Development of

Kenya’s power sector

2015-2020
Contents
About Power Africa 3
Executive Summary 4
Kenya’s power sector 2015-2020 snapshot 5
Kenya’s power sector structure 7
Demand 9
Generation 11
Transmission 15
Distribution 17
Off-grid 19
Finance 21
Recommendations for the power sector in Kenya 25
Power Africa’s roadmap 27
Power Africa’s support in Kenya 29
Glossary of terms Foreword

Acronym Definition
ACEF African Clean Energy Finance Initiative The Kenyan power sector is a true success story in sub-Saharan Africa, with strong leadership at
the highest levels of Government, long-standing participation of the private sector in generation,
AfDB African Development Bank impressive growth in access, and a strong enabling environment for innovation in off-grid
BOT Build, Own, Transfer solutions.
CAPEX Capital expenditure In 2015, Power Africa undertook a diagnostic of the sector in order to understand the role it
DFI Development Finance Institution could play in taking Kenya from good to great across generation, transmission, and distribution
of electricity. Over 100 actors in the Kenya power sector were engaged, including government
DisCo Distribution company
bodies (Ministry of Energy and Petroleum, Energy Regulatory Commission, National Land
EAP&L East Africa Power and Lighting Company Commission, REA), national utilities (KenGen, Kenya Power, KETRACO), IPPs, off-grid players,
ERC Energy Regulatory Commission developers, investors, banks, end-users, and development partners.
FiT Feed-in-tariff At the conclusion of this effort, Power Africa would like to share the major findings from the
GDC Geothermal Development Company diagnostic with 3 goals in mind: (1) build a shared understanding among stakeholders in the
sector around the current and future state of the Kenya power sector, (2) showcase Kenya’s
GoK Government of Kenya
successes, and (3) communicate the interventions Power Africa is undertaking in order to
GW Gigawatt continue to strengthen and support this sector.
GWh Gigawatt hour
We are grateful for the support and collaboration from all the stakeholders with whom we have
IPP Independent Power Producer engaged and look forward to playing our part in achieving Kenya’s power sector goals.
KEMP Kenya Electricity Modernization Project
KenGen Kenya Electricity Generating Company
KETRACO Kenya Electricity Transmission Company
KP Kenya Power
kV Kilovolt
kWh Kilowatt hour
LAPSSET Lamu Port Southern Sudan Ethiopia Transport
MDB Multilateral Development Bank
MoEP Ministry of Energy and Petroleum
MW Megawatt
NLC National Land Commission
PATRP Power Africa Transactions & Reforms Program
PPA Power Purchase Agreement
REA Rural Electrification Authority
SPV Special Purpose Vehicle
SREP Scaling Up Renewable Energy Program
SSA Sub-Saharan Africa

1 2
 Executive summary
Kenya is the fourth largest economy in sub-Saharan Africa, with an estimated nominal GDP of
55 billion USD in 2015. The story of Kenya’s power sector is one of solid performance. For its
population and per-capita GDP, Kenya is performing well in terms of power generated. Kenya’s
per-capita power consumption is 161 kWh (2014) compared to 126 kWh in Nigeria, which has a

About Power Africa

per-capita GDP nearly 3x higher.
Kenya’s power sector as a whole is well-governed and has a long history of encouraging
participation by private actors in generation. Moreover, Kenya has remarkable renewable
resources, as evidenced by its track record as one of the lowest cost developers of geothermal
In June 2013, President Barack Obama launched Power Africa, a partnership among the U.S.
power in the world. Kenya has also aggressively pursued connections, having nearly doubled
Government, African governments, bilateral and multilateral development partners, and the
electricity access from 25% to 46% of households in 4 years1.
private sector to double access to electricity in sub-Saharan Africa. Power Africa has set two
ambitious targets to expand access to power across sub-Saharan Africa by 2030: Increase However, Kenya has an opportunity to take its power sector from good to great by:
installed power capacity by 30,000 MW, and create 60 million new connections. Power Africa’s • Delivering 2,700 MW of new generation capacity by 2020 through new financing and
model focuses on practical solutions. We are uniquely positioned to drive results, because our partnership models
partnerships combine three important elements: Deep knowledge of the power sector, a private • Developing and executing a connection strategy incorporating on- and off-grid solutions to
sector-led engagement approach, and experience working with governments and civil society to deliver universal electricity access by 2020
improve policies and sector governance. • Resolving wayleave issues and optimizing construction to triple the kilometers of transmission
Now in its third year, Power Africa has built the financial and human resource foundation, lines in the country
recruited the partners, and identified specific deal flow to facilitate a clear path to success. We • Seeking innovative solutions to meet the 14-18 billion USD in financing required for the sector
are now partnering with more than 120 public and private sector entities to accelerate power as a whole to meet its goals
transactions in sub-Saharan Africa. By the end of 2015, 13 projects (expected to generate Following our diagnostic of the sector and engagement with key stakeholders, Power Africa
approximately 4,300 MW) supported by Power Africa had already reached financial close. These will focus its efforts to support the Kenyan power sector in achieving these goals through 11
projects include solar, wind, hydro, biomass, natural gas, and dual-fire natural gas/liquid fuel interventions to drive 2,000+ MW of generation capacity, 2.5+ million off-grid connections, and
projects. Nearly half of the projects involve renewable sources. enable the full system:
Partnership is at the heart of Power Africa’s strategy and our innovative development model. • Provide critical transaction advisory, technical assistance, market information, and PPA process
Power Africa’s Toolbox is at the center of our partnership model; it assembles the suite of support for 800+ MW of renewable projects
catalytic support services offered by our development partners. Our tools include transaction • Strategic partnership with KenGen to support new generation capacity of 1,300+ MW in
assistance, financing and risk mitigation, policy/regulatory design and reform, capacity building, established pipeline (with a potential of up to 2,500 MW by 2025) through traditional and new
legal assistance, and convening and coordination. We offer this support to our private sector and financing mechanisms
African government partners to help accelerate power sector transactions. • Facilitate and/or provide feasibility, pilot and project (equity and debt) financing
• Support the Geothermal Development Company (GDC) to develop a Joint Development
Power Africa’s teams live and work in Africa, and regularly engage with public and private Agreement, enabling funding for drilling for 645 MW
sector stakeholders to understand and alleviate the constraints holding back transactions. To • Develop and support overall off-grid accelerator program, for 2.5+ million connections
help advance transactions across the continent, we have deployed more than 20 seasoned • Support distribution system loss reduction and operational efficiency through integrated
power sector experts to serve as Transaction Advisors for private sector partners and host planning, investment mobilization and technical assistance
governments, and the number of these advisors will continue to grow. These on-the-ground • Continue to drive grid management support and capacity building to enable grid adoption of
experts work to remove the barriers slowing down individual transactions, and help connect intermittent renewable energy projects
various stakeholders with the innovative solutions offered in our Toolbox. Similarly, Power Africa’s • Develop critical go-to capability for community engagement and landrelated challenges
Regional and Country Teams in U.S. embassies and development partner missions in Africa work • Build the capacity of GoK entities to undertake critical functions to foster clean energy
directly with local governments and institutions to share our partners’ resources and help build development
local capacity. These teams help local governments implement the specific reforms necessary • Develop and support initiatives to finance the 14-18 billion USD gap to achieve generation,
to advance transformative transactions. Further, our technical assistance and capacity building transmission, distribution, and off-grid electrification targets
support ensures that governments will be able to oversee a sustainable power sector long after • Provide policy and regulatory design and reform assistance based on global best practice
our teams are gone.
Power Africa can be found online at: www.usaid.gov/powerafrica 1 KP data, 2015

3 4
Kenya’s power sector 2015-2020 snapshot

~2,700 MW
New generation capacity that could
come online by 2020 for a total
of ~5,000 MW (from ~2,300 MW
installed capacity in 2015)

14-18 billion USD 80+%

Total unsecured financing needed by Share of 2,700 MW new
2020 to deliver power sector projects capacity coming from IPP
projects, with 50+% from
geothermal

20-30% ~4,200 km
Potential population to Distance of transmission lines
receive off-grid access KETRACO is currently seeking to
to electricity by 2020, finance (in addition to ~4,150 km
primarily through solar of existing lines and ~4,500 km
under construction)

70-80%
Expected population with access
to on-grid electricity by 2020, up
from ~46% in 2015

5 6
Kenya’s power sector structure
The policy and regulatory environment in Kenya is fairly advanced, with significant and growing IPP presence, unbundling and partial privatization of national utilities, and cost-
reflective tariffs. The below diagram highlights the current structure of Kenya’s power sector.
Partially state-owned
MoEP (Ministry of Energy and Petroleum) State-owned SPV, funded by GoK
In charge of making and articulating energy policies to create an enabling environment for efficient operation and Privately owned
growth of the sector
Tariff cash flow
Tariff regulation and structure

ERC (Energy Regulatory Commission) – established in 2006

Regulates and monitors the electricity sector

Bulk tariff Distribution charges

Generation Distribution Customers

KenGen (~70% of current capacity) – 1998 Kenya
Power Purchase
Power Company renamed to KenGen (Kenya Electricity KP (Kenya Power) – 1983 EAP&L1 renamed to
Agreements (PPAs)
Generating Company) KPLC2, rebranded to KP in 2011 Retail tariff
70% GoK owned 50.1% GoK owned
Private Distribution Companies are allowed under new
GDC (Geothermal Development Company) – founded in
Energy Bill
2006 Feed-in-tariff/
capacity charge
3.6 million
Develops geothermal resources through surface exploration
and drilling for steam 46% access

Transmission
IPPs (~30% of current capacity)

KETRACO (Kenya Electricity

Transmission Company) –
2,295 MW installed capacity founded in 2008 REA (Rural Electrification Authority) –
NLC (National Land Constructs new transmission
founded in 2007
Expands rural electrification through
Commission) 42 power plants infrastructure
connecting public facilities and surrounding
Supports acquisition of land “last mile” homes
(public and trust land) as
well as wayleave process for All connections handed over to KP
KETRACO
4,149 km transmission lines

Transmission charges

1 East African Power and Lighting Company

2 Kenya Power and Lighting Company
Source: USAID Kenya power sector assessment report, April 2013; CSL research; ERC, 2015

7 8
Demand
Power Africa’s focus for this study was on enabling increased energy supply and connections. We project 2,600-3,600 MW peak demand by 2020
However, recognizing the importance of balancing supply and demand, Power Africa conducted Large industrial projects
a bottom-up analysis of demand.
Converted latent demand
Based on this analysis, we project power demand in Kenya to reach 2,600-3,600 MW by 2020,
Baseline demand
up to double the demand in 2015. Our demand projection is based on:
• Baseline demand from anticipated growth in population and economic activity.
Based on a historical analysis, power consumption is expected to grow between 1.0-1.2x MW, year end 2,600-3,600
GDP growth
• Conversion of latent demand through increased electricity access. This includes
connection requests that have not yet been fulfilled 300-800
• Implementation of large industrial projects, which will require significant electricity
use. This is based on the Vision 2030 plan, with timelines adjusted based on interviews with
government actors and private sector. Examples of such projects include the Standard Gauge
Railway and LAPSSET corridor. Note that timelines for the Vision 2030 projects are shifting. 200-300
This may lower the contribution of projected demand from these projects in 2020

1,600

2,100-2,500

2015 2020

Source: 10 year power sector expansion plan; BMI Kenya Power Sector report Q3 2015; KenGen;
Photo: Morgana Wingard stakeholder interviews July 2015

9 10
Generation Kenya’s power generation
landscape in 2015
As of August 2015, the Energy Regulatory Commission (ERC) stated that Kenya has 2,295
MW of installed on-grid capacity across 42 plants, plus an additional 11.5 MW in 19 off-grid KenGen
Number of plants by generation type IPPs
stations in remote parts of the country.
Kenya’s installed capacity consists of 70% renewable sources, with enormous potential to
expand that base. According to the MoEP, Kenya has the potential to produce 10,000 MW of Geothermal
geothermal power from the Rift Valley Basin. The United Nations Environment Program (UNEP)
further estimates that Kenya’s wind capacity could be as high as 3,000 MW. 593 MW
Around 30% of Kenya’s installed capacity is owned and operated by Independent Power
Producers (IPPs) across 15 plants, including 3 small-scale hydro plants, 1 geothermal plant, 1
biomass plant, and 10 fuel oil plants. The remaining 70% capacity is owned and operated by
KenGen.
Hydro
827 MW
Kenya’s power plants
On-grid capacity
(MW)
≤3 Wind
3-30
30-60 26 MW
60-120
>120

Off-grid capacity Fuel oil

(MW)
Eastern ≤3 751 MW
Western
North-Eastern

Central
Biomass
Nyanza 38 MW

Coast
Gas turbine
60 MW

Total: 2,295 MW 42 plants

Source: ERC, 2015 Source: ERC, 2015

11 12
Growth in generation Kenya’s generation capacity
capacity in 2020
Team forecast based on developer and historical timelines
Based on updated timelines and projects in the pipeline, we estimate Kenya could have 5,040
MW of installed capacity by 2020, representing ~2,700 MW of new generation capacity coming KenGen
Number of plants by generation type IPPs
online in 42 new plants over the next 5 years.
We project all of this new capacity will be renewable energy, resulting in Kenya’s energy mix
being 83% renewable by 2020. Geothermal projects being developed by KenGen, GDC, and
Geothermal
IPPs are expected to contribute 1,392 MW of new capacity. As a result, by 2020, we project 1,984 MW
geothermal will form the baseload of Kenya’s power system at ~40% of all installed capacity.
We believe solar will play an increasingly important role as well, growing from 0 MW today to 430
MW by 2020. Moreover, many of the 19 off-grid diesel stations will likely be converted to solar- Hydro
diesel hybrids.
921 MW
By 2020, we estimate over 60% of Kenya’s power will be generated by IPPs (including IPPs
using steam provided by GDC) through 52 plants.
The Government of Kenya’s effort to increase generation capacity has resulted in significantly Wind
increased investment in the energy sector. Our projections are based on interviews with
developers and financiers performed in mid-2015 to understand the latest project timelines, 786 MW
including projects that have been put on hold, delayed, or added since the power sector plan was
developed.
Fuel oil
751 MW

Solar
430 MW

Biomass
108 MW

Gas turbine
60 MW

Total: 5,040 MW 85 plants

Source: 10 Year Power Sector Expansion Plan, 2014- 2024; Investment Prospectus 2013-2016; interviews
Photo: Power Africa with developers; benchmarking of time typically takes to complete projects in Kenya and internationally

13 14
Transmission
Kenya’s planned transmission line build-out
Total kilometers of current and planned transmission lines

As of 2015, Kenya had 4,149 km of transmission lines, all of them 200 kV or 132 kV. KETRACO + 4,207 km
is in the process of constructing ~4,500 km new lines, more than doubling the transmission
network and introducing Kenya’s first high-voltage 400 kV and 500 kV DC lines as well as 3
major regional interconnectors to Ethiopia, Uganda, and Tanzania. + 4,489 km
Beyond these lines that are under construction, KETRACO is planning a further ~4,200 km of
lines to expand and strengthen the grid. 4,149 km

Current Lines planned or Additional

lines in construction as lines in
of 2014 pipeline

kV breakdown
Mandera 132 kV 220 kV 400 kV 500 kV
Turkana % out of total kilometers of line

Marsabit
100% = 4,149 km 8,638 km 12,845 km
Substations
6
Wajir
Kenya Power lines 10
West Pokot
Samburu Status of KETRACO lines 17
Isiolo 40 20
Completed
Bungoma
Uasin Gishu
Ongoing
Busia Laikipia
Nandi
Siaya Planned 34
Garissa 25
Homa Bay Kericho

Migon
Nairobi Kitui
Narok
Tana River

Kajaido
Lamu 60
Makueni
45 43

Talta Taveta

Mombasa Current lines (2015) Current lines plus those Current and planned lines
Kwale
planned and in construction plus additional lines in
pipeline
Source: KETRACO, 2014/2015 Source: KETRACO, 2014/2015

15 16
Distribution
Kenya Power (KP) is currently the sole distribution company in Kenya. It operates Kenya’s Together, KP and REA have 4 major objectives to develop distribution and access in Kenya:
interconnected grid, as well as several off-grid stations in the northern regions of the country.
• Reach near-universal access by 2020 by adding 1 million new customers to the grid
As the single off-taker in the country, KP negotiates Power Purchase Agreements (PPAs) with each year. The plan is to achieve this largely through the Last Mile Connectivity Program
generation providers and dispatched energy to 3.6 million customers as of August 2015. (connecting all consumers within 600 meters of an existing transformer with a subsidized
connection price) and through further subsidized connections for consumers in informal
Most impressively, KP has nearly doubled access in Kenya over the last 4 years, from 26% of settlements
households in 2011 to 46% in 2015, meeting best-in-class benchmarks globally. KP has been
assisted in this effort by the Rural Electrification Authority (REA). Founded in 2006, REA’s • Build a stronger and more flexible grid by building in redundancies, reducing losses,
mandate has been to accelerate the pace of rural electrification across all 47 counties. Since its and adding in smart technologies. Current transmission losses are 4.5%, distribution
inception, REA has helped move rural electrification from 4% to 32% of rural households, largely losses are 13.5%.
through its efforts to connect ~60,000 public facilities (mostly primary schools) around the country • Increase the number of PPAs signed with power generators. KP currently has 22 PPAs
and all household consumers within 600 meters of those facilities1. signed and expects to sign ~60 more over the next 5 years
• Increase renewable off-grid access. Currently, there are 19 off-grid diesel-powered stations,
but there are plans to convert these to solar-diesel hybrids as well as add 43 greenfield solar
“mini-grids” through the Scaling Up Renewable Energy Program (SREP)
Kenya moved from 26% to 46% electrification in 4 years, meeting best-in-class benchmark

Starting point: 20%

Years to move from 20 to 40%
Years to move from 40 to 60%
Years to move from 60 to 80%

Vietnam 3 3 3 9

Tunisia 8 9 7 24

South Africa 8 7 12 27

Indonesia  8 10 13 31

Brazil 15 17 9 41

Kenya 4 2 2 8

Planned

1 REA, 2015
Source: KP – Electricity Connection Data July 2015; team analysis; Brighter Africa report; McKinsey Photo: Morgana Wingard

17 18
Off-grid
Off-grid solutions provide a cost-effective and rapidly scalable way of connecting areas Kenya’s off-grid landscape
that are rural or have a high cost to connect to the grid. Kenya is home to multiple actors
innovating in the off-grid energy access space, including players in solar lanterns, single- Description Example players
home solar systems, and renewable energy mini-grids. The diversity of players and solutions
is a testament to Kenya’s drive for innovation and entrepreneurship in the energy sector. We • A local energy grid which • Husk Power
believe there is a real opportunity to convert Kenya into a “laboratory” for off-grid solutions that operates autonomously Systems
Mini-grid from the traditional grid • PowerGen
can then be exported to the rest of sub-Saharan Africa. Renewable Energy
systems
However, we believe Kenya’s off-grid sector is currently facing 2 critical challenges: • PowerHive

• Lack of an integrated strategy between KP’s on-grid connections target and private
sector off-grid connections development. This means off-grid connections may be
developed in the same areas where KP is planning on-grid connections. It also means the
most cost-effective mix of on- and off-grid connections may not be delivered across the • Use photovoltaic cells and • Azuri
country. rechargeable battery to • d.light
Single-home provide electrical power • Barefoot Power
• Nascent regulatory environment for private mini-grid players. Regulation was off-grid • Greenlight Planet
recently put in place to allow mini-grids to operate as private DisCos, but net metering systems
• M-KOPA
• For example, M-KOPA has
provisions are not yet in place to allow them to eventually connect to the grid.
sold over 225,000 units.
A unit charges 4 lights,
a torch, a radio, and cell
phones.

• Light fixture composed of • d.light

an LED lamp, a photovoltaic • Greenlight Planet
solar panel, and a • Renewit Solar
Solar lanterns rechargeable battery • Schneider Electric
• Can be single function
(lighting) or multi-function
(mobile charging + lighting)

Photo: Power Africa

19 20
Finance
Looking across the entire power sector, we estimate that Kenya will need a total of 18-23 We estimate the total cost of financing the power sector in Kenya to be 18-23 billion USD,
billion USD by 2020 to achieve its targets in the power sector. Of this, Kenya has secured an with a current gap of 14-18 billion USD
estimated 3-5.5 billion USD, leaving a gap of 14-18 billion USD in financing. Billion USD

This financing estimate includes: Financing

• All generation projects in the pipeline, including those expected to be completed post-2020 Required Secured Gap
• Estimated cost of 4,200 km new unfinanced transmission lines
10-14 2.4
• On-grid connections for 70-80% of the population. Benchmarks from South Africa show the Generation
8-10
cost per connection more than doubles past an 85% connection rate. Therefore, we have
used a 70-80% access rate scenario as a realistic, cost-effective target
• Off-grid connections for the remaining 20-30% of the population. Off-grid solutions present a
lower CAPEX-intensive alternative for these more costly-to-connect households
• KP operational improvements to reduce losses and improve system stability
Transmission

1-2 0.2-0.41 0.8-1.8

Distribution

5.7-6.72 1.0-2.03
4.7-5.7

Off-grid

0.9-1.5 0-0.2 0.8-1.3

Total 18-23 3-5.5 14-18

1 Based on GoK budget allocation for power sector

2 Includes 1.0-1.6 billion USD of investment for operational improvements
3 Assumes 457 million USD for KEMP, 150 million USD other Last Mile funding to be approved by
Photo: Morgana Wingard AfDB and GoK commitment to the sector over the next 5 years
Source: Team analysis
21 22
Photo: Power Africa

Historically, Kenya has relied on concessional financing from development partners and A group of leaders in the power sector has identified a set of solutions that can overcome some
development finance institutions to provide the capital required for investments in the power of these challenges and scale up financing in the sector.
sector. However, given the ambitious nature of its current targets and the tight timelines, Kenya
Catalyze private investments by:
can no longer afford to rely entirely on concessional capital. Instead, Kenya must catalyze
commercial investments in the power sector to meet its financing needs. • Moving all DFI project financing for generation projects to blended financing rather than direct
loans, to bring in more commercial capital at lower interest rates and potentially longer tenors
While Kenya’s power sector has made significant progress over the past few years and is
attractive relative to peers in the region, Kenya still faces a range of challenges to financing the • Pursuing a Build, Own, Transfer model for critical transmission lines with a long-term
power sector and attracting commercial capital. These challenges include: concession (e.g., 20-25 years), with a clear wheeling tariff established by GoK to fund the
• A challenging financing ecosystem for commercial capital. Commercial banks are projects
currently often crowded out by MDBs/DFIs on both loan tenure and interest rates. Moreover, Strengthen public utilities by:
the tariff structure places a disproportionate burden on concessional financing across the
value chain, especially for solar and wind. In addition, risk models are not tailored to the local • Financing operational transformation and CAPEX execution improvement at KenGen and
Kenyan context, making commercial financing more challenging KP to match performance to best-in-class, supported by impact-based financing (including
vendor financing)
• High GoK financial exposure to the energy sector. If the government delivers on
transmission and distribution targets, the energy sector may exceed 20% of the total • Generating new equity capital from sale of shares in some of KenGen’s current operating
government debt burden. PPAs may also sit as contingent liabilities on the sovereign balance assets, which KenGen can then allocate to new generation projects
sheet
Attract impact investors by:
• Opaque or inconsistent processes which make securing financing difficult. Unclear
approach to project selection at EOI stage, inconsistent application of PPA negotiation • Launching a government-backed power sector bond, linked to a “Sovereign Power Sector
process, challenges in securing land, and lack of a standard approach to GoK Letter of Modernization Package” with specific reform covenants (e.g., process of accelerating land
Support make securing financing challenging and also lead to cost overruns due to delays, acquisition, establishing a clear revenue model for KETRACO/GDC), with the capital raised
particularly for IPPs used to pay GoK obligations to scale on-grid distribution
• Insufficient financing models for state-owned enterprises. KenGen’s balance sheet • Creating a facility for social impact investors (e.g., Social Impact Bond) linked to off-grid
indicates that it cannot take on significantly more debt to fund expansion; current initiatives electrification target delivery
to improve balance sheet and operational performance may not be sufficient to bridge the
financing gap. GDC’s revenue model is not sufficient to cover true GDC costs due to implicit If implemented fully, these solutions can close most of the total financing gap by 2020. In addition,
GoK subsidy. KETRACO’s inadequate revenue model results in a reliance on GoK financing the solutions can also contribute to a long-term sustainable reduction in the customer tariff rate
rather than its own balance sheet. KP’s target to reach near-universal access by 2020 may by 6-12%, largely by reducing the fuel surcharge that currently comes from heavy fuel oil
be high-cost, given that we estimate a significant increase in cost per connection past a 70- generators. These solutions can also reduce the GoK obligation to finance the power sector by
80% connection rate based on trends seen in other countries up to 60%, largely by bringing in more private capital.

• Lack of affordable financing for private off-grid developers. Due to smaller-scale

financing needs and more innovative technologies, private sector players have difficulty
securing affordable financing tailored to their needs

23 24
Recommendations for the
power sector in Kenya
Based on our findings and discussions with senior stakeholders in the energy sector in Kenya,
a set of implementation recommendations were developed to help the power sector achieve its
goals.
Multiple other important efforts are currently underway, so this is by no means an exhaustive list;
rather, this highlights major gaps in the sector identified through our diagnostic.
Recommendations
• Clarify role of GDC with one of multiple options on various
fields/blocks, e.g.,
– Focus GDC only on exploration activities, i.e., up to appraisal
GDC
drilling, or
– Private sector partnership for finance and skills, or
– Partner directly with KenGen/IPPs on some fields/blocks
• Target 2,500 MW by 2025 through SPVs (vs. 1,300+ MW in
established pipeline)
• Finance scale-up as follows (and reposition KenGen as a
growth stock)
Generation
– Monetize shares of some assets to provide equity for new
KenGen projects
– Re-invest intended dividends as equity into new projects
– Improve operational efficiency of current plants (>95%
availability)
– Implement capital productivity best practices on current
projects
• Implement blended finance model to attract commercial capital
Private sector/
DFIs

• Pursue Build, Own, Transfer (BOT) model on key transmission

Transmission KETRACO lines to bring in private capital and skills

• Reduce commercial and technical losses by 5% points in

distribution system
• Transition government power budget funding 80+% to
KP, REA, and
distribution (vs. Gx or Tx)
Treasury
• Launch sovereign power sector bond program of USD 3 bn
Distribution
in tranches of USD 250 mn (local or foreign currency) to fund
electrification roll-out
• Launch off-grid accelerator program (including new financing
GoK and
options such as social impact bonds)
private sector

• Create a coordination function to implement these

Overall recommendations

Source: Team analysis; expert interviews Photo: Sameer Halai/SunFunder

25 26
Power Africa’s roadmap Power Africa’s value
proposition
In 2015, Power Africa articulated a roadmap highlighting the collective efforts of its more than
120 public and private sector partners to achieve the ambitious goal of adding 30,000 MW and
60 million connections in sub-Saharan Africa by 2030. This roadmap outlines Power Africa’s 3
strategic pillars:

On-the-ground support through country Transaction-focused with a database

teams and transaction advisors of projects that tracks progress and
bottlenecks

PILLAR 1 PILLAR 2 PILLAR 3

Increase capacity by Create 60 million new Unlock energy sector
30,000 MW connections potential

• 18,000-21,000 MW • 35-40 million scaling • Supporting

maximising value from grid roll-out programs governments with
existing transactions for urban and rural targeted policy
• 11,000-14,000 MW • 25-30 million interventions that move
advancing new intensifying beyond transactions forward
opportunities for the grid efforts with • Facilitate national and
gas, solar, wind and household systems and regional power sector
geothermal micro-grids integration through
• 2,000-3,000 MW regional power pools
increasing efficiency of and electricity trade
existing generation

Partnerships among a diverse network of Toolbox from more than 120 partners to
public and private sector players accelerate deal flow, leverage capital, and
The full roadmap can be found at: www.usaid.gov/powerafrica/roadmap improve the enabling environment

27 28
Power Africa’s support in Details on Power Africa’s
Kenya interventions
Towards achieving our overall objectives of supporting 30,000 MW of generation and 60 million Power Africa will support the Kenya power sector through 11 interventions across these pillars.
new connections across sub-Saharan Africa and unlocking energy sector potential, Power Africa In total, these interventions will help deliver 2,000+ MW in generation, 2.5+ million off-grid
will support the Kenya power sector in achieving its targets across 3 pillars. connections, and enable the whole system.

Details on Power Africa’s 11 interventions

1
1a Provide critical transaction advisory, technical assistance, market information, and
GENERATION PPA process support for 800+ MW of renewable projects

Develop MW generation 1b Strategic partnership with KenGen to support new generation capacity of 1,300+
MW in established pipeline (with a potential of up to 2,500 MW by 2025) through
traditional and new financing mechanisms
Develop MW 1c Facilitate and/or provide feasibility, pilot, and project (equity and debt) financing
generation

3
1d Support the Geothermal Development Company (GDC) to develop a Joint
SUPPORTING Development Agreement, enabling funding for drilling for 645 MW

ENABLERS 2a Develop and support overall off-grid accelerator program, for 2.5+ million
connections
Create 5 critical system
enablers 2b Support distribution system loss reduction and operational efficiency through
integrated planning, investment mobilization and technical assistance

Drive grid
and off-grid
electrification

2 CONNECTIONS
Drive grid and off-grid electrification
3a Continue to drive grid management support and capacity building to enable grid
adoption of intermittent renewable energy projects

3b Develop critical go-to capability for community engagement and land-related

challenges

3c Build the capacity of GoK entities to undertake critical functions to foster clean
Create 5 critical energy development
system enablers
3d Develop and support initiatives to finance the 14-18 billion USD gap to achieve
generation, transmission, distribution, and off-grid electrification targets

3e Provide policy and regulatory design and reform assistance based on global best
practice

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Photo: Power Africa

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USAID Kenya & East Africa
PO Box 629
Village Market 00621
Nairobi, Kenya
Phone: +254 20 862 2000
Email: usaidke@usaid.gov May 2016