Renewable Energies marketing models Kenya




Status Quo

The feed-in-tariff system has been operated under the Feed-in-Tariffs (FIT) Policy1 developed by the Ministry of Energy and Petroleum in 2008 the FiT is intended to encourage the generation of energy from renewable sources and its supply through localised distribution networks. The FiT was upgraded from being ministerial policy to part of national legislation in Kenya’s newly revised Energy Act which provides for the same.


In terms of market volume, about 24% of Kenya’s installed capacity of 2300 MW2 installed capacity comes from 14 IPPs who all have signed PPA’s within the framework of the FiT policy3. There is a high level of interest from investors to develop projects under the FiT framework. As at 2018 the regulator, the Energy and Petroleum Regulatory Authority (EPRA) had received more than 130 applications for a total of 4,500MW of capacity composed mainly of solar projects, at 2,519.40 MW, wind power at 898.2 MW and small hydro at 579.71MW4. The FiT values vary depending on the capacity of the plant and the technology used. Grid connected solar projects would receive 0.12 USD/kWh and wind 0.11USD/kWh.


Current Challenges

Industry analysts are of the opinion that Kenya is potentially facing an oversupply challenge. Kenya currently has an installed capacity of 2,300MW against a peak demand of 1,800 MW. The first confirmation of this was in January, 2019 when the Chairman of Kenya Power, the national off-taker, was quoted as saying that it would be placing a freeze on signing new power purchase agreements until a sector review was conducted to assess the market demand for additional electricity. Kenya Power’s then stated objective was only to phase in new projects when certain that there is sufficient demand to absorb it. The concern here is that Kenya Power would not want to saddle consumers with costs for power that was not being consumed and therefore paid for. Currently Kenya Power, in line with its least-cost-power-development-plan-2017-20225 is also seeking to renegotiate downwards PPA’s that it has already signed. It has been already announced that Kenya’s PPA with Uganda has been renegotiated from Sh22 per kilowatt-hour (kWh) to Sh14 and shall be gradually phased down to Sh10 per kilowatt hour. We are also aware from our practice that Kenya Power is currently negotiating with power producers on accepting tariffs lower than those set out in the feed-in-tariff policy.  This is in line with the current policy of seeking out the least costly energy sources to reduce the burden on energy consumers.



The FiT may be replaced by an energy auction system. The Director of Renewable Energy Mr. Benson Mwakina at the Ministry of Energy and Petroleum has been quoted by sections of the media as confirming that they are in the last phases of putting in place the mechanisms necessary to deploy the system. The purpose of introducing the auction system is in order to ensure cost efficiency. Once the auction system has been deployed, it is expected that the FiT will be relegated to non-use or will be revamped in order to fit in Kenya’s least-cost power development plans under which the country will replace expensive electricity sources ranging from higher tariff PPAs to expensive generation sources such as the thermal/diesel plants used to supplement supply during times of low hydropower generation during dry seasons.


1 Feed-in-Tariffs policy for wind, biomass, small hydros, geothermal, biogas and solar,2nd revision, December 2012

2 Least Cost Power Development Plan 2017-2037, Government of Kenya, updated June 2018.

3 National Energy Policy, October 2018


Status Quo

Self-consumption in the commercial and industrial sector is still a small but growing market. With the current reductions in the costs of renewable energy generation technology particularly solar PV technology and the increasing consciousness from industries on the need to reduce green-house emissions, renewable energy is increasingly being considered as viable energy source for commercial and industrial players. So far for solar PV technology, C&I players have taken on smaller applications for lighting and other like powering needs. Some other C&I players such as tea farms have installed small hydro-plants for their use. Net-metering which was recently introduced in Kenya’s recently revised energy legislation, the Energy Act, 20196  will present an opportunity for consumers to offset the costs of electricity and provide further cost justification for installing renewable energy projects for their own consumption. Kenya’s energy legislation is facilitative of self-generation providing a regulatory incentive for self-consumption. It exempts individuals from the requirement to obtain any authorization from the regulator, the EPRA for projects with a capacity of  1 MW or less7.


Current Challenges

The main challenge is the current unavailability of net-metering systems to allow consumers to sell excess capacity to the grid. The regulations to support the net-metering system are still under development. The infrastructural support from the national utility is also yet to be installed and will take some time. Once the regulatory framework and infrastructural support for net-metering is in place, it will provide an extra incentive for consumers to take on the generation of their own electricity. Further storage technologies are still expensive and relatively unreliable which creates a barrier to entry and reduced user satisfaction8.



The domestic market which has as the main market, homes in remote rural areas, is increasing gaining attention. There are many players in this market and further the government is prioritizing grid expansion to serve these underserved areas. Most households would prefer grid supplied electricity where it is available, as it is relatively cheaper at the moment and allows for more domestic applications.  The market in the commercial and industrial setting represents the greatest opportunity as this sector can justify the capital outlay for potential energy savings that will improve the businesses bottom line.


6 S. 162 Energy Act, 2019

7 S. 117 Energy Act, 2019.


Status Quo

The utility PPA market has and continues to be a key contributor of electricity to the national grid, providing according to the latest available figures upto 24% of the country’s installed capacity.9 The current utility PPA regime has been supported under the ‘Feed-In-Tariffs Policy on Wind, Biomass, Small-Hydro, Geothermal, Biogas and Solar Resource Generated Electricity’ (FiT Policy). The FiT Policy provides the tariff structures and a standardised PPA which all IPPs must adopt with limited scope for negotiation. There are as has been mentioned a large interest amount of interest expressed from IPPs with more than 130 applications having been made to the ERC for approval.


The corporate PPA or the private PPA scene is much smaller as many businesses rely on grid supplied electricity. However with the reducing costs of renewable energy systems especially solar, the rising costs of grid electricity and the increasing awareness of the potential cost savings, there is a heightened level of interest from the sector.


Current Challenges

There is currently concern from the public utility of a potential oversupply of capacity. Peak demand is currently only estimated to be around 1800 MW as compared to an installed capacity of 2300 MW. The currently pending applications amount to an additional 4,500 MW of installed capacity. The national utility, has temporarily frozen the signing of new PPAs pending a review of market demand. It intends only to take on new PPAs at a time when the demand is available to absorb it. The utility is also seeking to renegotiate existing PPAs in accordance with the Least Cost Power Development Plan 2017-2022 in the face of rising electricity costs and complaints by households and businesses.


The main challenge in the corporate PPA sector which hinders its growth are mainly practical. Many SME’s do not own the buildings in which they operate from. As tenants, these businesses will resign the responsibility for obtaining the systems away from themselves to the building owner. Most owners of older buildings are reluctant to make extra capital investments into their properties. Developers of new buildings however are more open to including solar technologies into their buildings and are likely to do so as it may be a draw for buyers or tenants. Under the Energy (Solar Water Heating) Regulations 2012 it is already a mandatory requirement for all premises with hot water requirements exceeding 100 liters a day to install solar heating systems. New buildings across the country are being developed with these heating systems in the design.  The wide adoption of solar water heating systems has led to a greater awareness of solar photovoltaic technology and it is now easier to market to consumers.



Signing of new utility PPA’s is currently on hold as the national utility and other stakeholders such as the EPRA and Ministry of Energy and Petroleum conduct a survey of market demand. New generation plants will only be on-boarded once it has been established that there is adequate demand. Despite this, the EPRA and Kenya Power have been in the past few months amenable to discussing PPAs with developers who are willing to take a discount on FiT tariffs.


Kenya may be moving into an auction system where electricity generation and distribution rights will be sold to the lowest bidder. These are part of the measures recommended in its Least Cost Power Development Plan10. The Director of Renewable Energy Mr. Benson Mwakina was in June, 2019 quoted by the media as stating that they were in the process of formulating the mechanisms to facilitate the functioning of the auction system. This auction system is intended to replace the FiT system that governs utility PPAs as it is seen as the pragmatic method of ensuring that public utilities obtain the most cost effective electricity for their customers.


The commercial PPA market on the other hand is still under-developed for the practical issues mentioned above. Many large institutions such as universities, hotels, factories and shopping malls which could profit from entry into PPAs, have not.  This may be due to a lack of awareness of the potential cost savings and a lack of liquidity. We believe that if the PPA’s are well packaged and presented to clients that they will lead to greater sales.



Status Quo

Leasing in the commercial and industrial setting is increasingly being appreciated as a viable financing model. It is also preferred by equipment manufacturers, distributors and suppliers, as compared to PPAs as it removes the burden of them of having to seek licenses in order to generate, distribute and supply electricity to consumers. Pure equipment leasing models can be used for any renewable energy technology without restriction, save for the relevant licenses required to import the equipment. The market in the commercial and industrial sector is still under-developed due to general low uptake of generation systems but with the creation of awareness of the potential cost savings and the availability of financing through this model, a larger market can be created.


The leasing model has been widely adopted in the domestic and household market segment especially amongst individuals in remote rural locations. This wide adoption can be credited to several large players in the market who offers solar PV systems with a range of capacities and applications on a hybrid leasing and hire-purchase plan. Customers pay for the kits by paying an initial deposit and daily instalments payments up-to one year.


Current Challenges

The main challenge for manufacturers, distributors and suppliers is the need for them to seek the registration under other regulatory bodies such as the National Construction Authority established under the National Construction Authority Act11 that regulates EPC contractors and their technicians. This Act sets a higher bar for non-Kenyan contractors to obtain and maintain their registration. The Act also requires that non-Kenyan contractors sub-contract a portion of their work to local contractors and is intended as a means of skills transfer and job creation. There is nonetheless a growing body of skilled local technicians in the country that can provide the necessary support to EPC contractors to install and maintain their projects.


Currently there is limited availability of financing for leasing as the market is still under-developed. There are no widely available and dedicated solar lease financing companies as there are in other markets such as Germany. Asset finance is nonetheless available from traditional sources such as banks and micro-finance institutions. Many Kenyan SME’s currently operate in the cash space or with supplier credit which is on average 30 to 90 days12. This therefore means that such businesses may not be in a position to take on a capital intensive project which will require a large capital outlay. This will pose a challenge to equipment manufacturers, distributors and suppliers who may need to find funding partners in order to make their products more accessible.



With the availability of dedicated asset finance, uptake will be higher in the commercial and industrial sector. The current legal framework is supportive of businesses taking up their own solar systems and leasing provides an affordable path for consumers to adopt it. Once Kenya’s net-metering system has been deployed in the market, we are likely to see an increased uptake of self-generation systems supported by leasing as the financing model.


11 National Construction Authority Act, Act No. 41 of 2011

12 Study on Solar Photovoltaic Industry in Kenya, Energy Regulatory Commission, October 2018

 Direct marketing

Status Quo

In Kenya, the most common direct marketing model involves the sale of electricity to consumers through mini-grids or stand-alone systems. They are often deployed in remote rural areas that have no access to grid supplied electricitya. Mini-grids consist of a generation plant with a distribution and supply system connecting several homes within the vicinity where they are located. The largest mini-grids are owned by the Rural Electrification and Renewable Energy Corporation (REREC) the public body with the mandate to electrify rural communities. They have a total installed capacity of 31.6 MW comprising of 30.4MW through thermal/diesel and 0.69MW solar and 0.55MW wind13. Private mini-grids are often solar or wind powered and typically have a capacity of below 50kw. They tend to use pay-as-you go payment models and are increasingly using smart technologies to achieve this integrating M-Pesa (mobile money) as a payment solution. Private mini-grids charge higher rates than grid connected power. The total estimated capacity of private mini-grids is approximately 220KW.


Current Challenges

The main challenge is the lack of a specific and facilitative regulatory framework to govern mini-grids. The existing legislation makes no distinction between small and utility size generation and supply systems and therefore subjecting mini-grid operators to the same compliance burden as public utilities. As these are impractical for mini-grid operators, the regulator, the EPRA has for the longest time permitted them to continue operations with either reduced or no licensing requirements. This has however led to uncertainty in the proper application of the law. Clear tailor-made regulations for mini-grids will create the certainty necessary for long-term investment. There has also been a tussle over the rates mini-grid operators charge to their customers. The EPRA which has the mandate to control electricity prices, has always been of the view that mini-grids should match the prices of the national utility which are lower. Mini-grid operators have always maintained that their prices are cost reflective.


While the EPRA has not yet exercised its powers to control mini-grid prices, it remains an outstanding point of conflict between them the Ministry of Energy and Petroleum and mini-grid operators.14



Mini-grids have been operating in a policy grey area, being tolerated for the benefit they bring to the communities they serve, but which are only seen as a temporary solution as the government prioritizes grid expansion, grid intensification and densification in accordance with the National Electrification Strategy who’s aim is to achieve universal access to electricity by 202215. We are however aware that EPRA is currently in the process of generating formal regulations to govern mini-grids which will lead to greater certainty to stakeholders.


Despite the grid expansion, there will still be room for private mini-grids as the grid may not be extended to areas where it is not economically viable. For instance, where the number of people it will serve is too low and where there are few economic activities. In the long term however it is anticipated that REREC will expand to these areas. Some mini-grid operators have chosen to set up their plants in a semi-permanent modular manner allowing them to redeploy their systems should the grid or publically-owned mini-grids come to their area. Be that as it may, private developers will not lose out as there will be opportunities for them to collaborate and support the government in rural electrification by entering public private partnerships for the development of the generation plants, distribution and supply networks.


13 The Kenya Power and Lighting Company Limited - Annual Report and Financial Statements 2017/2018

14 Opportunities and Challenges in the Mini-Grid Sector in Africa, Lessons Learned from the EEP Portfolio, EEP Africa, 2018

15 Kenya National Electrification Strategy, 2018



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Penninah Munyaka

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