The last four years have been a glorious for the energy sector. The Uhuru Kenyatta administration has implemented major policy decisions that have seen unprecedented rise in nationwide access to electricity.
Considering the high cost of running the economy owing to the ongoing implementation of the 2010 Constitution, the energy sector has received what some have described as a disproportionate attention from the Jubilee administration, perhaps only rivaled by the Standard Gauge Railway project.
To underscore the important place of energy in the big scheme of things, State House hosted a high profile energy summit two weeks ago to take stock of the gains and address the outstanding impediments in the sector. With barely a year to go before the next general election, the summit could not have been timelier.
One of the areas which received the greatest attention in the Jubilee manifesto is the energy sector, and with good reason. Energy directly impacts the cost of production and therefore influences the investment choices of both local and foreign investors. While the net cost of energy in the country has reduced considerably, we are yet to get to a level where we can compete favourably for foreign direct investment (FDI) with the world’s top investment destinations.
During the administrations of NARC and Grand Coalition government, the Ministry of Energy developed the Sector Recovery Plan and Parliament passed the Energy Act of 2006. At the same time cash strapped Kenya Power and Lighting Company (now Kenya Power) was bailed out and KENGEN was supported in securing loans to fund geothermal projects. The Uhuru Kenyatta administration has led the takeoff from grand plans on paper to actual implementation that has seen millions of new customers connected to the grid and manufacturers reaping the benefits of cheaper electricity.
Key highlights of the administration’s agenda are the 5000MW plan, the Last Mile connectivity project and the Euro 150 million 280MW from geothermal at Olkaria I & IV field funded by the French Government. These have enabled the government to reduce the fuel pass through thermal power to consumers.
The number of domestic customers connected to national power distributor, Kenya Power, rose from 2,264,508 in March of 2016 to 4,907,663 in July the same year. With an estimated population of 45,477,421, that is an increase from 23% access rate to 59.4%. The greatest improvements were registered in the rural areas where connection to the grid had remained a mere dream for the majority. Migori County, for instance, saw an increase from 4% access rate to 21%, Homa Bay grew from 4% to 20%, Wajir from 6% to 18% and Turkana from 1% to 4%. There is no doubt that if this trend is sustained with government commitment and adequate funding, it will be theoretically possible to connect the entire country within the next five years.
Apart from devolving power to the hitherto unconnected, the government also made deliberate policy decisions to reduce the cost of single phase and three phase connectivity. The partnership with GPOBA for expansion of electrification to low income areas while reducing commercial losses from theft of power has been minimized. Other successes are the introduction of Huduma centres for speedy service delivery, improved cargo flow and digitized payments.
One weakness which has affected the stability of power supply is that our power grid operates on a one line arrangement meaning any generation or distribution fault on the main line can plunge the entire country into darkness. Elsewhere, countries have multiple supply cables such that if one fails, at least one or two are used. Apart from replacing the dilapidated power lines responsible for over 20% electricity losses during transmission, plans are on course to have alternative line via Suswa. The Olkaria-Suswa 440kv transmission line, however, has been having challenges due to community compensation issues. Once addressed, it is expected to address this challenge once and for all.
Renewable energy the future
While the government basks in the glory of its successes, it must not rest on its laurels. We still got a long way to go to be at par with South Africa, Egypt and even our neighbour, Ethiopia. Our economy cannot be competitive unless we reduce the cost of power by at least 50% over the next four to five years.
One of the areas where there is limitless potential is in the development renewable energy. Investing in renewable energy not only makes good business sense for investors, it is also a good investment on the planet, which is greatly endangered by the potential devastating effects of climate change.
The primary objective of investing in renewable energy is to scale up energy efficiency, enhancing the reliability of distribution, lowering the cost of energy to families and businesses and curbing carbon dioxide emissions to the atmosphere. The net effect should be increased investment by local and foreign entrepreneurs resulting in more job opportunities, economic growth and increased individual incomes. By their nature, renewable energy projects are labour-intensive compared to traditional electricity generation, which is why they create more job opportunities at home. The resources are also local, which means most of the money can be kept in the local economies.
The 300MW Lake Turkana Wind Power Project, potentially Africa’s largest single wind power project is a demonstration that development partners and private capital can successfully partner with the government in mega renewable energy projects.
Expected to be ready in September 2016, LTWP attracted €623 million (Ksh76 billion) from partners among them African Development Bank and European Investment Bank making it the largest private investment in Kenya’s history. When ready, it is expected to bring down the cost of electricity to $0.10 from the $0.20 contributing to the government’s efforts to halve the cost of electricity within four to five years.
Whereas in the past wind, solar and biomass were considered too expensive and a poor investment both in the short and long run, recent indications, particularly with increased governmental support, are that renewable energy actually make smart investment and can be cheaper than traditional sources of power when viewed in the long run.
What this means is that we can actually roll out aspects of renewable energy to deal with the rising costs of fossil fuel and to curb the growing impact of climate change, which is good for long term business health. Our region, after all, is known for its sunny and windy conditions, thanks to its location on the equator and expansive savannah.
The unreliability and high cost of power has made energy intensive industries such as textile and sugar uncompetitive in the global market place and has consequently kept some investors away. For instance, had it not been for the duty free AGOA arrangement, the textile industry in the region would have all but collapsed owing to the high cost of production. Reducing the cost of power by investing in renewable energy, may in the long run help address the high cost of production, which continues to put our economy at a disadvantage
Germany, Europe’s biggest economy, is a shining example that it can be done, with its massive renewable energy projects running side by side with traditional sources of energy. Although the initial costs of energy may go up due to the heavy investments, the long term benefits far outweigh the short or medium side-effects. As Germany plans to switch off its last nuclear plant in 2022, its share of energy from renewable sources, mainly sun, wind and biomass is expected to grow to 60 per cent of all energy sources by 2050. Unlike Kenya, the sun goes on ‘recess’ in Germany during winter and the wind is rather unpredictable.
Small off-grid power producers in rural districts can have a ripple effect in local economies providing lighting, water pumping, enabling communication and creating jobs and expanding the skills base of workers. Institutions such as schools, hospitals and cottage industries can significantly reduce their energy spend by using wind and solar power to supplement the grid.
The State of Maine in the United States, for instance, generates 25% of its electricity from biomass, which supports 2780 jobs in the plant and associated retail and service sectors.
To encourage institutional investors, governments must put in place consistent policy frameworks that go beyond tax credits as investors who are already tax-exempt, such as pension funds, may not find them attractive.
The impediments to shifting from a predominantly carbon-based economy to clean energy cannot be understated. Our economy still suffers from inadequate know-how, a weak regulatory environment and limited access to finance, all of which have hindered the development of renewable energy in the past. Additionally, renewable energy tends to have a high marginal cost compared to diesel and hydropower plants.
However, with the success of LTWP, powered by public-private partnerships and innovative financing, the sector is expected to generate increased interest over the next decade.
Peninah Muriithi is the chief communications adviser at the Africa Center for Strategic Futures: Kenya Project.