How high power tariffs keep manufacturers uncompetitive

Affordable electricity is still elusive for manufacturers, with the latest Kenya Economic Report showing that Kenyan industries pay twice as much per kilowatt-hour (kWh) of electricity compared to larger exporting economies such as China.

While the government has embarked on an ambitious plan to raise power generation by 7,000 megawatts (MW) to hit 10,000 MW, data shows Kenyan manufacturers are paying between Sh13 and Sh26 per kWh.

This cost is also largely attributed to the country’s power generation capacity which averages 3,200MW. 

This is compared to China where the cost of electricity ranges between Sh10.40 and Sh13 per kWh or Ethiopia’s Sh0.39 to Sh1.17 per kWh.

The report by Kenya Institute for Public Policy Research and Analysis (Kippra) notes that the cheap power in Ethiopia is as a result of its reliance on hydro.

The report compares Kenya’s electricity prices for manufacturers with China, Ethiopia, India, Bangladesh, Uganda, Tanzania, Egypt, the United States, Rwanda, Tanzania, and South Africa as of June 2024.

In South Africa, the cost of electricity per kWh is Sh9.10 to Sh15.60 while India’s ranges between Sh9.10 and Sh19.50.

In the report, Kippra reference a 2021 study which shows the influence on electricity prices on products. For example, in increase in electricity by 1.9 per cent cause ex-factory prices to go up 8.1 per cent.

In 2017, the increase in electricity cost stood at 4.2 per cent and percentage change in ex-factory prices was 18.7 per cent. In 2018, the figures were 6.0 per cent in the cost of electricity and 13.4 per cent in ex-factory prices.

“An increase in electricity costs raises the ex-factory price, as electricity is a component of production expenses. For instance, in 2019, several sectors – including chemical and allied, food and beverage – experienced declines in both ex-factory prices and electricity costs following removal of fixed charges across all consumer categories under the 2018/19 tariff structure,” Kippra says in the recently launched 2025 Kenya Economic Report.

In that year, 2019, a drop of 2.7 per cent in electricity cost resulted to a 1.7 per cent change in ex-product prices. Kippra explains that the cost of electricity features as both a manufacturing and non-manufacturing cost component.

“However, electricity is a primary input for various manufacturing processes, and therefore the highest proportion of cost is in the production of goods,” the report says.

It adds that higher electricity prices can lead to increased operational expenses, thereby eroding profit margins.

Additionally, Kippra says, in a global marketplace, manufacturers must remain competitive on cost, and elevated electricity expenditure can force firms to raise product costs, making them less competitive against those from regions with lower energy costs.

“Kenya’s cost of electricity for industrial users ranges from approximately Sh13 to Sh26 ($0.10 to $0.20) per kilowatt-hour (kWh), making it relatively high compared to regional and global counterparts,” the Kippra report says.

Kenya Association of Manufacturers (KAM) in a report published in November documents how cost of electricity is a hindrance in making Kenyan products competitive on the global stage.

The report, Kenya Export Competitiveness Study, prepared in partnership with the German development agency, GIZ, notes that electricity is a core input for agro-processing, manufacturing and cold-chain logistics.

“Kenya’s industrial tariffs sit near the top of the range among both African and Asian competitors,” reads the report. “Typical industrial or large commercial users pay around Sh22.1 and Sh23.4 per kWh in Kenya compared with roughly Sh13 in Bangladesh, Sh9.88 in Vietnam, Sh12.48 in Tanzania and as low as about Sh5.33 in Egypt and Sh1.56 in Ethiopia.”

Singapore, which Kenya is now benchmarking with in its ambition to industrialise, has its prices at between Sh21.45 and Sh27.3 which KAM says its high but predictable as it is offset by world class logistics and efficiency.

It adds that even Uganda which historically had higher tariffs, has moved to cut industrial rates to around Sh6.5 per kWh for large manufacturers, underscoring a regional shift toward using power pricing as a competitive tool.

KAM explains that higher energy costs undermine export competitiveness by raising unit production costs in energy-intensive sectors such as steel, cement, chemicals and food processing, reducing the margins or forcing firms to set prices above those of regional and global competitors. Additionally, it weakens the country’s attractiveness to new export-oriented investors who can often secure lower and more predictable tariffs in other countries such as Egypt, Vietnam, Ethiopia and Uganda.

“They (high energy costs) narrow the fiscal and commercial space for firms to invest in quality upgrades, cold-chain infrastructure and process innovation needed to move up value chains, slowing the diversification from primary commodities into higher-value manufactured and processed products,” the report says.

The manufacturers’ lobby says while Kenya has a unique advantage of proximity to raw materials and skills, high electricity tariffs can wipe out that edge.

“Unless industrial power prices move closer to regional benchmarks, through a mix of tariff reform, grid efficiency, contract restructuring and expanded low-cost generation, energy will remain a structural component of the cost-and-friction wedge that keeps Kenyan exports uncompetitive in price-sensitive markets,” the lobby body says in the report.

In the draft Budget Policy Statement 2026 published in December that will dictate the country’s 2026/2027 budget, the John Mbadi led National Treasury reiterates President William Ruto’s plan of expanding the energy infrastructure to achieve 100 per cent electricity connectivity over the medium term.

Off-grid solar solutions in remote areas and development of renewable energy mini-grids will play a key role in increasing the country’s electricity capacity and connectivity.

“To meet rising demand, the government will increase national power generation capacity by an additional 10,000 MW through geothermal, wind, solar, and hydroelectric projects,” says the National Treasury in the Budget Policy Statement says.

It adds: “This expansion is designed to support growing industrial activity and drive sustained economic growth.”

The statement notes that reliable and affordable energy supply remains central to powering manufacturing, promoting agricultural value addition, and enabling digital transformation across all sectors of the economy. The National Treasury documents that in a bid to enhance energy access, reliability, and sustainability, the Government has increased the national installed power generation capacity by 160 MW, raising total capacity from 3,076 MW to 3,236 MW.

Additionally, to strengthen electricity transmission and distribution, 405 kilometres of transmission lines have been constructed, alongside five new high-voltage substations, 1,321.9 kilometres of medium-voltage distribution lines, and 20 medium-voltage distribution substations. And to expand access in off-grid and underserved regions, the government constructed five new hybrid mini-grids and installed 169,494 Standalone Solar Home Systems, improving clean energy uptake and supporting rural development.

“A total of 1,185,481 new customers were connected to electricity, including 2,082 public facilities, while 27,027 street lighting points were installed to enhance safety and support 24-hour economies,” the statement says