Renewable energy in Kenya
Kenya was recently recognized as one of the most attractive renewable energy markets in the world.
The country was ranked as one of the fastest growing markets for renewable energy by Ernst & Young’s Renewable Energy Countries Attractiveness Index (Recai).
The report put Kenya’s renewable energy sector in the Rising Star category, which comprises promising growth markets. This comes against the backdrop of the COP21 Paris Agreement that set to create a $13.5 trillion global low carbon investment market by 2030.
Ahead of the COP21 Convention, Kenya pledged to cut its carbon emissions by 30 per cent by 2030. With geothermal energy sources, wind speeds averaging 11m/s — one of the fastest in Africa — and receiving sunshine all year round due to its location on the Equator, Kenya is a potentially prime renewable energy producer.
But legal disputes, security and legislation and confused policies seem to pose significant hurdles to investors in the sector.
The collapse of the 60MW Kinangop Wind Park has, for example, cast a dark shadow over the sector.
The compensation dispute after the project’s licence was withdrawn following protests by the local community over land acquisition, has taken the firm and the Kenya government to the International Court of Arbitration.
The firm is seeking compensation on an indemnity that the Ministry of Energy had promised in the event that the project failed to take off.
Last year, US-based Walam Energy sued the county government of Turkana for the cancellation of the licence of independent geothermal exploration company Olsuswa Energy following a land dispute.
Around the same period, a Russian firm OJSC sued KenGen for allegedly favouring a rival company in a $140 million tender award. These disputes are worrying.
The mining sector is also facing similar challenges. Last year, Canadian gold explorer African Queen Mines withdrew from Kenya, citing security concerns.
The other factor that may adversely affect the renewable energy sector is the new Companies Act, which could make it mandatory for foreign investors to cede a 30 per cent stake in their businesses to local investors.
Energy projects usually involve large capital investments and the requirement may make it hard for local investors to find foreign partners.
Private institutional investors in Kenya rarely want to go into energy development because of the capital risk.
One of the reasons why the African continent has the least electricity penetration in the world despite having the largest energy reserves — especially in renewable energy — is because its energy sector has the lowest private capital participation.
The result is that over half a billion people on the continent do not have electricity.
According to the World Bank, Africa’s private investment in the energy sector is about one per cent, compared with 34 per cent in South Asia, 26 per cent in Latin America and 25 per cent in Eastern Europe and Central Asia.
This is attributable to policy and investment risks that undermine efforts to attract capital.
In addition to the power deficit, power cuts in sub-Saharan Africa also hamper growth. The World Bank estimates that blackouts alone cost countries up to 2.1 per cent of GDP.
In Kenya, over half of the population does not have access to electricity, even as the government rolls out ambitious energy projects to generate and provide sustainable and affordable electricity.
But the Kenyan energy projects are left almost entirely to the government and foreign investors.
The International Monetary Fund has already warned Kenya against overexposure to debt in power deals, saying that Nairobi has guarantees on up to 12 power purchasing contracts worth over $3.43 billion, or 5.7 per cent of GDP, that have not been made public or accounted for.
Private-public partnerships are critically important for Kenya’s energy and energy infrastructure development if the country is to meet its targets.
Equally important is Kenya’s ability to provide security for foreign capital investments.
Tina Nduta is the founder of Eimara Africa Resources, a Nairobi-based mining and energy consultancy.
E-mail: [email protected]
This article was first published in The EastAfrican and can be accessed at http://bit.ly/2ayBIIy