi, a tea farm in Bomet County. To date, this is the largest solar power scheme in East Africa. A technology called solar fuel saver helps to ensure system stability and protects the standby generator. The tea farm is expected to produce 1.7m KWh of electricity per year. British company Solarcentury led the construction, and expects a return on investment in seven years. For the tea farm, power costs are expected to be slashed by 30%, since the need for expensive diesel-generated back-up has been eliminated. Electricity costs associated with tea processing went up 79.4% from 2001 to 2010, according to the Kenya Tea Development Agency.

The Changoi farm is not the only rural agricultural operator looking into solar power options. Uhuru Flower, a flower farm on the border of Laikipia and Meru Counties, rolled out solar generation in 2013 with a capacity of 72 KW, and cut power costs by 80%. Some companies, such as Hecate Energy and NextGen Solar, are assessing the feasibility of larger solar projects, with studies under way for 20-MW and 50-MW projects, respectively.

In a move to encourage investment, new legislation passed in May 2014 exempts solar panel imports from tax. In addition, solar panels are exempt from the 16% value-added tax levied on other good. New legislation, such as the requirement for new buildings with hot water tanks of over 100 litres to use solar-heated tanks, will also boost the sector. These regulations will take effect in 2015.

Going Nuclear

After Japan’s Fukushima disaster, nuclear projects have been put on hold around the world as risks are re-evaluated, but Kenya has set 2022 to 2025 as the date range by which the country aims to have an operational 1000-MW nuclear power plant. The price tag is expected to be $3.5bn, and the Kenya Nuclear Electricity Board (KNEB), the organisation responsible for developing nuclear power, is looking to conduct a technical evaluation to address issues such as grid compatibility and implement laws establishing a nuclear regulator by 2015.

Several hurdles need to be overcome before nuclear power becomes a reality, not least of which is the need for technical capacity. “The country entirely lacks nuclear engineers, operators and security personnel. There is no local knowledge for this industry. For that reason we are working closely with the International Atomic Energy Agency and foreign governments to build institutional capacity,” Ochilo Ayacko, KNEB’s executive chairman, told OBG. France, South Korea and Slovakia have expressed interest in helping Kenya with its nuclear ambitions.

Another problem is that nuclear power faces high initial set-up costs. Like renewables, it offers a cheap source of power once operational, but securing the necessary credit to build remains a big challenge.

Coal & Gas 

Other major components of the 5000-MW planned capacity expansion include relatively cheap fuel sources such as coal and LNG. At the time of print, the government was in the process of procuring contractors for the development of two 960-MW, coal-fired electricity plants and a 700-MW, natural-gas-powered facility. The proposed Kitui and Lamu IPP coal plants are expected to be completed in 2016 and utilise resources mined primarily from Kenya’s Mui Basin. The LNG-based power plant will be located in Dongo Kundu in Mombasa.

Partnering Up

ince 2013 the US government has sought to increase electrification in sub-Saharan Africa through its Power Africa programme. The initiative involves 12 US federal agencies that have together committed more than $7bn, and dozens of private sector participants, such as GE, that have committed an additional $14bn.

In Kenya, one of the six Power Africa pilot countries, the programme aims to increase generation capacity, tackle bottlenecks and increase electricity access. Power Africa partner Aeolus Kenya has committed to completing construction of the 61-MW Kinangop wind farm, with $150m in financing support from Standard Bank Group. Meanwhile, Harith General Partners, a private equity firm that specialises in infrastructure projects, is injecting some $70m of equity financing for the 300-MW Lake Turkana wind farm. In addition to this funding, the farm has also received a $250m investment guarantee from the Overseas Private Investment Corporation, a US government development finance institution.

Regional coordination is also a theme in power generation. The annual East African Power Industry Convention brings together the region’s leading power industry stakeholders to address joint solutions. In the 2013 meeting, the East African Community launched a $64bn investment aimed at raising regional generation capacity eightfold in 25 years. The 2014 meeting will be held in Nairobi in September.

Grid Expansion 

To support the planned increase in generation capacity, Kenya is planning to add 5000 km of high-voltage transmission lines by 2017, more than doubling the existing network of 3767 km. According to the Kenya National Bureau of Statistics, only about 28% of the population is connected to the electricity grid. The planned infrastructure expansion will cost KSh200bn ($2.28bn) and includes the construction of 25 new substations.

Kenya’s present-day transmission network map is blank for the north of the country. Projects such as the Lake Turkana wind farm will see transmission lines extend north, with KETRACO constructing a 426-km transmission line that will connect the Lake Turkana wind farm to the grid. KETRACO chose Norwegian company DNV GL, a power sector technical advisor, to advise on the 400-KV high-voltage power line. The new transmission infrastructure will pass through the Rift Valley and also connect the geothermal plants dotted along its path.

There is currently one 132-KV line going through Western Kenya into Uganda, and more regional transmission infrastructure is in the works. A 400-KV power line is under construction which, when completed, will link Mombasa on the coast through Nairobi into Uganda. A 500-KV link to Ethiopia is also being built, with plans for lines to Rwanda and Burundi, according to Kenya Power’s annual report for 2013.

Inceasing Connections 

In addition to generation and transmission targets, Kenya aims to connect more than three-quarters of households to the grid by 2017, by adding half a million new households a year. Kenya Power, the institution mandated with the distribution of electricity, currently has 2.6m customers. Connections to the national grid increased by more than 10% annually from 2011 to 2013, and growth is expected to remain strong, according to a research note by Nairobi Business Monthly.

The government has adopted the view that access to power is a right for all Kenyans, and the Rural Electrification Authority, established in 2007, is tasked with extending the grid beyond urban centres. Rural power access now stands at only 5%, and the Rural Electrification Programme is connecting public facilities such as schools, markets and health facilities. For example, the authority is spending KSh12bn ($136.8m) under this programme to connect 11,000 primary schools to the grid by mid-2015, in anticipation of the roll-out of a free laptops scheme for students. This is up from the KSh9bn ($102.6m) spent in the fiscal year that ended in June 2014.

Almost Reaching 

Often, the last mile is not being covered. While rural electrification initiatives are bringing power lines closer to off-the-grid households, most of these remain unconnected and in the dark. PowerGen is among a handful of companies that operate in the off-grid and micro-grid solar space. Sam Slaughter, the company’s managing director, breaks down the misconception that the rural poor are a bad investment choice on the basis that they cannot afford electricity. “The poorest people will pay the most per kilowatt hour because of the value that electricity brings them,” he said.

An ERC spokesperson told OBG that independent power distributors are a possible solution in the future and that the current single-buyer model may not be viable in the longer term. The ERC has explored moving away from the standard tariff, a step that would facilitate the entry of companies seeking to fill the connection gap. According to Slaughter, most Kenyans cannot afford Kenya Power’s high connection fees of KSh35,000 ($399). He affirms: “Microgrids will be the hot thing for the next few years.”

The potential is certainly there, depending on the client base, with sales currently heavily skewed towards manufacturing. “Approximately 6000 large customers generate 60% of Kenya Power’s revenues,” Muriithi told OBG. Around 23% of connected customers are household customers, and therefore, he argues, “Even if you connect all households in the country that’s not where the demand is. It is in large commercial and industrial sectors.”

Water & Sanitation

Although concessions have been granted in other markets on the continent – with investors taking over assets in Morocco and Gabon, for instance – the private sector has played a negligible role in Kenya’s water and sanitation sectors to date. This may soon change, as regulation has become more favourable and an anticipated upcoming law will clarify roles since devolution began in 2013. Prior to the passage of the 2002 Water Act, the government was the water service provider and regulator. After the law was passed, an independent regulator – the Water Services Regulatory Board – was set up to provide pricing guidance, issue licences and promote the sector’s expansion.

In addition, the government was also separated from water supply. Eight government-owned water service boards now lease their infrastructure to 102 independent water service providers. While often still owned by city or county governments, these water service providers operate independently and have to pay the water service boards for pipeline use. Overall, the providers cater to 21% of the population, while the rest rely on other sources, through some 2000-odd small suppliers. According to the UN, 43% of Kenyans have access to tap water and 68% have access to adequate sanitation. Worth noting is that water and sanitation coverage estimates tend to vary, depending on calculation methodology and differing definitions of standards. The UK charity WaterAid, for example, reports that 63.4% of Kenyans have access to clean water, an increase from just 43% in 1990. At the current growth rate, WaterAid anticipates that access rates will reach 77.2% in 2030.

Rapid urbanisation has led to 40% of Kenyans living in urban areas. Approximately two-thirds of Kenya’s urban population relies on water vendors, water kiosks or unprotected natural sources. This group suffers from low water quality and contamination issues. Meanwhile, water service providers lose revenues because of illegal connections and faulty or disconnected meters. According to Nahashon Muguna, technical director of the Nairobi Water and Sewerage Company, around 67-70% of the nation’s capital’s population has access to piped water and 84% of total demand is met. Muguna told OBG that Nairobi had 42% sewerage coverage and that it had the capacity to process 140,000 cu metres per day.

Around 60% of Nairobi’s 4m residents live in informal settlements on only 5% of the land. The city’s population is expected to double over the next 15 years, putting additional strain on what is an already burdened water and sanitation sector. Only one-quarter of the informal settlement population has household toilet facilities, while two-thirds use shared facilities and the remainder resort to “flying toilets” – a system whereby human waste is collected in bags at home and then disposed of under unsanitary conditions. Nairobi is aiming to achieve 70% sanitation coverage across the city by 2016.

Mombasa, Kenya’s other major urban centre, has also recently set access improvement targets. In June 2014 Mombasa launched a KSh1.3bn ($14.8m) project, co-financed by the World Bank and the Netherlands, to increase the city’s access to safe drinking water from 70% to 90% and boost sanitation access from 15% to 60% in five years.

Water Resources

In terms of capacity, the National Water Master Plan 2030 reports that per capita renewable water resources increased by a compound annual growth rate of 4.1% to reach 1093 cu metres between 1997 and 2010. The report was published in 2013 after a three-year effort with assistance from the Japanese government’s development agency. Forecasts are being revised following huge freshwater finds in Turkana (see analysis).

The master plan calls for universal access to safe water by 2030. To meet this goal, Nairobi alone needs $1.9bn in water and sanitation infrastructure funding by 2030, and has raised one-third of this to date. Private and government lenders are being sought for financing. The national water budget has been around KSh35bn-38bn ($399m-433m) annually in the last few years, of which one-third is derived from the National Treasury and two-thirds from foreign assistance. By 2016, Kenya is hoping to extend safe water access to 80% of the country’s urban areas and 75% of rural areas. Projections from the water regulator’s most recent impact report show that national coverage of 59% will be achieved by 2015.

Investors Watching

Since devolution, county governments have prioritised bringing clean water closer to residents. In some counties, access distances are more than 10 km, meaning that residents spend a large portion of their day collecting water. Kitui County is spending KSh302m ($3.4m) on projects to cut the average distance from 9 km to 2 km. Such projects include constructing boreholes and dams, extending pipelines and building irrigation schemes. Stakeholders in the water sector are awaiting on the passage of a new water bill that will provide increased clarity, particularly in delineating the roles after devolution. The law was due to be passed in 2013, but this did not happen, and according to observers, it is unlikely to take place in 2014 either. Kenya would benefit from fast-tracking clarity for investors, as Turkana is not the only firm concerned. In north-east Kenya, Wajir County’s Merti aquifer could be the country’s second-largest water source. With the appropriate regulation, investors may soon be queuing up to develop Kenya’s water sector.


The future of power generation in Kenya rests with IPPs, and the government has implemented a favourable regulatory environment to allow entry. The focus will be on cheaper sources, such as geothermal, LNG, coal and wind, but the country will also watch for when solar panel prices become more cost-effective for large-scale deployment. In the meantime, solar energy will be used on a smaller scale, in areas disconnected from the national grid. Micro-grids will be the buzz word for the next few years, and the ERC will assess ways to potentially connect these smaller networks to the national grid, perhaps even by allowing the private sector to break Kenya Power’s distribution monopoly.

The water and sanitation sectors are lagging, but upcoming regulation promises to clarify roles and facilitate private sector investment. As part of Vision 2030, Kenya seeks universal water access. All sectors within the utilities umbrella promise to grow and have strong support from the national government.

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The Report: Kenya 2014

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