Factors that may make or break Kenya’s 5,000+MW power policy

Kenya has an ambitious target of realising an additional electric power generation capacity of 5,000 megawatts in the next 40 months as from September 2013, according to the Ministry of Energy and Petroleum.

The Cabinet Secretary for Energy and Petroleum, Davis Chirchir, carries a heavy burden in steps to realise this target.

Kenya’s Vision 2013 has identified energy as one of the infrastructural enablers of growth and macroeconomic stability, equity and poverty reduction and improving governance— the three pillars of Vision 2030.

The Second Medium Term Plan (MTP), 2013 — 2017 developed out of Vision 2030 and the Jubilee Coalition Manifesto, envisage its implementation to increase electricity installed capacity by 5,538 MW in 2017; which informed the 5000+MW power policy.

The 5,000+MW power policy is in essence, a well though- out economic target and not a political target as has been alluded to in some quarters.

The 5,000+MW power policy is by all means a noble and commendable policy. Kenya needs affordable, reliable and sustainable electricity supply in order to transform into an industrialised country.

The realisation of an additional 5,000MW of electricity is depended on a number of factors that will make or break the policy.

Currently, Kenya has about 1,770MW of installed electrical power, according to Energy Regulatory Commission statistics.

One of the key determining factors that should be given due consideration to realise this policy is the availability of adequate financing to generate the 5,000+MW of power. The bulk of these financing is expected to come from the private sector.

Private sector financiers are known to be experts in investment risk assessment and hence to invest in the 5,000+MW policy, there is a high likelihood for demands for power purchase agreements (PPAs) to have “take or pay” clauses and tariffs with capacity charge components.

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Take or pay clauses and capacity tariff components in PPAs may most likely end up increasing the end user cost of electricity far above the projected decrease of about 40 per cent as a result of lower generation tariffs expected out of the 5,000+MW of power.

A second factor in the radar is the demand side. Where will the consumption of the additional 5,000+MW of power come from?

Any investment with a sound, ready and hungry market will always have the right, easy and assuring heart beats of investors.

According to the Kenya Population and Building Census of 2009, only about 18 per cent of Kenyans are connected to electricity. Current non-scientific estimates put connectivity at about 28 per cent.

Kenya’s population grows at an average rate of one million people per year and hence the connectivity rate may remain within the range of 18-28 per cent unless significant steps are taken to enhance rural electrification. This implies that about 72 - 82 per cent of Kenyans will be part of the market to utilise the 5000+MW of power.

The Second Medium Term Plan, 2013 – 2017 has clearly identified a number of flagship projects that are directly positioned to provide the demand side component of the 5000+MW policy.

These flagship projects include Konza Technology City, The Standard Gauge railway, the Lamu Port, South Sudan, Ethiopia Transport Corridor (LAPSSET), steel smelting factories, a fertiliser factory, a petroleum refinery, mining industries, modern agricultural farming methods and others.

Generation

These flagship projects are anticipated to be financed and developed within the period of 2013 – 2017 to provide the much needed large segment of electricity demand to match generation.

The relevant line ministries, in close collaboration with the National Treasury and Ministry of Devolution and Planning, have a key role to play towards the realisation of the 5000+ MW power policy.

A third important factor to take into account is the power infrastructure development to support the 5,000+MW to be generated. Thousands of kilometres of both transmission and distribution lines will be needed to transport this power to the end users.

The infrastructure is important for efficient and reliable power supply; more especially for Kenya where current distribution losses are as high as 18.6 per cent, according Kenya Power annual report and financial statements for the period ended June 30, 2013.

Massive financing for the power infrastructure development is also needed which will mainly come from public financing and partly from public private partnerships financing.

The fourth factor is the human capacity development to support this massive generation, transmission, distribution, industries and other related developments.

There is a potential to create thousands of highly skilled jobs and hundreds of thousands of other jobs that must be adequately planned for in advance to benefit Kenyans.

Manpower

Failure to adequately plan training for the required skilled manpower may run into a risk of importing these from other countries.

The Ministry of Education, universities, technical training institutes and other middle level colleges must develop appropriate plans for human capacity development to meet this demand by 2017.

Additionally, Kenya must come to terms with the energy trillema encompassing energy security, energy equity and environmental sustainability. The need to take into account the energy trillema in all plans towards realisation of the 5,000+MW of power by 2017 cannot be over emphasised.

A balanced generation mix, incorporating clean and renewable energy sources is important for the country in the long term.

The jury is out and the country is on a countdown to 2017 and the realisation of additional 5,000+MW of power to energise the economy at an affordable cost.

The writer is a Director of Renewable Energy at the Energy Regulatory Commission (ERC). Views expressed herein are his and do not the represent views of any organisation.