Kenya's Electricity Sector in 2023 in Review, and 2024 Prognosis

2023 has been a chequered year for the country and the electricity sector in Kenya. The economy suffered from the continued escalation of prices of fuel, also affecting the power generation from thermal plants. The country was also reeling from a prolonged drought carried forward from 2022 that saw a big dip in the production of electricity from hydropower sources and an increase in generation from thermal power plants. Towards the end of the year this changed to a flooding situation that saw the hydropower dams fill up and produce more. The Kenya shilling experienced a big loss in value against the hard currencies implying a need for more shillings to meet hard currency obligations. This caused a strain on the ability to honour contractual obligations.

2023 also saw the increase in electricity retail tariffs after a tariff review exercise that had been three years in the making. KPLC was allowed to collect higher rates with a requirement to reduce the power losses experienced on the grid progressively. The increase was necessary to match new obligations, but the utility needs to focus heavily on reducing losses and improving the quality of supply. Peak demand for electricity rose to 2170MW while the installed capacity rose to 3300MW. There was an addition of 35MW from geothermal and 200MW from the Kenya Ethiopia line.

There was a continued push to renegotiate PPA contracts with the aim of lowering the cost of generation. While there is need to lower costs, the approach used increases risk profile and may lead to future higher costs. The national assembly and senate instituted their own enquiry into the cost of power and power sector in general. The former put in place a moratorium on new PPAs just weeks after the previous moratorium placed by the previous government in 2022 had been lifted. These moratoria continue to put the country at risk of a future supply shortfall.

KPLC, KETRACo, KenGen and GDC got new CEO/MDs, good appointments in my view. The auditor general in her report on KPLC once again gave a damning view of the state of operations of KPLC for the previous year and recommended improvements in efficiency and general management of the utility. KPLC shareholders towards the end of the year brought on board four directors to represent private shareholders in the board of ten. These four get their mandate directly from private shareholders and are expected to act independently for the interests of the company as opposed to state appointed directors.

The quality of supply issues culminating to three national blackouts in the last quarter of the year brought to fore the challenges of the grid. These have been linked to transmission inadequacies because of underinvestment. As a result, after the last national blackout it has been announced that west Kenya may endure power rationing for the at least the next 20 months.

Nairobi also played host to the Africa Climate Summit that brought together delegates from across the continent to discuss the African position on climate change. The conference ended with a declaration promoting the greening of African industry and renewable energy development. Earlier the city also hosted the Africa Energy Forum, a meeting of sector stakeholders from across Africa and beyond focused on power supply. In the year, the Kenya delegation at COP28 also came back with USD 3.5billion worth of deals for investment in power generation in Kenya, some linked to green hydrogen.

The green hydrogen movement in Kenya gained traction in 2023 culminating in the launching of the green hydrogen strategy and roadmap during the Africa Climate summit and subsequent development of guidelines for green hydrogen development. Green hydrogen projects continue to struggle with the requirement of lower costs of power, of less than 3 USD cents/kWh. The strategy and roadmap foresee an initial focus on fertiliser and methanol production for local use followed by ammonia for export.

At ESAK, we studied the captive power market establishing 430MW of installed capacity installed by industries, lodges, shopping malls and other establishments. Captive power installations have been driven by quality of supply issues, attempts to reduce cost and climate responsive investing by companies. These installations are equivalent to 13% of the power installed on the grid.

Transmission projects continue to be built key among them Turkwel-Ortum-Kitale line, the Kenya Tanzania interconnector, and the works at Mariakani substation. These and other lines and substations will prove important to stabilising the grid. These lines would also help reduce the cost of power by allowing cheaper generation to reach stranded loads across the grid. The Kenya -Ethiopia line was completed and energised with Kenya receiving up to 200MW from Ethiopia. The line will also enable further power transfers between Ethiopia and Tanzania.

2023 also saw a directive for the country to move in the direction of electricity auctions from the cabinet. Little has however been done in the way of follow up to this directive. Projects that would fall under these auctions as suggested have however been announced separately. This has been a continuation of half-hearted measures to explore competitive tendering from the last 7 years.

Expectations for 2024

Next year will likely see a continuation of the progress and issues from 2023. The international prices of fuel indicate a continued reduction in price. This looks to be a continuing trend that will be of benefit in reducing the cost of power from peaking plants. Hydro level will start 2024 on a high given the ongoing rains, their sustained high capacity will depend on how rainfall patterns beyond the short rain season, around march, will be.

Power supply inadequacies in west Kenya will continue with completion of important transmission lines including the Narok-Bomet line still unlikely by end of 2024. The muhoroni thermal powerplant will roar back to life to support west Kenya and there will be an increased focus to deliver powerplants in the west. There will be no new build powerplants achieving commercial operation on the grid in 2024. Demand will continue to grow at between 80MW and 140MW with the reserve margin continuing to become thinner.

Pressure on existing PPAs will likely continue from the houses of parliament with attempts at renegotiation set to continue. There is likely to be some settlement to partially pay PPA obligations in Kenya shillings.

KPLC will see improved performance in 2024 with the settling in of the new management, more independent board, and the effects of higher tariffs, yield of loss reduction strategies and better availability of spares. The consumer price will reduce marginally from current levels owing to the tariff reduction trajectory in the gazetted three-year tariffs, reduction in fuel prices, completion of some key transmission lines and stabilisation of the Kenya shilling.

The captive power market will continue to grow given the quality of supply issues and climate- responsive investing by companies. Solar will continue to be the main driver of this growth. 2024 will likely see the gazettement of the much-awaited net metering regulations and progress on the electricity bulk supply and open access regulations (wheeling regulations). These are key enablers of investments directed at the captive consumption.

2024 will likely see the commencement of construction on 35MW of Geothermal, and battery storage aimed at supporting fluctuations from varying renewable energy sources. 2024 will also see the completion of the Tanzania-Kenya line, Mariakani substation, and advanced development of the Ortum-Kitale line.

COP 29 in Baku Azerbaijan will see similar commitments and deals for investment in Kenya’s power sector and advancement of the status of the COP28 commitments. I however do not foresee any groundbreaking in 2024.

I remain hopeful that the sector will continue to institute necessary policies and stick to prudent and rigorous planning under the least cost development plan.

I of course must add that the views and projections provided above are based on my own assessment of the sector and are guided by information available to me at the time of writing.

Errors and omissions excepted.

Happy holidays! Wishing you an energy filled crossover to the new year ??