Investment Opportunities in Renewable Energy Resources · PDF fileInvestment Opportunities in...
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1 Investment Opportunities in Renewable Energy Resources in Kenya October 2017 By Innovation Norway East Africa
Transcript of Investment Opportunities in Renewable Energy Resources · PDF fileInvestment Opportunities in...
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Investment Opportunities in Renewable Energy Resources in Kenya October 2017
By Innovation Norway East Africa
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Contents 1.0 KENYA AT A GLANCE ................................................................................................................... 3
2.0 KENYA ELECTRICITY INSTITUTIONAL FRAMEWORK .................................................................... 3
3.0 REGULATORY FRAMEWORK: ACT, POLICIES AND REGULATIONS ............................................... 6
4.0 ENERGY SITUATION ..................................................................................................................... 8
5.0 RENEWABLE ENERGY MARKET AND POTENTIAL ........................................................................ 9
6.0 ENABLING ENVIRONMENT FOR RENEWABLE ENERGY INVESTMENT IN KENYA....................... 11
7.0 THE PROCESS OF RENEWABLE ENERGY PROJECT DEVELOPMENT IN KENYA ........................... 12
8.0 SAMPLE OF INVESTMENT READY PROJECTS ............................................................................. 12
9.0 RENEWABLE ENERGY FUNDS .................................................................................................... 13
10.0 TECHNICAL ASSISTANCE AND POLICY ADVOCACY.................................................................... 14
11.0 CHALLENGES HINDERING RE IPPs IN KENYA ............................................................................ 15
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1.0 KENYA AT A GLANCE
Population Estimated 47 million Capital city Nairobi Area 582,000 Sq Kms Borders Ethiopia, Sudan, South Sudan, Somalia, Uganda and Tanzania
Major languages English (official), Swahili (national) Other major towns Mombasa, Kisumu, Nakuru, Eldoret, Nyeri
GDP per capita 1,455 USD (2016) GDP Growth 5.8 % (2016) Currency Shilling Time GMT +3 all year-round
Climate The coast is hot with an average daytime temperature of 27-31
degrees centigrade whilst the average daytime temperature in Nairobi is 21-26 degrees centigrade. Nairobi can become cold enough for coats and fleeces; July and August mark the Kenyan winter. Temperatures elsewhere depend on altitude. Typically, January-February is dry, March-May is wet, June-September is dry, October-December is wet.
2.0 KENYA ELECTRICITY INSTITUTIONAL FRAMEWORK
Kenya’s electricity sector key actors are;
2.1 Ministry of Energy and Petroleum (MoEP)
The ministry is responsible for formulation and articulation of energy and petroleum policies
through which it provides an enabling environment for all stakeholders. Its in-charge of national
energy planning and mobilization of financial resources. Firms seeking to undertake renewable
energy business in Kenya make feed-in-tariff application at MoEP to the address below:
Nyayo House, Kenyatta Avenue.
P. O. Box 30582 Nairobi Kenya
+254 020 310112
http://www.energy.go.ke
2.2 Energy Regulatory Commission (ERC)
ERC is an independent energy regulatory authority. Its responsibilities include tariff setting, review,
licensing, enforcement, dispute settlement and approval of power purchase and network service.
The ERC contacts are:
Eagle Africa Centre, Longonot Road Upperhill
P. O. Box 42681-00100, Nairobi Kenya.
+254 722200947
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http://www.erc.go.ke
2.3 Kenya Power and Lighting Company (KPLC)
KPLC or Kenya Power as its commonly referred to; is the main off-taker in the power sector. It
purchases electricity from all power generators according to the signed power purchase agreement.
KPLC is in-charge of low/medium voltage power transmission and distribution of electricity from the
national grid to consumers. The company is listed on the Nairobi Securities Exchange with private
shareholding at 49.9% and 50.1% is owned by the government. Many analyst place KPLC as one of
the most profitable and creditworthy utility companies in Africa. In fact, Kenya Power has never
defaulted on any Power Purchase Agreement (PPA). The contacts are:
Stima Plaza, Kolobot Rd, Parklands
P O Box 30099 – 00100 Nairobi, Kenya
T+254 (0) 703070707
http://www.kplc.co.ke/
2.4 Kenya Electricity Generating Company (KenGen)
KenGen is the main generator of electricity in Kenya; producing more than 70% of the electricity
capacity installed in the country. The company has an installed capacity of about 1600MW
comprising of hydro (52%), geothermal (32%), thermal/fossil fuels (16%) and wind (2%). KenGen is
listed on the Nairobi Stock Exchange, with 30% shareholding owned by private sector and 70%
owned by the Government. The contacts are:
Stima Plaza, Kolobot Rd, Parklands
P. O. BOX 47936, 00100 Nairobi, Kenya
+254711036000/0732116000
http://www.kengen.co.ke
2.5 Kenya Electricity Transmission Company (KETRACO)
KETRACO is 100% government owned and its main mandate is to build and maintain new high
voltage electricity transmission infrastructure (above 132 kV). It was formed in 2008 in order to
speed-up grid access in rural areas, facilitate grid interconnection with new generating plants, and
enable regional power trade with neighboring countries. The contacts are:
Kawi Complex, South C
P. O. Box 34942 - 00100 Nairobi, Kenya
+254 204956000
https://www.ketraco.co.ke/
2.6 Geothermal Development Company (GDC)
GDC is 100% government owned and it’s responsible for the high-risk exploration, drilling and
development of geothermal fields. GDC sells steam to power plant developers (KenGen and IPPs) for
electricity generation. The contacts are:
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Kawi House, South C
P.O. Box 100746-00101 Nairobi Kenya
+254 719 037000
https://www.gdc.co.ke
2.7 Rural Electrification Authority (REA)
REA is a state corporation mandated to enhance provision of electricity in the rural areas of the
country. Its activities involve planning and commissioning power plants in off-grid areas. The
corporation commenced operations in 2008 and aims at accelerating the pace of rural electrification
in the country. The contacts are:
Kawi House, South C,
P.O. Box 34585 – 00100 Nairobi, Kenya
+254 709 193 000
http://www.rea.co.ke/
2.8 Kenya Nuclear Electricity Board (KNEB)
KNEB is a new government company responsible for spearheading and fast-tracking development of
nuclear electricity generation in Kenya. The contacts are:
Block C Kawi House
P.O. Box 26374-00100 Nairobi, Kenya
+254 (20) 2219410
http://www.nuclear.co.ke
2.9 Independent power producers (IPPs)
IPPs are private companies undertaking power generation activities and sell electricity in bulk to
Kenya Power. Renewable energy projects developed under Feed-in-Tariff policy are part of IPPs. As
at June 2017 there were about ten IPPs in operation, contributing approximately 25% to the
country’s installed capacity. Some of the IPPs in operation include Orpower 4 Inc (110 MW
geothermal), and Mumias Sugar Company (26 MW co-generation) among others.
Other important players in electricity sector include Kenya Renewable Energy Association (KEREA),
Kenya Association of Manufacturers (KAM), and Kenya Bureau of Standards (KEBS).
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Figure 1: Energy Sector Institutions
3.0 REGULATORY FRAMEWORK: ACT, POLICIES AND REGULATIONS
The Government of Kenya recently enacted major policy and regulatory changes to enhance
investment in renewable energy. Some of the notable documents that have shaped renewable
energy sector in Kenya are: Energy Act 2006, Feed-in-Tariff and the Least Cost Power Development
Plan (LCPDP).
3.1 Energy Act Nº.12 of 2006
The Act sets out the national policies and strategies for Kenya’s short to long-term energy
development. The act sought to amend and consolidate the law relating to energy, provide for the
establishment, powers and functions of the Energy Regulatory Commission, the Energy Tribunal and
the Rural Electrification Authority. It empowered the Ministry of Energy to promote the
development and use of renewable energy technologies.
3.2 Feed-in-Tariffs (FiT)
Kenya introduced the Feed-in-Tariff policy to promote electricity generation from renewable energy
sources. It was first introduced in 2008 and later revised twice to respond to stakeholder
experiences. The 2008 tariff was deemed too low to enable economically viable renewable energy
projects hence it was revised in 2010. The 2012 revision aimed at incorporating grid connected solar.
Feed-in-Tariff allows independent power producers to sell renewable energy generated electricity to
an off-taker, in this case, Kenya Power, at a pre-determined tariff for a fixed period of 20 years. The
tariffs are different for small and large-scale projects and vary depending on the technology as
shown below:
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Table 1: FiT Values for Renewable Energy Projects with Installed Capacity of up to 10MW
Installed capacity (MW)
Standard FiT (US $/ kWh)
Percentage Escalable portion of the Tariff
Min. capacity (MW) Max. capacity (MW)
Wind 0.5 -10 0.11 12 % 0.5 10
Hydro 0.5 0.105 8 % 0.5 10
0.5 - 10 0.0825
Biomass 0.5-10 0.10 15 % 0.5 10
Biogas 0.2-10 0.10 15 % 0.2 10
Solar (Grid) 0.5-10 0.12 8 % 0.5 10
Solar (Off-grid) 0.5-10 0.20 8 % 0.5 1
Table 2: FiT values for renewable projects with Installed Capacity of above 10 MW
Installed capacity (MW)
Standard FiT (US $/ kWh)
Percentage Escalable portion of the Tariff
Min. capacity (MW)
Max. capacity (MW)
Max. Cumulative capacity (MW)
Wind 10.01-50 0.11 12 % 10.1 50 500
Geothermal 35-70 0.088 20% for first 12 years and 15%
after
35 70 500
Hydro 10.01-20 0.0825 8 % 10.1 20 200
Biomass 10.01-40 0.10 15 % 10.1 40 200
Solar (Grid) 10.01-40 0.12 12 % 10.1 40 100
3.3 The Least Cost Power Development Plan (LCPDP)
Kenya’s electricity sub-sector planning is undertaken based on a 20-year rolling Least Cost Power
Development Plan (LCPDP), updated every two years. The biennial update involves review of the
load forecast considering changes in pertinent parameters, commissioning dates for committed
projects, and costs of generating plants and transmission system requirements for the Least Cost
Power Development Plan. The latest LCPDP was developed in 2013, and replaced by 2015-2035
Power Generation and Transmission Master Plan done in 2015.
Other regulatory framework that contribute to development of renewable energy sector in Kenya
include;
• Geothermal Resources Act No. 12, of revised 2012
• The Rural Electrification Master Plan
• Electricity regulations
o The Electric Power (Electrical Installation Work) Rules, 2006;
o The Energy (Complaints and Dispute Resolution) Regulations, 2012,
o The Energy (Electricity Licensing) Regulations, 2012.
• Renewable Energy Regulations
o The Energy (Solar Photovoltaic Systems) Regulations, 2012
o The Energy (Energy Management) Regulations, 2012
o The Energy (Solar Water Heating) Regulations, 2012
• Scaling-up Renewable Energy Programme (SREP) – Investment Plan for Kenya
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• Kenya Vision 2030
• Kenya’s 5,000+ MW Power Plan (2013-2016)
• Scaling-up Renewable Energy Programme (SREP) – Investment Plan for Kenya
• Kenya National Climate Change Response Strategy
The launch of the national development blueprint, Kenya Vision 2030, in 2008 and the promulgation
of new Constitution in 2010 necessitated a change in Kenya’s energy policy (Sessional Paper No. 4 of
2004, and Energy Act Nº.12 of 2006). The new policy, National Energy and Petroleum Policy 2015
(draft), which is almost complete, will pave way for radical changes in the country’s renewable
sector. For instance, the policy allows net metering and electricity wheeling frameworks.
4.0 ENERGY SITUATION
The electricity system in Kenya is very small, about 2400 MW of installed capacity against peak
demand of 1600 MW. According to the Ministry of Energy, the national electrification rate is about
50%, while per capita electric power consumption is approximately 200 kWh. The energy mix is
predominantly hydro, geothermal, thermal (heavy fuel oil and natural gas) and small share of wind
and biomass. Grid connected solar is so far insignificant. The share of renewable sources makes up
about 75% of the total installed capacity. The figure below indicates the proportion of each source in
the energy mix by capacity.
Figure 2: Energy Mix
According to the latest LCPDP 2013-2033, the load forecast will exceed 3.9 GW (22,000GWh) by
2020, 7 GW (42,000GWh) by 2025, and 14 GW (80,000 GWh) by 2030. Installed capacity is expected
to reach 5 GW by 2020, 9 GW by 2025, and 17 GW by 2030. Annual electricity production will exceed
23,000 GWh in 2020, 42,000 in 2025 GWh, and 80,000 GWh in 2030; with reserve margin ranges
between 17%-30% in the period 2013-2033. Key candidates for the electricity system expansion
include; hydro, nuclear, thermal (MSD), natural gas, import, geothermal, coal and wind. The table
below shows generation mix by 2030.
Table 3:Installed Capacity by Type for the Least Cost Plan by 2030
Hydro Nuclear Thermal (MSD) Import GT-NG Geothermal Coal Wind
Capacity (MW)
835 1600 418 2000 2520 5584 2100 2186
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Figure 3: Projected peak demand and generation capacity per source, between 2013-2033. Source: LCPDP
5.0 RENEWABLE ENERGY MARKET AND POTENTIAL
Kenya is among the top ranked Africa countries in renewable energy investment; it is ranked 2nd
behind South Africa and 8th largest producer of geothermal energy (KENREC, 2015). The country’s
energy mix is over 75% renewable, and has huge potential for renewable energy sources which is
unexploited.
The section below presents an outlook on the renewable energy potential and developed capacity in
Kenya, primarily hydro, geothermal, wind, solar, and biomass.
5.1 Hydro Power
Estimated total hydropower potential in Kenya is about 6,000 MW, comprising of large hydros
(above 10 MW) and small hydros. Approximately half of the potential is large hydros and only 800
MW has been developed, accounting for 37% of installed generation capacity. Small hydros remains
largely unexploited, as less than 25 MW has been developed out of 3,000 MW potential.
Kenya has five major water towers - Mt Kenya, Aberdare Ranges, Mau Complex, the Cherangani Hills
and Mt. Elgon – and the major drainage basins are around Tana River and Lake Victoria. Feasibility
studies conducted by the Ministry of Energy and private sector have identified over 100 potential
sites for small/medium hydropower development. Implementation of some of these projects is
underway, mainly by the IPPs.
5.2 Geothermal Energy
Geothermal is considered as “conventional" renewable energy source, and is well developed in
Kenya and can compete with other sources. Geothermal resources in Kenya are located within the
Rift Valley with an estimated power potential of between 7,000 MW to 10,000 MW spread over 14
prospective sites. Geothermal is reliable way to produce energy, it’s not affected by climatic
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variability and it doesn’t need transported fuels. It is suitable source for base load electricity
generation in the country.
To enhance exploitation of the vast geothermal resources that Kenya is endowed with, the
Government will continue to fund the Geothermal Development Company (GDC) to manage
the geothermal exploration risk and attract investors. Further, the Government will encourage
investment in the geothermal subsector to achieve at least 5,500 MW of geothermal electric
power generation by 2030, and enhance direct use of the resource.
Some of the geothermal investment ready projects include Menengai (460 MW), Suswa 1 (150 MW)
and Baringo Silali (200 MW).
5.3 Wind Energy
Figure 4: Wind Speed Map of Kenya at 100m height. Source: WinDForce
Four years ago, the Ministry of Energy sponsored a Wind Resource Assessment study that was
conducted by WinDForce. The assessment showed that 73% of the total area of the country
experiences more than 6m/s annual mean wind-speeds, at 100 m above ground. The wind regimes
are perfect in northern and eastern parts of the country especially in Marsabit, Ngong and parts of
the Coastal region. These are the most suitable areas to set up windfarms as annual mean wind
speeds range between 6-10 m/s throughout the year.
Current wind installed capacity in Kenya is 25 MW at Ngong hills and it’s operated by KenGen. The
ministry has installed over 300 wind masts in the country and is in the process of analyzing data to
establish economic viable sites. Under the Feed-in-Tariff plan, several wind power projects are
already committed, while some are under construction; for instance; Lake Turkana project. The map
above shows parts of Kenya with high wind potential.
5.4 Biomass energy
Biomass density in Kenya is moderate. There is potential to produce biomass for modern energy
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production. The government has identified substantial potential for power generation using forestry
and agro-industry residues including bagasse.
5.5 Solar energy
Kenya has its geographical position straddling the equator, giving it unique opportunity for a vibrant
solar energy market. The country receives significant amount of solar radiation all year round,
between 4-6 kWh/m²/day. Despite the high solar potential, Kenya has less than 1 MW solar power
feeding to the grid. There is however high volume of solar projects in pipeline with a combined total
of over 2000 MW. Many of these projects in the pipeline are under feasibility stage and a few
negotiating PPA. As at August 2017, only 4 utility scale solar projects had signed PPA with Kenya
Power.
Figure 5: Map of Solar Irradiation. Source: GeoModel Solar
Solar power is largely seen as an option for rural electrification and decentralized applications.
Photovoltaic stand-alone systems for households and public institutions have been subsidized for
some time. The government is aiming to install an additional 500 MW and 300,000 domestic solar
systems by 2030. Commercial and industrial applications are also becoming increasingly important,
for example, flower and vegetable farms have already pioneered and installed captive renewable
energy systems to contribute to the power supply on their premises. In addition, hybrid PV-diesel
island grids are multiplying; 18 MW of existing diesel-run stations will be retrofitted for the use of
solar power in the next few years. The REA also plans to install green-field hybrid island grids at a
total investment of about USD 40m.
6.0 ENABLING ENVIRONMENT FOR RENEWABLE ENERGY INVESTMENT IN KENYA
Kenya’s renewable energy sector ranks high in attracting Foreign Direct Investment compared to
other sectors or other neighboring countries. Between 2009-2014, over 3.6 billion US Dollars had
been invested into Kenya’s renewable energy projects (KENREC). Combined factors have contributed
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towards enabling environment for renewable energy investment in Kenya. Some of the factors
include;
✓ Attractive Feed-in-Tariff
✓ Reasonable independent regulation
✓ Standardized Power Purchase Agreements
✓ Pro-renewable political environment
✓ Exceptional renewable energy resources
✓ Functional market and credible off-taker
✓ Tax incentives for renewable energy
7.0 THE PROCESS OF RENEWABLE ENERGY PROJECT DEVELOPMENT IN KENYA The process of renewable energy project development is as indicated in the flow chart below.
Figure 6: Process of project development in Kenya
8.0 SAMPLE OF INVESTMENT READY PROJECTS
As at August 2017, the Ministry of Energy had approved over 200 renewable projects under the
Feed-in-Tariff scheme. Many of the approved projects are at very early stages of development, and
only few have reached financial close or signed PPA. Less than 5% have been constructed. The table
below list some of the projects seeking different kind of investment partners.
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Table 4: Sample of investment Ready Renewable Energy Projects
Technology Capacity (MW)
Location Development milestone Immediate investment required
Wind (grid) 50 Kilifi, Coast o EOI approved o Wind mast for data logging
installed (2 yrs ago) o Land lease negotiation ongoing o Feasibility study ongoing
-Equity investor to inject development fee
Wind (grid) 50 Meru, Eastern
o EOI approved o Seeking funds to install wind mast
-Equity investor to inject development fee
Solar (grid) 40 Kajiado, Rift Valley
o EOI approved o Completed feasibility study o Land lease negotiation ongoing o Awaiting feasibility study
approval, to start PPA negotiation
-Equity investor
-Debt
Solar (grid) 40 Taita Taveta, Coast
o EOI approved o Completed feasibility study o Land acquired o PPA negotiation ongoing
-Seeking for a buyer to acquire the project
Solar (grid) 3 Nyahururu, Rift Valley
o EIO approved o Land acquired o Feasibility ongoing
-Equity investor to inject development fee
Solar (C&I) 1.5 Nairobi o Pre-feasibility complete o Owns land
-Seeking project developer for build-own-operate model. The developer will sign PPA with the industry
Hydro (grid)
8 Central o EOI approved o Completed feasibility study o Land lease negotiation ongoing
-Equity investor
-Debt
Hydro (grid)
0.6 Meru o EOI approved o Completed feasibility study o PPA Issued o Generation license issued o Acquired land
-Equity investor
-Debt
9.0 RENEWABLE ENERGY FUNDS Alongside the high number of development financial institutions (DFIs) active in the Kenya’s energy
sector, different private equity funds are keen to invest in the sector. responsAbility and DI Frontier
are the leading private equity funds with high share of renewable energy projects under
development. Many of the DFI’s involvement is through indirect investment, although few have
made direct investment for instance Norfund’s investment in lake Turkana wind power project.
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Table 5: Example of organizations offering different kind of finance to RE projects in Kenya
Fund Type of finance Website
Africa Renewable Energy Fund (AREF) equity www.berkeley-energy.com
Evolution II Fund equity inspiredevolution.co.za
Africa Finance Corporation (AFC) equity/loan www.africafc.org
Centum Investment equity www.centum.co.ke
Nordic Climate Facility (NCF) grants www.ndf.fi
Sustainable Energy Fund for Africa (SEFA) equity www.afdb.org
Ariya Capital equity www.ariyacapital.com
SUNREF loans www.sunref.org/en
GuarantCo guarantee/Insurance www.guarantco.com
Africa Renewable Energy Fund (AREF) equity www.berkeley-energy.com
Actis Infrastructure equity www.act.is
DI Frontier Investment equity frontier.dk
IRENA/ADFD Project Facility loans adfd.irena.org
Energy and Environment Partnership South & East Africa (EEP)
grants eepafrica.org
Energy Access Ventures equity/loans www.eavafrica.com
responsAbility Renewable Energy Holding
equity www.responsability.com
Africa Trade Insurance Agency (ATI) guarantee/Insurance www.ati-aca.org
Electrification Financing Initiative (ElectrFI)
equity/debt/guarantees electrifi.org
Green Mini Grid Facility Kenya grants www.gmgfacilitykenya.org
10.0 TECHNICAL ASSISTANCE AND POLICY ADVOCACY
Kenya hosts various organizations offering support to the development of renewable energy –
through technical assistance and policy advocacy. Power Africa is one of the most notable initiative,
as it has supported significant number of projects right from feasibility stage to helping projects
reach financial close. Other organizations aiding the growth of renewable energy in Kenya are listed
in the table below.
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Table 6: Organizations offering technical advisory and policy advocacy in Kenya
Organization Website Support mechanism
KAM/CEEC/SUNREF www.kam.co.ke
-energy audits -technical assistance/feasibility study -policy advocacy
Power Africa www.usaid.gov/powerafrica/kenya
-grants -technical assistance/feasibility study -transaction advisory -policy advocacy
Green Mini Grid Facility Kenya
www.gmgfacilitykenya.org - mini grids feasibility study -policy advocacy
Energy 4 Impact www.energy4impact.org -grants for energy projects in humanitarian sector
Practical Action practicalaction.org
-grants for energy projects in humanitarian sector
Hivos east-africa.hivos.org -policy advocacy (biogas) - grants (biogas)
SNV www.snv.org -grants and technical assistance for biogas and cook stoves
GIZ www.giz.de/en -technical assistance for mini-grids, cook stoves, and pico solar systems
Strathmore Energy Research Centre (SERC)
serc.strathmore.edu -policy advocacy
Kenya Renewable Energy Association (KEREA)
kerea.org -policy advocacy
11.0 CHALLENGES HINDERING RE IPPs IN KENYA
Independent Power Producers in Kenya face various challenges, which include;
• Delays in land acquisition. Some projects have had challenges in acquiring land for project
construction and wayleave for power line transmission.
• Poor infrastructure network e.g access roads.
• Delays in grid/transmission line extension.
• Limited technical expertise to implement RE projects.
• Limited baseline data including historical measured data for hydro and wind, reliable
hydrology maps among others.
• Delayed issuance of “letter of support” by the government. The letter of support gives
comfort to lenders, but with the delayed issuance by the government, projects have been
taking long period to reach financial close.
• Lack of funds. Most of the local banks have no capacity to offer loans in the renewable
energy sector.
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References
1. Investment Brief for the Electricity Sector in Kenya, Power Africa
2. Renewable Energy Opportunities in Kenya: A Snapshot, Green Power for KENREC
3. 5000+MW by 2016: Power to Transform Kenya, Ministry of Energy and Petroleum
4. What Power Africa Means for Kenya, Power Africa
5. Development of a Power Generation and Transmission Master Plan, Kenya, Lahmeyer
International GmbH, 2016
6. Sustainable energy for all Kenya investment prospectus, SE4All
7. Draft National Energy and Petroleum Policy, Ministry of Energy
8. Least Cost Power Development Plan, Period 2013-2033, ERC
9. Renewable Energy Potential, RECP
Contact for more details:
Joseph Mwangi Innovation Norway East Africa [email protected]
