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Kenya unveils ambitious electricity production plan

By By MACHARIA KAMAU | Updated Mon, August 26th 2013 at 00:00 GMT +3

By MACHARIA KAMAU

Kenya is embarking on a grand plan to increase electricity production by 5,000 megawatts in less than four years.

By pushing the country’s generation capacity to over 6,500MW, the programme seeks to do in just 40 months what the country has been unable to achieve in 50 years.

Electricity generators currently have a combined installed capacity of 1,600 megawatts, with 800MW added to the national grid in the last decade.

The Ministry of Energy, which will steer the programme, said it is taking an “out of the box” approach in its new plan. Initially, according to Vision 2030, the country was to have an additional 1,500MW of electricity in place by 2017, which would increase total capacity to a little over 3,000MW.

But the government has decided to fast-track this.

Cost of electricity

The plan is expected to retire the thermal generators, which use diesel, from electricity generation.  This will in turn significantly bring down the cost of electricity, given that fuel is cited among the larger components of electricity bills, former Energy Regulatory Commission director-general Kaburu Mwirichia said.

“This is an ambitious programme where we intend to provide reliable, sufficient and competitive energy for fast socio-economic transformation of our country,” said the ministry in a statement last week.

“Our approach is to think ‘out of the box’ to generate competitively-priced power that will facilitate Kenya to attract new industrial investors while safeguarding the interests of existing and potential investors.”

It added that the programme would entail getting more investors to put money in electricity generation. Currently, KenGen is the major generator, accounting for upwards of 80 per cent of the electricity produced in the country.

“Kenya has an existing framework for Independent Power Producers, with seven existing firms. Another five firms are in the implementation stage and we wish to significantly open power generation to private investors guided by the already developed power matrix,” said the ministry.

There are several Independent Power Producers (IPPs) mostly generating electricity using fossil fuels. The country will seek more IPPs to generate electricity using cheaper power sources.

Ben Chumo, Kenya Power’s acting chief executive, said the programme will be a sector-wide initiative.

“It will be a joint effort among the players in the electricity sector, and it will ensure electricity is affordable, of high quality and reliable,” he said at a recent press briefing.

Affordable energy

“Affordable energy will have instant benefits for the economy. Energy accounts for 30 per cent of the inputs among manufacturers and other heavy users of electricity. If we can bring down the cost of power, Kenya will be able to attract investors, and local industries will also grow and their products will become competitive locally and in other markets.”

Nikhil Hira, head of tax practice at Deloitte East Africa, said the plan would drum up significant investor interest from developed markets.

“It is clear that we are short of power and need to increase it in a big way and fast. If we are to achieve middle-income status by 2030, we need to sort our power issues,” he said.

He added that the power plan could be something the government has been working on for a while, noting that there have been efforts to give investors in electricity generation tax breaks.

The VAT Bill 2013 proposes exempting equipment and supplies meant for power generation plants, a move that would play a role in attracting investors into the significantly high risk and capital intensive sector.

The high cost of power has been cited among factors that have made the country an unattractive investment destination. It has also made locally manufactured goods uncompetitive, not just in the export market but also at home, with imports retailing at lower prices.

“Fuel is what drives up the cost of our energy … if we have to bring down the cost, fuel is something that we have to tackle,” said former KenGen chief executive Eddy Njoroge.
 



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