Power sector reforms scare investors, says report

An unrecognisable utility workman carries out repairs on a transformer connected to an 11000 volt power line. [File, Standard]

Kenya’s power sector is becoming unattractive to investors following recent developments in the industry that include Kenya Power’s freeze on signing new agreements with independent producers and the clamour for lower electricity costs.

A new report on infrastructure in Kenya by Moody’s notes that in addition to the perennial problems of land acquisition for building power plants and transmission lines, a change in the regulatory framework gives the industry an uncertain outlook that is unattractive for investors looking for opportunities in the sector.

Earlier this year, Kenya Power froze signing of new power purchase agreements (PPAs) with producers while there has been a consistent push to lower the cost of power for both industrial and retail consumers.

Other developments include the cancellation of the environmental licence for a coal plant at Lamu, which Moody’s says might affect how international investors perceive Kenya.

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“The power sector faces uncertainties, however, arising from an evolving regulatory environment and weakness in coordination among Government and regulators and in the implementation and politicisation of sector planning,” said the rating agency in a report yesterday analysing Kenya’s infrastructure and project finance.

In January, Kenya Power said expected capacity form planned power projects far outstrip demand and turn out to be a burden on consumers, a position also held by the Energy and Petroleum Regulatory Authority (Epra).

“In January 2019, Kenya Power announced an indefinite freeze on signing new PPAs, citing financial constraints and excess capacity. In this context, we believe the sector is exposed to increasing risks arising from the creditworthiness of Kenya Power and also political pressures that may limit tariff increases,” said the report.

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“Some projects may not get completed, or fail to procure power purchase agreements for their output. The future of the 1,050 megawatts Lamu coal-fired plant was thrown into doubt in June 2019 when a Kenyan court halted construction of the country’s first coal-fired power station on environmental grounds.”

Other challenges include land acquisition and resettlement and delays in planning and implementation of transmission projects, “which have in some instances hindered effective absorption of this capacity into the grid,” said Moody’s.

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Kenya currently has an installed capacity of 2,732MW, with a peak demand of about 1,870MW.

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