Off-grid power firms set for 50pc investment tax relief

Off-grid power firms are set to enjoy a 50 percent tax relief on their initial investment on buildings and machinery used for generation, transformation and distribution of electricity if Parliament approves proposed changes to the law.

The Finance Bill 2021 proposes to amend the Income Tax Act to include generation, transformation and distribution of electricity—both on the national grid and off-grid to encourage investment. Currently this is limited to generation, transformation and distribution of electricity to the national grid.

"By amending the definition of “manufacture”... persons who incur capital expenditure ...will be entitled to an accelerated investment allowance at 50 percent of the cost in the first year of use," consultancy firm, Deloitte said in an analysis.

Energy generation is capital intensive and such tax reliefs would spur additional investment and increase electricity coverage.

Kenya is currently implementing a series of off-grid electricity projects including the Ministry of Energy and World Bank-backed Kenya Off-Grid Solar Access Project which is aimed at providing electricity to parts of the country that are not served by the national grid.

The project targets to restore balance in electricity access in the country.

Data by the Energy ministry shows that though national electrification has risen from 23 per cent in 2009, to about 70 per cent today, much of these have been achieved alongside the central corridor of the country –Mombasa – Nairobi- Lake Victoria, leaving out North East and Northern Kenya un-electrified.

The project targets to close the gap by connecting an estimated 1.3 million households in West Pokot, Turkana, Marsabit, Samburu, Isiolo, Mandera, Wajir, Garrisa, Tana River, Lamu, Kilifi, Kwale, Taita Taveta and Narok.

Apart from the State-backed initiative, more off-grid solar power start-ups are pouring into Kenya's rural areas, offering pay-as-you-go kits in a race for customers.

Households and heavy-consuming industrialists in Kenya have over the past five years also turned to solar, seeking reliable and cheaper supply—a move that has upset electricity distributor Kenya Power in the wake of its reporting lower sales and losses.

Globally, a shift to solar batteries has also become popular among power grid firms which viewed the energy stored as a way of saving big cash.

Venture capital funds have lately stepped up their investments in the clean and renewable energy space in Kenya.