New bid to block unused power gravy train for electricity firms

 Kenya Power Chief Executive Joseph Siror. [File, Standard]

Kenya has begun negotiating new power purchase agreements (PPAs) with electricity producers after a seven-year freeze.

New deals will see the introduction of new conditions that could require solar and wind developers to integrate battery energy storage systems while phasing out long-standing take-or-pay guarantees that have underpinned project financing in the sector. 

Compelling solar and wind power plants to have battery storage systems is intended to cushion the national electricity grid from growing instability linked to the rising share of variable renewable energy (VRE) sources, primarily solar and wind, whose intermittency has at times contributed to grid disturbances and occasional system collapses.

At the same time, the proposed removal of take-or-pay clauses is aimed at shielding electricity consumers from paying for unused or excess electricity generated by the power producers, a cost burden that has historically been passed on through electricity tariffs.

The shift, however, could prove less attractive to independent power producers (IPPs), who have traditionally relied on such guarantees to secure financing for capital-intensive renewable energy projects.

Guaranteed payments under the take-or-pay framework ensure they are able to service their bank facilities, even when they are unable to sell electricity to Kenya Power or fall short of targets.

Kenya Power Chief Executive Joseph Siror said the utility recently started negotiations with power producers for new PPAs, and the two conditions are among the issues it will insist on during the talks.

“Our grid has a high proportion of intermittent power sources, and that is not tenable,” said Siror, adding that future investments must achieve a proper generation mix.

“It cannot progress at the same pace, with VRE growth outpacing plants that can be used as base power. It poses a serious challenge because we have industries in the country which are sensitive to power frequency dips.” He noted that some industries perennially suffer significant losses due to power fluctuations linked to intermittent generation.

“When solar drops because of cloud cover, that reflects on the grid as a frequency dip. That frequency dip alone can at times cause what was being manufactured in a factory to all be lost,” he said.

“So what we will be doing is determining how much intermittent capacity we require so that we do not have more than we need.” “We are also requiring them to come with storage. Any solar or wind power plant that is going to come on board will need to have a battery energy storage system.”

Power sector authorities say they are currently flooded with proposals to set up solar and wind plants, while there are relatively few takers for geothermal and hydroelectric projects, despite the latter being preferred because they can supply power consistently.

While solar and wind are green energy sources, they are intermittent and are not always available when needed to feed the grid.

This is particularly the case during evening peak demand hours between 6 pm and 10 pm, when solar plants are not generating, and wind production may also not be at optimum levels.

This is unlike geothermal and hydro plants, which can be called upon to supply electricity whenever needed. “We will expedite PPAs for any geothermal and hydropower plants because these will really assist in curing the kind of challenges that we have from VREs. But for these others, they must come with battery storage,” said Siror.

Kenya resumed engagement with power producers after lifting a seven-year moratorium on negotiations and signing of new PPAs. The government imposed the freeze in May 2018 and lifted it in November 2025 as it sought to review the structure of PPAs to ensure they did not impose unnecessary costs on consumers and only captured prudently incurred expenses and reasonable margins.

Previously, clauses such as take-or-pay guaranteed producers' earnings even when they did not feed electricity into the national grid.

The costs were borne by consumers and have been among the factors blamed for high electricity prices, which have, in turn, undermined the competitiveness of locally manufactured goods.

Due to the moratorium, Kenya has not added new power generation capacity in recent years, resulting in stagnation in installed capacity.

According to data from the Kenya National Bureau of Statistics, installed electricity generation capacity has remained largely unchanged since 2022 at about 3,340 megawatts (MW).

Siror said that although negotiations with investors have resumed, no new PPA has yet been signed.

Wind and solar plants have, over the last eight years, grown to account for about 20 per cent of the country’s installed capacity.

Solar generation

In 2018, the only wind power plant connected to the national grid was KenGen’s Ngong Hills plant with a capacity of 25.5MW. Since then, additional projects, including the Lake Turkana Wind Power plant with a capacity of 310MW and the 100MW Kipeto Energy project in Kajiado County, have pushed installed wind capacity to 436MW.

Solar generation has also expanded beyond the state-owned Garissa Solar plant, which has an installed capacity of 50MW.

Other plants that have come on stream in recent years include Globeleq’s Malindi Solar plant (40MW), Selenkei (40MW), Cedate (40MW) and Alten Kenya Solar Farm (40MW).

A significant number of investors seeking PPAs with Kenya Power are proposing additional solar and wind projects, while fewer proposals are being made for geothermal and hydro plants because of the huge capital outlay required, despite their reliability.

Siror said Kenya Power would also push to remove the contentious take-or-pay clauses from future PPAs. For years, power producers in Kenya have enjoyed take-or-pay arrangements that guaranteed payment regardless of whether the grid actually absorbed the electricity generated or curtailed it because of oversupply.

The cost was passed on to consumers and has been widely blamed for contributing to the high cost of electricity.

“The initial arrangement for all the VREs was an arrangement which is called take or pay. Which means you take it, or if you don’t, you still pay for the same. So it is one of the areas that we have been engaging in during the negotiations,” said Siror.

“Kenyans have really been very hostile to that particular position. And rightfully so.”

To protect consumers from paying for electricity that is not used while still keeping Kenya attractive to investors, Siror said Kenya Power is seeking to replace take-or-pay clauses with a more flexible balancing mechanism.

Under the proposed framework, when Kenya Power rejects solar generation because of grid instability or low daytime demand, developers would be compensated through future commercial opportunities rather than immediate cash payments. Siror explained that VRE plants could be allowed to generate beyond their annual contractual obligations and extend the lifespan of their PPAs in order to recover lost opportunities.

“We also understand why developers want a take-or-pay arrangement. When you are dealing with solar, for example, if the offtaker does not take the power when it is available, the power plant owners lose that opportunity to generate revenue,” he said.

The risks posed by intermittent renewable energy sources have repeatedly been flagged in recent years as the share of wind and solar generation on the grid has grown.

In a December 2024 report, the National Assembly’s Departmental Committee on Energy recommended making it mandatory for companies building solar and wind plants to equip them with energy storage systems to reduce disruptions to the national grid. The committee noted that while solar and wind provide cleaner and relatively cheap electricity, they are unavailable during periods of peak demand.

As a result, the country has continued relying on costly thermal plants to bridge supply gaps.

The committee argued that equipping such plants with battery storage would enable them to supply electricity during peak demand hours and potentially displace expensive thermal generation.

“All intermittent sources of energy projects, that is, wind and solar, being onboarded to the grid should be fitted with Energy Storage Solutions as a mitigation measure to their intermittency,” the committee said in its report following an inquiry into the high cost of energy in Kenya.

Minimum generation

Earlier, in 2021, the Presidential Task Force on Review of PPAs, chaired by John Ngumi, had also flagged the risks posed by intermittent power sources.

The task force said its analysis of wind and solar plants showed that many had underperformed against the generation requirements set out in their PPAs, largely because of intermittency.

It recommended that future wind and solar projects compensate Kenya Power whenever they fail to meet minimum generation requirements and further proposed that future IPPs with high intermittency “take financial risk for predicting their daily, weekly or monthly dispatch of power.”

“The penalty for under-producing would be to compensate the grid at the cost of the thermal plants or the highest peaking plant on the grid as an alternative to the under-generation compared to the forecast,” the task force said.

The Office of the Auditor-General has also warned about the impact of intermittent renewable generation on the national grid.

In a report on Kenya Power for the year ending June 2023, the Auditor-General noted that whenever generation from solar and wind plants drops suddenly, Kenya Power is forced to dispatch other generators at additional cost to stabilise the system.

“These generation sources are continuously supported by other plants which are dispatched to meet the difference of generation dropped at any one time,” said the report. “Where there is a sudden rise in generation due to intermittency, the power system also becomes unstable and leads to excess generation above the demand, and this also leads to poor power quality for customers.”

The Auditor-General said there was a need for a cost-effective stabilisation mechanism and regulations requiring renewable energy projects to install stabilisation systems as part of power generation contracts.