Kenya Power should rethink its electric cars strategy

Last month, the Kenya Power and Lighting Company #ticker:KPLC announced plans to roll out a national network of electric vehicle (EV) charging stations, intending to unleash new revenue streams and diversify their business.

No details have been provided about how exactly they plan to fund and execute this ambitious project, and the proposal has been met with general enthusiasm. However, moving too quickly to build a new charging infrastructure without the fundamentals in place could be a major mistake.

At first glance, Kenya Power’s plans seem timely and progressive. The firm isn’t the first African utility to express EV ambitions, though their plans for a national network are quite ambitious relative to the rather modest ventures that have been put on the table so far.

By comparison, South Africa’s Eskom — Africa’s largest utility — has committed to a small EV pilot comprising six vehicles and 15 charging stations, according to recent reports. Yet EVs are on the ascendancy globally, forming an important linchpin of the global climate and energy transition.

The EV adoption is growing at a rapid pace, and the International Energy Agency projects that 60 percent of global car sales will be electric by 2030.

Kenya is particularly well-positioned to lead Africa on EVs. Our electricity mix is overwhelmingly carbon-free — over 90 percent of our power was generated from renewable sources in 2020 — boosting the green credentials of our EVs relative to countries that are reliant on dirtier energy.

Electric vehicles can also help clean up our notoriously polluting transportation sector, accounting for about 12 percent of our greenhouse gas emissions in 2015 and a major contributor to the air quality crisis in our urban areas as well as reduce our reliance on fuel imports that take up 40 percent of our foreign exchange earnings.

The government has also adopted a target to increase the share of EVs to five percent of all car imports by 2025 and halved import duties for EVs, among other policies and incentive schemes under consideration to create an enabling environment for EV adoption.

Kenya already boasts a small but growing EV startup ecosystem, with many capitalising on the growing opportunity to electrify its growing fleet of two- and three-wheeled vehicles.

Kenya Power, which has a virtual monopoly in electricity distribution and sales, is necessarily central to Kenya’s EV ecosystem and stands to benefit if it plays its cards right.

Like many African utilities, the utility is in a state of perpetual financial crisis and is desperate for the demand stimulation and diversification opportunities offered by EVs. But their proposal to focus their efforts around aggressive charging infrastructure is hasty and flawed.

For starters, Kenya’s grid — for which Kenya Power is responsible is simply not ready to absorb EVs. Reliability is already a major challenge.

Introducing EVs to the mix would add significant stress to a fragile system.

Despite recent tariff cuts, power prices are still high, which will significantly limit the value proposition for cost-sensitive consumers.

Given this toxic combination of low reliability and high prices, Kenya Power risks replicating their existing captive electricity problem, where industrial and commercial customers chose to save costs by self-generating, pushing customers away.

Building out EV charging infrastructure at scale is also an expensive undertaking — an estimated $500 billion in investment is needed globally by 2040 — and requires cooperation across a diverse cast of public and private sector stakeholders.

Kenya Power will certainly be one of the major players in the mix, with varying levels of involvement across the value chain from their core role in electricity provision and management to strategic roles in installation, ownership and/or operation of charging points.

The extent of their involvement in the latter will require careful thought and planning and has significant implications for market competitiveness, utility fiscal health, ratepayer costs, and other issues.

Finally, Kenya Power should take advantage of the massive opportunity to pilot their EV plans through progressively electrifying their substantial fleet.

There could also be similar opportunities to partner with anchor commercial and industrial customers to support their fleet electrification and commercial EV plans, including the growing number of EV startups, creating symbiotic arrangements similar to those with data centre customers.

Dr Rose M Mutiso, Research Director of the Energy for Growth Hub