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Kenyan Power Sector: Banking on private investments for grid upgrades [free access]

November 9, 2021

Kenya’s power sector witnessed extensive institutional and structural reforms during the mid-1990s. Post reforms, Kenya’s power sector has grown exponentially, with generation capacity expanding at a compound annual growth rate (CAGR) of 8.06 per cent, and transmission and distribution line lengths growing at a CAGR of 5.26 per cent and 21.24 per cent respectively since 2008.

 

Kenya's Vision 2030 sets out to create a newly industrialised, middle-income country with a high standard of living in a clean and secure environment by ensuring universal access to electricity, increasing the share of cleaner energy resources and encouraging private investment. Electricity is one of the eight key sectors highlighted by the Vision to accomplish these objectives.

 

To achieve this vision and further the development of its power sector, Kenya plans to add 2.8 GW of generation capacity by 2030, with a focus on renewable energy injection into the grid. To support this upcoming capacity, Kenya plans to invest USD7.3 billion for the construction of over 9,500 km of transmission lines and 81 new substations as well as expand 107 existing substations at the 132 kV to 400 kV voltage levels.

 

Power sector overview

 

Figure 1: Institutional structure of Kenya’s power sector 


Source: Least Cost Power Development Plan 2021-30

 

After the enactment of a new Energy Act in March 2019, the institutional structure of Kenya’s power sector was reorganised. State-owned companies, however, remain dominant. Regulation in the sector is overseen by the Energy Regulatory Commission (ERC) and policymaking is overseen by the Ministry of Energy and Petroleum (MoEP).

 

Over 63 per cent of Kenya's electricity generation capacity is owned by Kenya Electricity Generating Company (KenGen). Majority of public power generation activities are handled by KenGen, except those related to geothermal resources. All geothermal generation projects are carried out by the Geothermal Development Company (GDC). Additionally, there are around 10 independent power producers (IPPs) and one emergency power producer (EPP) that operate in the country’s generation segment.

 

Kenya Power, erstwhile Kenya Power and Lighting Company (KPLC), is the system operator and the main off-taker in the power market buying bulk power from all power generators on the basis of negotiated power purchase agreements (PPAs) for onward supply to consumers. The company also owns and operates part of the existing transmission infrastructure and most of the interconnected distribution networks. As part of the Rural Electrification Programme (REP) launched in 1973, KLPC also implements the government's Rural Electrification Scheme (RES).

 

The Rural Electrification Authority (REA) was formed by the federal government in 2007 to undertake the electrification of rural areas rapidly. REA owns the rural grid assets, but Kenya Power continues to operate and maintain the entire network as well as implement projects for the REA on a contract basis. For its part, Kenya Power retains revenue generated from RES customers to cover maintenance costs.

 

Formed in 2008, Kenya Electricity Transmission Company (KETRACO) has the mandate to plan, design, construct, own, operate and maintain new high voltage (132 kV and above) electricity transmission lines that will form the backbone of the country’s national transmission grid and regional inter-connections. It is expected that this will also facilitate the evolution of an open-access system in the country.

 

Existing power infrastructure

Generation

 

As of June 2020, Kenya had an installed generation capacity of 2,840 MW. Of the total installed capacity, almost 45 per cent was renewable-based, 30 per cent was hydro-based and 25 per cent was thermal-based. The installed generation capacity has increased considerably over the past five years, rising from 2,300 MW in 2015 to 2,840 MW in 2020, representing an annual average growth rate of 4.49 per cent.

 

Currently, KenGen is the largest power generator in the country, accounting for 62.97 per cent of the total generation capacity. IPPs account for 35.9 per cent of the capacity while off-grid systems under the REP are responsible for around 1 per cent.

 

Table 1: Growth in Kenya’s installed electricity capacity (MW)

Source

2015

2016

2017E

2018E

2019

2020

Hydro

                  821

821

824

824

826

834

Thermal

                  854

862

831

838

720

720

Renewable

                  625

659

979

990

1,243

1,286

Total

              2,300

2,342

2,634

2,651

2,789

2,840

Note: Data is as of June 30 for every year.

Source: Kenya Power; KETRACO; Global Transmission Research

 

Transmission

 

The total transmission network (400 kV, 220 kV, 132 kV) stood at 7,238 km in 2020, which is a substantial increase from the line length of 4,176 km in 2015. This growth has been greatly influenced by KETRACO, which has accelerated the development of transmission infrastructure within their mandate, consisting of lines at the 132 kV, 220 kV and 400 kV voltage levels.

 

During the same period, the transformer capacity expanded from 3,144 MVA to 4,942 MVA. The majority (47 per cent) of the country’s line length operates at 132 kV.  Since 2015, Kenya’s high voltage line network has increased at a CAGR of 11 per cent.

 

In spite of the effects of the pandemic in 2020, KETRACO completed major milestones, including the completion of several key transmission line projects, strategic substation installations and ground-breaking for new projects.

 

During 2020 KETRACO commissioned the 400 kV/220 kV Isinya substation, the Kitui–Mwingi transmission line and the Ortum–Kitale line. The utility also completed the construction of the Ethiopia–Kenya high voltage direct current (HVDC) line from the border area to Nyandarua. KETRACO also initiated the construction of the Konza substation and associated lines. Some important projects under construction include the 400 kV Kenya–Tanzania, 220 kV Garsen–Hola–Garisa, 220 kV Kibirigwi–Embu–Thika, 132 kV Olkaria–Narok and 220 kV Lessos–Kabarnet transmission line projects.

 

Figure 2: Growth in transmission network

     Source: Least cost power development plan (LCPDP 2021-30); Global Transmission Research

 

 

Future plans and investments

Generation plans

 

In the upcoming decade, electricity demand is expected to grow at an average rate of 5.21 per cent, and increase from the current 11,760 GWh to 19,542 GWh by 2030. To meet the growing demand, Kenya plans to add around 2.8 GW of generation capacity to its grid network over the next decade, which must be backed by a strong and reliable transmission network.

 

As per the country’s Least Cost Power Development Plan (LCPDP) 2021-30, 2,839 MW of generation capacity will be added to the grid by 2030. All the projects under this generation plan are in the advanced stage of development and have commenced construction.

 

Of the said projects, 47 MW are hydro-based, 37 MW are biomass-based, 340 MW are wind-based, 404 MW are based on solar, 626 MW are based on geothermal, 981 MW are coal-based, and 400 MW will be received via imports.

 

Transmission plans

 

To evacuate power from the upcoming generation capacity, connect the existing and new load centres and establish power corridors with neighbouring countries it is essential to expand, upgrade and reinforce the Kenyan grid network to increase power capacity and reliability and provide redundancy.

 

Over the next decade, Kenya will invest around USD7.3 billion for building a 400 kV transmission system and to strengthen the existing 220 kV and 132 kV grid network. This investment will be used for the construction of 9,541 km of transmission lines and 81 new substations and expand 107 existing substations at the 132 kV to 400 kV voltage levels.

 

Of the total investment, USD1,800 million or 25 per cent is being spent on ongoing projects, USD400 million or 5 per cent is awaiting effectiveness, and USD5,100 million or 70 per cent is planned for upcoming projects.

 

 

Figure 3: Kenya’s planned transmission capex 2021–30 (USD billion)

 

Planned capex: USD7.3 billion

 

 

Source: KETRACO presentation at the third Annual Power Transmission in Africa Conference held by Global Transmission Research

 

Some of the key ongoing projects are the 220/400 kV Olkaria–Lessos–Kisumu transmission line project; 400 kV substations at Kimuka, Gilgil and Makindu; and the 220 kV and 132 kV Kenya Electricity System Improvement Project (KESIP).

 

Further, KETRACO is actively investing in the development of interconnector projects with fellow African nations to promote power interconnection across the continent. One such interconnector is with Tanzania, known as the Kenya–Tanzania Power Interconnector Project (KTPIP), which is part of the larger Zambia–Tanzania–Kenya (ZTK) interconnection project linking the Eastern Africa Power Pool (EAPP) and the Southern African Power Pool (SAPP). On Kenya’s side, it involves the construction of 96 km of 400 kV transmission lines from the Isinya substation to the Namanga border, and extension of the 400/220 kV Isinya substation. Currently, KETRACO is facing increasing community rejections of power line routes for the project.

 

The country is also executing the Eastern Electricity Highway, the HVDC Ethiopia–Kenya link, which is near completion. The USD1.26 billion project entails the construction of a 1,045-km, ±500 kV bipole overhead transmission line, which will run from the Wolaita Sodo substation in Ethiopia to the Suswa substation in Kenya. Of the total line length, 612 km lie in Kenya and 433 km in Ethiopia.

 

 

Table: Key planned projects

Project name

Voltage (kV)

Line length (km)

Status

Scheduled completion

Interconnectors

Kenya–Tanzania Power Interconnector Project (KTPIP)

400

96

Under construction

2022

220 kV Lessos (Kenya)–Tororo (Uganda) line

200

NA

Under construction

2021

Ethiopia–Kenya HVDC link

±500

621

Under construction

2022

Domestic projects

Thika–HG Falls line

400

200

Proposed

2026

Malindi–Garsen line

220

104

Proposed

2025

Bomet–Olenguruone–Rongai line

132

165

Proposed

2025

Isiolo–Marsabit line

220

240

Proposed

2025

Baringo–Rongai line

400

150

Proposed

2023

Baringo–Lokichar line

220

245

Proposed

2023

12 substation reinforcement works

NA

Not applicable

Under development

2022

Rumuruti–Kabarnet line

132

111

Under development

2022

Voi substation

400/132

Not applicable

Under construction

2021

Makindu substation

400/132

Not applicable

Under construction

2021

220 kV Malindi/Weru–Galana line

220

51

Proposed

2024

220 kV Rongai–Keringet–Chemosit line

220

95

Proposed

NA

400 kV Loosuk–Lessos line

400

185

Proposed

NA

132 kV Eldoret–Kapsowar line

132

78

Proposed

NA

132 kV Kisumu (Kibos)–Bondo line

132

81

Proposed

NA

Note: HVDC – high voltage direct current; NA – not available

Source: KETRACO; Global Transmission Research

 

Private sector's increasing role

A majority of the investment needed for the development of Kenya’s transmission sector is yet to be secured. The Kenyan government has been able to secure only USD4.6 billion in funding so far. The lack of adequate financial resources is the biggest challenge hampering the utility’s expansion plans.

 

Some of the financing strategies being explored by KETRACO to address this issue include mobilising funds from the National Treasury, enhancing internal revenue generation and involving the private sector through various models such as engineering, procurement and construction (EPC), public-private partnerships (PPP) and privately initiated investment proposals (PIIPs).

 

Kenya has also set up a PPP governance structure to encourage private participation to support the delivery of the country’s PPP agenda under the country’s PPP Act of 2013. The governance structure includes the PPP Committee (which is charged with implementing the Act and acts as the main regulator), the PPP Unit (within the National Treasury, which serves as the secretariat and technical arm of the committee), PPP Nodes (within the ministries, government agencies and county governments, responsible for identifying, developing, implementing and monitoring the projects), and the Project Appraisal Team (which is the technical team in the contracting authority).

 

Further, the Government of Kenya received a grant from the African Development Bank (AfDB) for seeking technical assistance to develop guidelines for the review of PIIPs for power transmission infrastructure projects in the country.

 

Currently, KETRACO is evaluating two models—independent power transmission (IPT) and build, own, operate, transfer (BOOT)—for awarding projects under the PPP mode.

 

The utility has identified two 220 kV lines, Malindi/Weru–Galana and Rongai–Keringet, cumulatively valued at USD62.34 million, to be awarded through competitive PPP bidding on a pilot basis. In June 2020, KETRACO invited a tender seeking transaction advisory services for both the transmission lines. However, the utility has reported no further update on the bidding since then.

 

Further, three lines, namely, the 400 kV Loosuk–Lessos, the 132 kV Eldoret–Kapsowar and the 132 kV Kisumu (Kibos)–Bondo lines, will be developed through the PIIP mode, with support from Africa50, an investment bank for infrastructure in Africa.

 

Conclusion

The country is working to ensure greater grid connectivity across all its regions. However, even though Kenya is making a commendable effort to improve the stability of the power infrastructure, the lack of adequate funding continues to be a persistent issue. The ambitious development plans require the participation of the private sector.  The government has been exploring different strategies for PPP, and hopes that the inclusion of private investment will be its saviour on the development front.