The country’s electrification targets are ambitious; Kenya hopes to add an additional 5000 MW of generation capacity by 2017, and an additional 23,000 MW by 2030. Although the government has already unveiled its Last Mile Connectivity Project (LMCP), which will connect an additional 300,000 Kenyan households to the national grid in the coming years, significant infrastructure upgrades are required in order to successfully implement this scheme.
Capacity Constraints
The Kenya Power and Lighting Company (Kenya Power), Kenya’s majority state-owned listed electricity company, which is tasked with power distribution and transmission, has come under increasing pressure to improve supply in recent years, due to issues caused by ageing infrastructure and exacerbated by frequent outages and breakdowns, particularly during inclement weather. Unreliable electricity supply has forced a number of manufacturers, farms and residential building to install stand-by diesel generators, resulting in higher costs across multiple economic sectors.
Infrastructure upgrades have played an increasingly prominent role in Kenya’s electrification strategy, with Kenya Power reporting capital expenditure of KSh11bn ($121m) to construct 19 substations, 27 line upgrades and 38 system upgrade projects during the 2014 financial year. In the same year, the company announced that it plans to invest KSh2bn ($22m) over the next two years to establish lines dedicated to heavy electricity consumers, which will enable reliable operations. “Apart from cost reductions, the consistency of supply has also increased significantly, as a result of improvements to the transmission and distribution grids in the country. This enables customers to rely less on generators and prevents work stoppages, which brings added economic benefits,” Ben Chumo, CEO of Kenya Power, told OBG.
New Investment
In February 2015 Kenya Power announced it will invest a further KSh10.45bn ($115m) to build 36 new substations in a bid to reinforce the country’s electricity network and reduce power cuts as Kenya moves forward with its plan to add 5000 MW of capacity to the national grid by 2017. The new substations will be located in 23 counties, including counties in the Rift Valley, as well as the central, coastal and western areas of the country.
The official launch of the LMCP has accelerated plans to upgrade the electricity infrastructure in the country, and in May 2015, two months after launching the project, Kenya Power announced plans to build 62 additional substations. The company launched tenders for 29 of these stations in July, with plans to tender the remaining 33 by early 2016. All of the substations should be operational by June 2016. Kenya Power is set to construct an additional 24,000 km of low-voltage, single-wire earth relay transmission lines, as well as 5320 new transformers, all of which will be necessary to successfully implement the LMCP. Connections greater than 132 KV will be delivered by the Kenya Electricity Transmission Company.
Financing
As well as the economic benefits stemming from improvements to industrial supply – the government launched a tender for local manufacturing firms to plan the country’s electricity expansion initiative in May 2015. However, the project will require significant investment from non-government sources, especially after Kenya Power announced plans to reduce connection fees for new customers from KSh35,000 ($385) to KSh15,000 ($165).
To meet the financing gap, Kenya Power announced that it had secured a $10m loan from the United Bank for Africa as part of a five-year syndicated agreement to finance the country’s energy infrastructure upgrades. The loan will be used for new infrastructure. This followed the November 2014 announcement that the LMCP had received a $133m loan from the African Development Bank, which will be added to the government’s $14m commitment to the project.
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