ANALYSIS

The genesis of IPPs and their role in Kenya's power sector

The energy mix is unique to the country’s demand curve.

In Summary
  • IPPs had started developing power in various parts of the globe in the late 1970’s and early 1980’s to compliment inefficient and limited public utilities.
  • In 1997, through enactment of the Electric Power Act, an independent regulator for the electricity sector was created.
The view of the Ksh 70 billion Lake Turkana Wind Power Project in Loiyangalani district of Marsabit County of Northern Kenya sitting on a 40,000 acres piece of land on August 16, 2016. The farm is the largest private investment in Kenya’s history will comprise 365 wind turbines, each with a capacity of 850 kW which aims to provide 310MW to Kenya’s national grid. Photo/Jack Owuor
The view of the Ksh 70 billion Lake Turkana Wind Power Project in Loiyangalani district of Marsabit County of Northern Kenya sitting on a 40,000 acres piece of land on August 16, 2016. The farm is the largest private investment in Kenya’s history will comprise 365 wind turbines, each with a capacity of 850 kW which aims to provide 310MW to Kenya’s national grid. Photo/Jack Owuor

Questions abound and debates continue on the roles, importance and the ramifications of having IPPs in Kenya’s electricity sector value chain.

In the recent past, a lot has been said about the high cost of electricity in Kenya, with much of the blame attributed to IPPs and even in some instances declarations made that IPPs is a failed experiment in Kenya.

Even so, it is vital to interrogate what necessitated the entry of IPPs in Kenya, the role they have played, and the critical sphere they hold in the future of Kenya’s electricity sector, both for the consumers and the investment environment.

Let’s first look at the history of IPPs in Kenya. From early 1990s, virtually all major power generation throughout Africa was financed by public coffers, including concessionary loans from development finance institutions (DFIs).

Just around the same time, however, a confluence of factors signaled a significant change.

Multilateral and bilateral development institutions, like IMF and World Bank largely withdrew from funding state-owned power projects citing decades of poor performance by state-run utilities.

Global donor trends shifted towards encouraging private sector participation in infrastructure with concessionary funding being targeted at health and social services.

With many governments experiencing insufficient public funds for new generation, and a growing demand for energy, African countries began to adopt a new standard model for their power systems, which mostly involved unbundling of their power systems and the introduction of private participation and competition.

As a proven model, IPPs had started developing power in various parts of the globe in the late 1970’s and early 1980’s to compliment the seemingly inefficient and limited public utilities.

Kenya was not an exemption, the government invited IPPs to help in power generation. As demand for electricity was growing and the rains were failing, with no new non-weather dependent power generation, it became urgent to fix power supply.

In response, under the Energy Sector Recovery Programme of the World Bank and the International Monetary Fund (IMF), Kenya welcomed IPPs into the generation value chain, in fulfillment of the condition for the access of funds from multilateral organizations.

IPPs were considered an easy fix for the supply constraints; they were more efficient in their operations, faster in development and able to attract private capital into a sector that was rarely privately financed.

Kenya, like many other countries, went ahead to restructure the power sector to promote private sector investment under the development policy paper titled “Economic Recovery Strategy for Wealth Creation and Economic Development”.

Injection of new investment from the private sector other than being a necessity, also became an urgent need. In 1997, through enactment of the Electric Power Act, an independent regulator for the electricity sector was created.

The World Bank then released and supported Kenya to tender and negotiate for the first emergency interim IPPs- Ibeafrica a 56 MW Heavy Fuel Oil plant in Nairobi and a 40 MW barge mounted gas fired power plant-Westmont in Kipevu.

These were both for seven years and in 2004, Westmont was retired but Ibeafrica’s PPA was restructured and extended.

With a huge power generation gap resulting from low hydrology and years of underinvestment in the electricity generation by the state at the time, the IPPs stepped in to plug the power generation gap. It should not be lost to Kenyans that in 1999 and 2000, the country was plunged into devastating darkness.

This followed a two-year drought that instigated the dry up of hydropower dams. In order to cope with high demand and limited supply of electricity, the government was left with no choice but to ration power.

The rationing ranged from 97.5 megawatts in the morning to 178.5 megawatts in the evening during weekdays for about six months.

To be noted here is that about 70 per cent of the country’s energy supply was from hydropower, yet the dams were dry, a situation that pointed to lack of diversification in power supply.

For 12 hours a day, domestic and commercial consumers did without grid power.

This over reliance on one source of energy is now a thing of the past, thanks to IPPs who not only have merited capability to access latest technology compared to public institutions, but also improve energy mix and overall security by investing in diverse sources of energy like geothermal, solar and wind among others in different locations.

Diversification and strong expansion of KenGen’s geothermal portfolio has also helped the energy mix.

The technological success in terms of generation diversity in Kenya has majorly been boosted by massive technology transfer and human resource development from the private sector investments.

Kenya has an installed power capacity of 2854MW. In FY2020, 25 per cent of power volumes purchased by KPLC were from IPP’s.

For grid stability, hydro power and geothermal provides both peaking or load following and base power characteristics while thermal plants provide peak power during periods of high demand and support for the grid when renewables fluctuate.

The thermal plants are mostly deployed to stabilise the grid in particular localities like the Coast, Nairobi and Western Kenya.

In Mombasa, thermal IPP’s have provided much needed voltage support for the local grid given its distance from the main power generation areas of Seven Folks Dam and Rift Valley.

The energy mix in Kenya is unique to the country’s demand curve.

Recent announcements of impending droughts, due to climate change and unpredictable weather patterns points to a greater urgency of engaging investors to adopt climate resilient technologies to avert a power crisis.

It must be appreciated that privately sourced capital will be more expensive than the publicly acquired capital from the Bilateral and Multilateral Development Partners.

In addition, IPPs can only plan for a life of 20 years as renewal of the Power Purchase Agreements beyond twenty years is not assured unlike the public owned utilities, which are here for unlimited period.

As a result, tariffs from IPPS on similar technologies are expected to be higher than those from publicly owned utilities.

After all, it must be understood that for the economy, no power at all is more costly than availability of expensive power.

Th writer is an energy engineer and efficiency expert