The market outlook for wind energy in Kenya is currently rather bleak, as market barriers outweigh market drivers.
- Counties are to be given more responsibility in building wind farms
- Competence overlays should be unbundled by one-stop-shop
- Halt of expansion for fluctuating energy sources such as wind and solar
- No appreciable demand for new electricity-generating capacities
- Insufficient grid capacity
- Low feed-in tariffs
2. Political objectives
“Secure, cheap power supply” is the lowest common denominator
The objectives of the Kenyan government are not very consistent. Energy supply targets aimed at revitalizing the dying manufacturing industry are barely holding up to reality checks. A revised Master Plan (Updated Least Cost Power Development Plan 2017-2037) submitted by the Energy Regulatory Commission (ERC) in October 2018 was withdrawn shortly after publication. Stakeholders, especially from the coal and nuclear industries, had criticized the plan.
An overarching energy-policy affinity to modern renewable energies such as wind power cannot yet be discerned in Kenya. However, a general desire for large-scale or megaprojects is present. Therefore, there is still open talk of large coal-fired and nuclear power plants, even without the demand for electricity growing accordingly or the necessary grid capacity being in place. At the same time, Kenya’s President Uhuru Kenyatta said at an international conference in November 2018 that the country intends to meet 100% of its energy needs using renewable sources by 2020. However, the share of renewables in net electricity generation has risen to just under 90% due to the commissioning of the Turkana wind farm at the end of 2018.
State utility plans no new power purchase agreements
A reversal of trend in the electricity sector became apparent in December 2018 when the Kenyan electricity supplier, Kenya Power and Lighting (KPLC, a national monopoly in the public, grid-connected electricity supply), indicated that no new power purchase agreements (PPAs) would be signed in the foreseeable future, due to the lack of both need and funding. In mid-January 2019, an official announcement to the President of the Republic followed. The ERC then announced that it would ignore the KPLC’s announcement, while the Ministry of Energy, after two weeks of deliberation, adopted the position of the KPLC. The desired share of wind and solar energy in the electricity mix has already been achieved, Energy Secretary Charles Keter said. A higher share would jeopardize security of supply. According to press releases, about 23 PPAs for wind and solar projects now remain on hold.
It is conceivable, but relatively unlikely, that the public sector could prevail against the opinion of the Secretary of State for Energy.
New mega-wind project expected to cause lull in new projects
With the commissioning of the Turkana wind turbine at the end of 2018, with peak feeds into the national grid of up to 300 MW (installed capacity 310 MW), the contribution of wind energy to the electricity mix increased to 14.0% in December 2018. Total installed wind capacity increased thirteenfold from 2017 to 2018 and stands at 335.5 MW.
The installed power-generation capacity in Kenya at the end of 2018 was about 2,500 MW. Of this, 1,631 MW were generated by the parastatal power producer Kenya Electricity Generation Company (KenGen) and the remaining capacity by private power producers (Independent Power Producers, or IPP’s), who have signed power supply contracts with the parastatal utility Kenya Power for feeding electricity into the central grid.
KenGen announced that it intends to increase its capacity to 4,200 MW by 2028. The increase will be primarily attributable to geothermal power (+2,029 MW) and wind power (410 MW), followed by hydropower (90 MW) and solar energy (40 MW). The company plans to expand wind power generation with a 400 MW wind farm in Meru County. In the first phase, turbines with a total capacity of 80 MW will be installed. German development bank Kreditbank für Wiederaufbau (KfW) and the French Development Agency (AFD) are financing the project. In December 2018, AFD provided approximately EUR 60 million for the project.
According to market experts, however, KenGen’s plans leading up to 2028 are not very credible. In the past there already have been significant announcements which later turned out not to be feasible. At the end of January 2019, peak load reached 74% of installed capacity.
In addition, there are considerable doubts as to who should receive the electricity produced. Industry demand is stagnating, and real wages in Kenya are falling. The prestige project of the incumbent president, a railway, runs on diesel locomotives and not on electric locomotives as originally planned.
Turkana wind power displaced diesel power plants
The construction of the Turkana wind farm was an important step for the country because it reduced dependence on expensive diesel power plants. The contribution of these thermal power plants fell from 24.5% in December 2017 to just 9.6% one year later.
However, this increases public pressure on the regulatory commission ERC to pass on saved electricity production costs to consumers. A kilowatt-hour of wind energy costs only 8 Kenyan shillings (8 US cents), while diesel electricity is almost twice as expensive. The average electricity price for industrial customers is 13 US cents per kilowatt-hour. For comparison, Ethiopia’s industrial companies pay 6.6 US cents per kilowatt-hour.
The future of wind energy was a controversial topic even before the new moratorium. The Turkana wind project initiated in 2006 also had a more than bumpy start. The generators had long been installed and were ready for operation, but the transmission grids had not yet been completed. As a result, Kenyan consumers had to pay substantial compensation to investors.
3. Market organization
Progress towards privatization of state-owned enterprises is slow
The Kenyan electricity market is subject to a variety of influences that market participants must familiarize themselves with. For one, there are two political levels, the central government and the counties. The use of natural resources – which includes the entire energy and electricity sector – is the responsibility of the central government. Spatial planning is the primary area of responsibility for the counties. Conflicts have arisen in the past due to overlapping competences, especially in the selection of sites and connection to the grid. Moreover, each county sets its own political priorities and investors must pay attention to numerous approval procedures.
In the generation segment, Kenya’s electricity sector has been liberalized, with 13 IPP’s operating alongside the former monopoly KenGen. Ketraco and Kenya Power compete in the field of transmission grids, with the latter holding the monopoly on distribution and sales. Investors and project developers can therefore only participate in the electricity market with a PPA, with Kenya Power as IPP.
Nevertheless, the Kenyan electricity market is moving in the right direction: the monopoly of the state utility Kenya Power is to be broken, permitting other companies in the field of electricity distribution and sales to participate. In addition, the foundation will be laid for net metering to enable renewable energy producers to feed their surplus production into the grid. The current feed-in tariffs will be replaced by tenders as an energy policy control instrument for the expansion of renewables. The feed-in tariffs for wind projects with capacities of 10 to 50 MW are 11 US cents per kilowatt-hour.
Few current business opportunities for foreign suppliers of wind technology
Due to the halt on new wind-power plants, business opportunities for foreign providers are limited. It is plausible that in the foreseeable future the topic of repowering will become relevant for the existing 25.5 MW Ngong wind farm in Greater Nairobi. Otherwise, it is more than questionable whether the relatively small number of planned large wind farms (see table below) can be realized in the foreseeable future, in view of the suspension. Even before the suspension, implementation was not certain due to low feed-in tariffs and low grid capacities. KenGen’s ambitious power plant projects are thus unlikely to proceed as planned. This applies in particular to the 400 MW large-scale project in Meru.
The market opportunities for stand-alone solutions based on wind power are also considered to be very small. So far, there have been virtually no projects in this field in Kenya. To a lesser extent, there are opportunities for small wind turbines for mechanical power transmission of water pumps. Isolated island grids are also losing importance with the expansion of the main grid. Too many suppliers are already present in the shrinking market.
Kenya: Onshore wind projects
|Project name (location)||Capacity (in MW)||Company||Status||Investment (in US$ millions)|
|Ngong Hills Wind Power Station (Ngong, Kajiado County)||25.5||Kenya Electricity Generating Company Ltd.||Operating||15.76|
|Lake Turkana Wind Park (Loiyangalani Marsabit County)||310||Lake Turkana Wind Power Ltd.||Operating||678|
|Kipeto Wind Power Project (Esilanke, Kajiado County)||100||Kipeto Energy Ltd.||Under construction||300|
|Meru Wind Power Farm Phase 1 (Meru County)||80 (a total of are 400 planned)||Kenya Electricity Generating Company Ltd.||Development||120|
|Lamu Wind Power Station (Mpeketoni, Lamu County)||90||Kenwinds Holdings Ltd.||Development||209|
Source: Africa Power Monitor
5. Market barriers
Opposition from the local population can become a serious impediment
In addition to the factors mentioned above, political risk is a particularly significant market barrier. Regarding this, the Kinangop wind project of the US main investor General Electric (GE) is perennially in the negative headlines. According to GE’s plans, everything looked favorable: the location for the park was promising, agreement was reached with the various authorities, and contracts were signed. However, due to conflicts of interest with local politicians and protests from the local population, GE withdrew and had to write off large losses. So far, there is talk of US$ 75 million, although an end to the losses is not yet in sight.
The two planned wind projects in Meru and Lamu are also delayed due to conflicts with land use rights and local protests.
Given these factors, it is highly questionable whether private investors in wind farms, especially after the current moratorium, will be willing and able to invest their money in Kenya in the foreseeable future. In addition, the low – and likely still falling – feed-in tariffs (about 6 US cents in 2020) are not attractive to investors.
Complicated import procedure
All companies operating in the country, including importers of equipment, require a license from the ERC depending on their area of activity. The license is granted separately for electricity, petroleum products and renewable energies in certain areas, both corporate and personal. Without licensing by the ERC, companies cannot operate legally in the energy sector in Kenya. Within the framework of the current revision of energy legislation, the ERC will continue to exist in principle but will transfer certain competencies, especially in the field of nuclear energy and renewable energies, to newly established or expanded organizations, also related to the Ministry of Energy.
The import of technical components for renewable energies is subject to extensive regulation. Wind-energy components are generally exempt from customs duties. But because there has been abuse in this area in the past, the Kenyan authorities have tightened their procedures. Unlike certain solar components, wind power technology is subject to Kenyan VAT.
6. Local industry structure
Vestas and GE with business
Kenya has to import all the technology it needs for large wind turbines. The Kenyan company Craftskills Wind Energy International Ltd. has been active in the manufacture, installation and maintenance of small wind turbines since 1998. Today, Craftskills is instrumental in the development of the 100 MW Kipeto wind farm.
So far, only Vestas turbines have been installed in large Kenyan wind farms; the company supplied 365 V52 turbines, each with an output of 850 kilowatts, for the Turkana wind farm. The Danish will also carry out operation and maintenance for an initial period of ten years. The 25.5 MW Ngong wind farm also operates with turbines from Vestas. KenGen is the owner of the plant and carries out maintenance and operation.
The EPC contract for the Turkana plant and the 400-kV transmission network was secured by the Spanish company Isolux Corsán, while the Norwegian company DNV GL was responsible for the network connection. Siemens was commissioned by LTWP with the construction of substations and network control stations. Through a public-private partnership (PPP), 14 private and public financial institutions financed the US$ 678 million project.
The Kipeto wind project, which is scheduled to start commercial operation in 2020, will be implemented by the project company Kipeto Energy Limited. Since December 2018, the British investor Actis Capital LLP has been the majority shareholder with 88% of the shares. Craftskills Wind Energy International holds 12% of the company. GE will supply 60 turbines of type 1.7-103 with a rated output of 1.7 MW and handle operation and maintenance of the plant. The EPC contract was secured by the Chinese company China Machinery Engineering Corporation (CMEC). The 20-year PPA was concluded with the utility KPLC in 2016.
|Ministry of Energy and Petroleum||http://www.energy.go.ke||Implementation of political agendas|
|Energy Regulatory Commission (ERC)||http://www.erc.go.ke||State regulatory authority|
|Kenya Power and Lighting Company Ltd. (KPLC)||http://www.kenyapower.co.ke||Public and grid-connected electricity supply|
|Kenya Electricity Transmission Company Ltd. (Ketraco)||http://www.ketraco.co.ke||Transmission system operator|
|Kenya Electricity Generation Company Ltd. (KenGen)||http://www.kengen.co.ke||Power generation for the central grid (former, now partially privatized monopolist)|