Powering the Future: Kenya Makes Strides in Regional Energy Leadership
Endowed with diverse and robust energy resources, Kenya is uniquely positioned to achieve its economic goals through strategic energy sector development. The country’s population benefits from one of the highest rates of energy access in sub-Saharan Africa, experiencing dramatic increase in access rates over the past 20 years driven in large part by stakeholder and government leaders who prioritized energy growth in policy and planning, including in the Kenya Vision 2030. Kenya’s policymakers aspired to universal access to electricity by 2030, but in 2013 the government revised the target to 2022 to accelerate the achievement of this goal.
Despite its achievements, persistent challenges limit progress in Kenya’s energy sector. Electricity can be unreliable and is costly for consumers, so energy demand has not kept pace with the huge growth in supply. The distribution utility is working to improve efficiency, raise profitability, and de-risk the long-term sustainability of the sector.
Power Africa is expanding affordable and reliable electricity services in Kenya to support inclusive economic growth, security, and improved health and education. In Kenya, Power Africa works to optimize power supply, increase grid-based power connections, and strengthen utilities and other energy sector entities.
Preparing for a Quantum Leap
According to a draft White Paper from Kenya’s Ministry of Energy in July 2022, part of Kenya’s long-term vision for its energy sector is a “quantum leap” in electricity generation capacity, from the current three gigawatts (GW) to 100 GW by 2040. To support these ambitious goals, Power Africa has worked closely with policymakers and utilities to facilitate comprehensive self-assessments and strategic planning.
Power Africa led a multiyear process to strengthen organizational leadership and governance and encourage better energy sector investments. The baseline assessment informed the development of a cooperation matrix between USAID and the Ministry of Energy (MOE) to align Power Africa partners with sector priorities.
Since 2014, Power Africa has supported the MOE to strengthen its operational and technical capacities, including through the placement of a dedicated, in-house advisor and training on public–private partnerships, energy contracts, and gender equity, among other topics. Power Africa advisors supported the regulation updates across Energy Act 2019 and Ministry of Energy to co-develop a clear and consistent policy road map that will accelerate energy development goals; the aforementioned White Paper.
Climate Change Adaptation
Kenya has one of the most diverse energy mixes, and is now among the top 10 renewable power-producing countries in Africa and ranks eighth in the world in geothermal production capacity.
Kenya continues to invest in renewable energy and has committed to net-zero climate impact in energy production by 2050. To date, Kenya has tapped into only two percent of its renewable energy generation potential, while consumer demand and investment have vast room for growth.
Utilities must likewise adapt their business models and infrastructure to ensure that affordable power reaches their customers. Bringing clean energy to both urban and rural populations require far-reaching and reliable transmission and distribution infrastructure and already Kenya is investigating battery-storage opportunities with pilots.
Loss-Reduction Strategies Help Kenya Power Operate Sustainably
Electricity prices in Kenya are higher than the global average, and among the highest in Africa, limiting household use and discouraging energy-intensive business. As a result, Kenya’s energy demand is below its current supply and continues to struggle to close the gap, with COVID-19 related lockdowns in 2020 and 2021 and high fuel prices in 2022 compounding the already challenging situation.
To ease the cost burden for consumers, former Kenya President Uhuru Kenyatta pledged to bring down electricity tariffs. However, a subsequent top-down, mandated tariff reduction also decreased revenue for utilities like Kenya Power. The 15 percent tariff decrease, implemented in December 2021, reduced Kenya Power’s annual revenue by 4 percent. This abrupt loss will impact the utility’s operational and capital expenditures for years to come. Recent reports however indicate that the Kenya government is planning to reverse the tariff reduction in January 2023.
With support from Power Africa, Kenya Power embraced a comprehensive loss-reduction strategy to help improve the company’s operational efficiency and increase profitability.
In a pilot initiative, Power Africa worked with the utility to develop a commercial loss-reduction road map that focused on high-impact, quick wins to increase revenue collection in one high-consuming area.
The utility’s workforce now boasts strengthened capacity for energy accounting, data analysis, and business process reengineering at the regional and national levels.
As a preliminary result, Nairobi regions reported a 141 percent increase in revenue and a 14 percent improvement in billing efficiency between October 2019 to September 2022. Revenue from new connections, which are crucial to the profitability and longevity of Kenya Power, contributed to a significant 7 percent increase in annual energy sales.
According to Robert Mugo, Chairman of Kenya Power’s Loss-Reduction Task Force, “Power Africa’s loss-reduction approaches…have helped increase efficiency and organizational performance…We are working with them to roll out the [pilot] program to the rest of the country.”
The utility has begun implementing the loss-reduction approach in 25 high-consuming areas in all its active regions.
Supporting Robust Energy Policy
Strong regulatory and policy frameworks inspire confidence in the energy investments that are necessary for sector growth. The primary contracts, or power purchase agreements (PPAs), define the legal relationship and revenue streams between power producers and distributor Kenya Power. These negotiated agreements are the basis for electricity supply to consumers and are fundamental to a functional energy sector.
In March 2021, the Kenyan government suspended new PPAs and established a presidential task force to review and renegotiate existing agreements in response to affordability challenges and COVID-19 related sector growth challenges.
As a trusted sector stakeholder, Power Africa participated in the task force and contributed technical assistance to the taskforce secretariat. The establishment of the task force and its eventual report demonstrated that effective policy is a priority for Kenya, and it represents an important opportunity for strategic planning. Assistance from Power Africa will help ensure that the final PPAs are data-driven, represent the needs of sector stakeholders and consumers, and incorporate long-term energy objectives.
Since 2013, Power Africa has facilitated more than two million new on-grid connections in Kenya, a 16-percentage point reduction in utility losses in Nairobi regions, and a 12 percent increase in utility revenue. These results are expected to multiply as the institutions and utilities supported by Power Africa implement new skills, strategies, and plans. Thanks to a progressive agenda, Kenya is outpacing its neighbors at energy frontiers. Power Africa is helping to cement Kenya’s regional — and global — energy leadership in the years to come.