Kenya Power and Energy Market Overview and Trade Data

This is a best prospect industry sector for this country. Includes a market overview and trade data.

Unit: $ millions

  2014 2015 2016 2017
(estimated)
Total Market Size 767.1 663.3 895.9 970
Total Local Production N/A N/A N/A N/A
Total Exports 7.2 10 55 60
Total Imports 767.1 663.3 895.9 970
Imports from the U.S. 31.6 25.5 43.3 55
Exchange Rate: 1 USD 90.6 96 101 103
Total Market Size = (Total Local Production + Total Imports) – (Total Exports) Data Sources:Global Trade Atlas, Tradestats Express, and BMI
 
Kenya is the fourth largest economy in sub-Saharan Africa, with an estimated nominal GDP of $70 billion in 2016. The story of Kenya’s power sector is one of solid performance with a steady growth trajectory. For its population and per-capita GDP, Kenya is performing well in terms of power generated. Kenya’s per-capita power consumption is 171 kWh (2014) compared to 126 kWh in Nigeria, which has a per-capita GDP nearly 3 times higher. Moreover, Kenya has remarkable renewable resources, as evidenced by its track record as one of the lowest cost developers of geothermal power in the world. Kenya has also aggressively pursued connections, having nearly doubled electricity access from 25% to 46% of households in 4 years. The sector recorded 9% growth in 2016.
 
Generation: The installed capacity as of March 2017 stands at 2341MW, a significant growth from 1800MW in 2014 but still low for a country with a population of 43 million. In addition, Kenya has also doubled electricity access over the last four years from a low of 25% in 2011 to 46% or 3.6million households in 2015, thus meeting best in class benchmarks globally. GOK initiatives to increase power supply and lower the cost of electricity by injecting cheaper renewable energy sources such as geothermal seem to be paying dividends with costs dropping marginally thus improving the business environment. Falling oil prices have also contributed to the lowering of electricity prices. GOK plans to connect an additional 5000MW to the grid and lower tariffs by 40% by 2017 have yet to be met but projects show that generation may reach 5000MW in the year 2020. The bulk of this will come from geothermal, coal, wind and solar. The sector presents numerous opportunities for trade & investment, especially in renewable sources like geothermal, solar and wind, where Kenya has excellent potential.
 
Around 30% of Kenya’s installed capacity is owned and operated by Independent Power Producers (IPPs) across 15 plants, including 3 small-scale hydro plants, 1 geothermal plant, 1 Biomass plant and 10 fuel oil plants. The remaining 70% capacity is owned and operated by KenGen, which is 70% government owned.  
Renewable Sources: Over 70% of Kenya’s electricity is generated from renewable / clean energy sources. Of these, geothermal remains the most significant source as the country focuses on increasing geothermal capacity and weaning off thermal sources. Unlike other renewable sources, geothermal is baseload stable power and is reliable and widely available. Today, Kenya’s vast geothermal potential, estimated at 10,000MW, remains relatively unexploited with current installed capacity at 652MW. This notwithstanding, Kenya today is the 8th largest geothermal producer in the world and is home to the single largest geothermal power plant, the 280MW Olkaria IV plant. Most generation is being carried out by government with only 1 IPP operation in the sector, US firm Ormat producing 140MW and the rest being produced by state owned KenGen. Government efforts in geothermal production seem to be paying off with various projects currently underway by both the public and private sector. It is estimated that Kenya will continue to add approximately 200MW of geothermal power to the grid annually until 2020.
 
Wind is another key growth area. Kenya is estimated to have a wind power potential of 3000MW but generation stands at 25MW. The Lake Turkana Wind Power plant, a 310MW project will be the single largest wind plant in Africa once completed in 2017 and is the single largest private investment in Kenya’s history valued at $690m. The construction of the 400km transmission line by KETRACO to evacuate the power has experienced delays owing to challenges in gaining wayleave access from land owners. However, it is envisaged that the project should be ready to inject power to the grid by end of 2017. Additionally, GE Energy is the technology supplier on two separate wind projects of 100MW in Kipeto and 60MW Kinangop. Both projects are currently embroiled in issues with the communities in these areas. KenGen’s 80MW wind project in Meru has also been put on hold owing to permitting and land rights issues. The project had already received funding commitment of $69m from the French Development Agency (AFD). It will be important for future investors to engage early with communities to ensure acceptance and ownership at community level.
 
Although Kenya has yet to have grid connected solar, the country has a high potential for solar power given the high irradiation levels available throughout the year. Currently, the Rural Electrification Authority (REA) is constructing East Africa’s largest solar plant at 50MW funded by the Chinese and scheduled for completion in 2017. The government of Kenya has signed contracts for construction of an additional 325MW in new solar capacity that should begin coming online from 2020. There is also a huge untapped demand for off-grid solar connecting communicates located far from existing transmission infrastructure. Plans are also underway to connect off-grid diesel stations to solar-hybrids so as to lower costs. 
 
Kenya signed a nuclear power deal with China in 2015 which will enable Kenya to obtain expertise and technical support. In addition, Kenya signed a partnership agreement with 3 top South Korean nuclear power firms as well as cooperation agreements with Russia and Slovakia. All this is in readiness for Kenya’s plans to become a nuclear power producer by 2027 with a 1000MW plant. Kenya is working together with IAEA as it builds capacity towards this end. Other developments include construction of the first ever coal fired power plant. A consortium of firms, including the Chinese, has received approval to set up a 1000MW coal plant, a project that has raised numerous concerns as it is located near a UNESCO World Heritage site. The Amu Coal Plant received a $2bn financing commitment from the Chinese in 2017 and will soon commence unless civil society initiatives to stop the project are successful.
Transmission: As of 2015, Kenya had 4,149 km of transmission lines, all of them 200 kV or 132 kV. The aging transmission and distribution networks largely contribute to approximately 13% system loss of the power generated. To address this, KETRACO is in the process of constructing ~4,500 km new lines at a cost of $1.3 billion, more than doubling the transmission network and introducing Kenya’s first high-voltage 400 kV and 500 kV DC lines as well as 3 major regional interconnectors to Ethiopia, Uganda, and Tanzania. Beyond these lines that are under construction, KETRACO is planning a further ~4,200 km of lines to expand and strengthen the grid. In addition, Kenya Power is building in redundancies, reducing losses and adding in smart technologies to help strengthen the grid.
 
Kenya is also keen to begin selling surplus power to her neighboring countries and has jointly embarked on an interconnection program to connect Kenya to Uganda and Rwanda on one side, and Ethiopia and Tanzania. Kenya signed an agreement to sell 30MW to Rwanda beginning fall 2015 and plans to increase this as more power is added to the grid. Kenya has also signed an agreement with Zambia to sell power in 2017.
 
Distribution: Kenya Power (KP) is currently the sole distribution company in Kenya. It operates Kenya’s interconnected grid, as well as several off-grid stations in the northern regions of the country. As the single off-taker in the country, KP negotiates Power Purchase Agreements (PPAs) with generation providers and distributes to consumers. Most impressively, KP has nearly doubled access in Kenya over the last 4 years, from 26% of households in 2011 to 46% in 2015, meeting best-in-class benchmarks globally. KP has been assisted in this effort by the Rural Electrification Authority (REA). Founded in 2006, REA’s mandate has been to accelerate the pace of rural electrification across all 47 counties. Since its inception, REA has helped move rural electrification from 4% to 32% of rural households, largely through its efforts to connect ~60,000 public facilities (mostly primary schools) around the country and all household consumers within 600 meters of those facilities. 
 
Together, KP and REA have 4 major objectives to develop distribution and access in Kenya:
  • Reach near-universal access by 2020 by adding 1 million new customers to the grid each year. The plan is to achieve this largely through the Last Mile Connectivity Program (connecting all consumers within 600 meters of an existing transformer with a subsidized connection price) and through further subsidized connections for consumers in informal settlements. The World Bank has partnered with Kenya in providing financing for this program.
  • Build a stronger and more flexible grid by building in redundancies, reducing losses, and adding in smart technologies. Current transmission losses are 4.5%, distribution losses are 13.5%.
  • Increase the number of PPAs signed with power generators. KP currently has 22 PPAs signed and expects to sign ~60 more over the next 5 years
  • Increase renewable off-grid access. Currently, there are 19 off-grid diesel-powered stations, but there are plans to convert these to solar-diesel hybrids as well as add 43 greenfield solar “mini-grids” through the Scaling Up Renewable Energy Program (SREP)
Oil and Gas:  Kenya is an increasingly promising player in the booming East Africa oil and gas market. The multiple onshore discoveries announced by Tullow Oil since 2012 have led exploration and production companies to sound optimistic notes about the country’s potential. A total of 63 oil exploration blocks have been gazette, of which 37 are licensed to International Oil Companies (IOCs) and one to the National Oil Corporation of Kenya (NOCK).  Twenty five  blocks are open for licensing. A total of 78 wells have so far been drilled, with 10 showing oil discoveries and 2 with natural gas shows. Tullow estimates current crude oil recoverable reserves at approximately 750 million barrels. The company has allocated $100 million for pre-development spending in Kenya in 2017, in addition to $125m for exploration and appraisal spending with a potential for another $75 million if required.
 
While the exploration and appraisal work is ongoing in 2017, Tullow also plans to start small scale production to start recovering some cash flow for the project. Initial production is planned for mid-2017 and will export around 2,000bbl per day via truck to Mombasa. Cash earned from the Early Oil Pilot Scheme will help fund ongoing exploration and development work, in addition to the ultimate aim of building an export pipeline from the Lokichar Basin to the port of Lamu. The planned pipeline is estimated to cost $2.1bn and will be 890km in length with the partners aiming to reach a final investment decision for the project by late 2019, followed by first production in 2022.
 
Current Energy Mix:  Kenya principally relies on hydropower, whose supply is impacted by drought; and thermal power, which is sensitive to global fuel prices. However, Kenya has in recent years put was a change in the energy mix shows hydro remained below 50% and a steady increase in geothermal power generation with the commissioning of additional geothermal plants.

Type Percentage
Geothermal 45%
Hydro 39%
Thermal Oil 15%
Cogeneration 0.33%
Wind 0.18%
Others 0.48%


In FY2016, it is estimated that 70% of electrical energy was supplied using renewable energy sources, while 25% was generated using fossil fuels.
 
Electricity Sector Institutions
The key public sector institutions involved in managing and regulating the Kenyan electricity sector are:
 
Ministry of Energy & Petroleum (MOEP) - The MOEP is responsible for national energy policy formulation – including determining the policy on Feed-in-Tariffs (FIT) -- and for creating a framework to allow growth, investment and efficient operations in the sector. The MOEP also grants and revokes generation and distribution licenses upon the recommendation of ERC.
Energy Regulatory Commission (ERC) -The ERC is responsible for regulation of the energy sector. The Energy Act of 2006 established ERC as an independent energy regulatory authority with responsibility for economic and technical regulation of electric power, renewable energy, and downstream petroleum sub-sectors, including tariff setting and review, licensing, enforcement, dispute settlement and approval of power purchase and network service contracts.
 
Kenya Power, formerly Kenya Power and Lighting Company (KPLC) – KPLC is the wholesale buyer of electricity, and is obligated to purchase electricity from all power generators – including KenGen and IPPs -- on the basis of negotiated Power Purchase Agreements. KPLC is responsible for onward transmission of purchased electricity and is the sole distributor of electricity from the national grid to consumers in Kenya. KPLC is listed on the Nairobi Stock Exchange, is 49.9% owned by private shareholders, with the remainder owned by the Government of Kenya.
 
Kenya Electricity Generating Company (KenGen) – KenGen manages all public power generation facilities and is the main generator of electricity in Kenya which it sells on a wholesale basis to KPLC. KenGen, which produces approximately 80% of the Kenya’s electricity, has a current installed capacity of 1,632MW, which accounts for 75% of total installed capacity. KenGen is responsible for developing new public sector generation facilities to meet increased demand. KenGen is listed on the Nairobi Stock Exchange, is 30% owned by private sector shareholders and 70% owned by the Government of Kenya.
 
Geothermal Development Company (GDC) – GDC is 100% owned by the Government of Kenya. GDC has the mandate to undertake the high-risk exploration and development of geothermal fields, including exploration, appraisal and production drilling, and the management of proven steam fields. GDC is also responsible for entering into Steam Sales Agreements with investors in the electricity sector, including KenGen and IPPs, in order that these entities can develop electricity generation capacity, with energy sourced from geothermal wells.
 
Kenya Electricity Transmission Company (KETRACO) – In 2008, the Kenyan government created KETRACO to develop new, high-voltage electricity transmission infrastructure to facilitate grid access, allow for grid interconnection with new generating plants, and enable regional power trade with neighboring countries. KETRACO is 100% owned by the Government of Kenya and is responsible for planning, designing, constructing, owning, operating and maintaining new high voltage (132kV and above) electricity transmission infrastructure. KETRACO will construct over 4,000 km. of high voltage transmission infrastructure comprising of lines, switch gears and sub-stations across the country over the next 3-4 years, at an estimated cost of $ 1,300 Million. The transmission line projects will include: 1500 kilometers of 132kV lines; 700 kilometers of 220kV lines; 1,000 km 400kV lines; and 700 kilometers of 500kV lines.
 
Rural Electrification Authority (REA) – In 2007, the government established REA to spearhead electrification projects in rural areas. Currently, rural connectivity stands at 32%, up from 4% at REA’s inception. The REA coordinates the implementation of rural electrification projects withthe help of KPLC, which acts as a contractor on their behalf. The program aims to connect load centers such as schools, trading centers, health centers and public institutions to the grid. Thegoal is to provide electricity to 40% of the rural population by 2020
 
Sub-Sector Best Prospects
Although installed capacity is relatively small (compared to 50,000 MW in the U.K. and 31,000 MW in South Africa, for example), Kenya is the leading generator in Eastern Africa. REA is focused on connecting major town centers, schools and hospitals to the grid as well as looking at off-grid solutions such as diesel fired plants. However, REA is now issuing tenders to convert these plants to hybrid solar PV plants. Opportunities also exist for mini-grids to solve power needs in county development plans. Currently, there are 19 off-grid diesel-powered stations, but there are plans to convert these to solar-diesel hybrids as well as add 43 Greenfield solar “mini-grids” through the Scaling-Up Renewable Energy Program (SREP).
 
In addition, a government directive in 2010 that all new home developments must include solar energy panels has seen an increase in the demand for solar panels. This directive is meant to ease the burden on the grid. Solar is also in use in rural Kenya where there is no access to the grid. This creates a great opportunity for solar panels; however, there is a great onslaught of Chinese cheap imports that have flooded the market. However, some establishments such as hotels are turning to solar lighting and water heating to reduce their power bills. Here lies an opportunity for high end products from U.S. firms.
 
There is also opportunity to supply wind turbines to various licensed wind generation sites spread out over the country. There are at least 500MW of privately funded wind generation projects in the pipeline slated to come online within the 2012-2017 timeframe. A private Kenyan firm plans to break ground this year on Kenya’s first commercial biomass power plant from the Proposis Juliflora tree that will produce 11MW at a cost of $21m providing opportunity for this new technology in Kenya.
 
KenGen and GDC have adopted the wellhead technology to tap power from productive wells prior to the power plant construction. Thus, wellhead technology and related equipment is a growth area for US firms. Already, one U.S. firm has supplied a wellhead generator to KenGen and additional projects are in the pipeline.
 
Best prospects for U.S. exporters include drilling rigs and associated equipment, generation, substation, transmission and related equipment, electric and electrical cables, transformers, electric meters, electric poles, and switchgear, wind turbines, solar thermal and solar PV equipment, smart grid systems and consultancy services.
 
 Opportunities
The government is focused on developing the geothermal potential in the country with a 10-year US$2.6 billion geothermal exploration plan that will involve sinking 566 wells in the Rift Valley. KenGen plans to add 500MW of geothermal power to the grid through joint ventures in addition to 80MW of wind and various solar installations at their existing hydro sites. US Trade & Development Agency (USTDA) is funding a feasibility study for the development of a 10MW solar plant at the KenGen Gitaru hydro site. GDC plans to develop 2000MW from the Baringo-Silali geothermal block and has received an $89 million concessional loan from the German Development Bank for this development, part of which will be applied to drilling of exploration wells. Numerous other exploration activities are underway in 10 other blocks.
 
In 2014, the African Development Bank Group (AfDB) approved a loan of $133 million to Kenya to increase electricity access for low-income populations, especially those in rural areas. Specifically, the funds will finance the Last Mile Connectivity Project that aims to maximize the use of the Kenya Power’s 35,000 existing distribution transformers spread across the country by extending low voltage networks to households located in the vicinity of the transformers. The total project cost is estimated at $147 million, with the Government of Kenya contributing the remaining $14 million. At least 314,200 customers, which would translate into approximately 1.5 million people, will have access to electricity thus contributing to improved standards of education, health and access to information.
 
Other opportunities include concessions, the privatization of isolated power stations to improve efficiency and lower power costs, the financing of power expansion projects with private funding instruments, as well as the manufacture and fabrication of electrical equipment such as transformers, cables and switchgear.
 
Under the VAT Act 2013, Kenya offers exemption from value added tax and import duties for imports for construction of power generating plants, geothermal exploration as well as certain plant and machinery applied to power projects.
 
One key challenge in the sector is the delay by ERC in approving PPAs and Government of Kenya reluctance to issue Letters of Support which are a key component in projects getting to financial close. The delays may be due to the fact that Kenya now has surplus power and may need to stagger new connections to the grid so as to manage electricity costs.
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Source: www.export.gov Article published on November 22, 2017

Kenya Power signs contracts for implementation of the Last Mile Connectivity Project

Nairobi, November 8, 2017……. Kenya Power has today signed a total of 23 contracts for the implementation of the Last Mile Connectivity Project (LMCP) funded by both the African Development Bank and the World Bank.

Under the AfDB phase II of LMCP, 314,200 households will be connected utilizing 5,320 existing distribution transformers across the 47 counties at a cost of KShs.13.5 billion. AfDB will cover 87% while the Government of Kenya will provide 13% of the total amount. This project will involve 15 contracts for works spread across the country.

“The Last Mile Connectivity Project is expected to address the high cost of extending power supply network especially in the rural and low-income areas,” said Kenya Power’s Managing Director & CEO Ken Tarus, PhD.

This comes after the implementation of LMCP phase I where 314,200 households are being connected at a cost of Kshs.13.5 billion, funded by AfDB which contributed 90% of the amount with the Government of Kenya providing the balance of 10%.

Under the World Bank-funded LMCP, 312,500 households are targeted for connection at a cost of KShs.15 billion. Six contracts for works which will be engaged for this project have been signed today.

This phase will involve extension of low voltage network on existing transformers and installation of 1,000 new distribution transformers across the 47 counties.

Intensive implementation of various connectivity strategies including the Last Mile Connectivity Project and the electrification project targeting informal settlements and low-income areas has seen Kenya Power’s customer base grow by 1.4 million new customers in the last financial year to 6,182,282 customers.

The rapid growth has raised the country’s electricity connectivity access rate from 27% in 2013 to 70.3% as at 30th June, 2017. The target is to achieve universal access by 2020.

“The sustainability of our business is anchored on entrenching our presence in the electricity market. We will continue to grow our customer base and venture into new frontiers. The connectivity drive is aimed at increasing revenue to sustain our business and promote socio economic development,” said Dr Tarus.

Source: Kenya Power Corporate Communications Dept www.kplc.co.ke
Article published on November 8, 2017

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