Solar Case Study: Kenya PPA outlook

Kenya ratified a new constitution in August 2010, which started a process of regional devolution where there are now two levels of government, namely those at the national and county levels.

The Ministry of Energy and Petroleum (MOEP) anticipated a sharp rise in electricity demand as the new county governments operationalized, implying that various economic activities would spring up at the county levels.

Specifically, energy-intensive industries such as mining, production of iron and steel, irrigation schemes, agro-based industry, operation of petroleum pipelines and electrification of designated railway lines, were some of the activities will likely result in a sharp increase in energy demand.

The Kenyan Government through the MOEP therefore proposed an aggressive 5000+ MW program that aims to mainly achieve its target by a sharp increase in 4 types of electricity production, namely geothermal (1,646 MW), natural gas (1,050 MW), wind 630 MW and coal 1,920 MW.

Case Study

The study used three methods of data collection namely, structured online surveys, key informant interviews and site visits. Structured online surveys were distributed via email to 43 energy experts and practitioners in Kenya.

Out of all respondents, 74% stated that solar PV will be the favoured technology in Sub-Saharan Africa over the next five years. Only 7% of the respondents preferred Geothermal, 5% biomass, 5% wind, 2% hydro and 7% other technologies.

Of those who stated a preference for solar PV, 56% thought that it was suitable for rural, off-grid applications and 28% of them stated that the technology matches Africa’s renewable resources

Feed-in-Tariffs

46% of respondents stated that Feed-in Tariffs are the most effective mechanism that should be used to attract private sector investment to RE technologies in Kenya.

Of those who stated FITs were the most effective policy mechanism, 85% of them thought that solar PV is the most preferred renewable energy technology. This might imply that FITs could be the most suitable type of financing for solar PV technology in Kenya. Public Private Partnerships was selected as the second most effective policy mechanism to attract private investment (35% of respondents).

Conclusion

The choice of Feedin tariffs as the most effective policy tool in attracting private investments in the Kenyan renewable energy market has a positive correlation with the source of equity for renewable energy projects being government investments and grants.

This means that respondents who stated FITs as an effective mechanism to attract private sector investment also believe that an important source of equity is government investments and grants.

Most small scale end users, especially those with solar PV panels installed in their houses, were not aware that the Feed-in Tariff Policy (2012) provides tariffs for both ongrid and off-grid solar PV systems. Moreover, informants who were aware of the energy policy provisions also stated that the transaction costs associated with the negotiation process when entering into power purchasing agreement were high, especially for small-scale power producers.

Although the Kenyan government has attempted to increase the appeal of the renewable energy market, such feedback implies that many more improvements are still needed to ensure that all stakeholders -whether operating on a large or on small scale- are provided with equitable policy provisions.