Ambitious Plans Questioned By Regional Realties

BMI View: Kenya's aspirations to expand its non-hydro renewables industry, particularly geothermal and wind power, is well-documented and we have been following the country's progress towards the adoption of renewable energy closely. However, Kenya's 'Vision 30' energy strategy, outlining the trajectory of the country's energy agenda up to 2030, also looks to incorporate nuclear power, gas and coal-fired generation into the domestic power mix - sources that are currently not utilised within the country. Although this would no doubt help to secure its energy supply and reduce its dependence on unreliable hydropower and costly oil imports, we are sceptical as to whether this strategy can be realised, given the numerous barriers hindering the power, and wider energy and infrastructure sectors.

Kenya is adopting a multi-pronged strategy in an attempt to diversify its power mix a way from unreliable and climate- dependent hydropower and hydrocarbon imports. As such, the 'Vision 30' energy agenda, which provides a pathway for power expansion through to 2030, envisages the utilisation of both renewables and conventional energy technologies -including geothermal, wind power, coal, gas and nuclear generation. Overall, the strategy aims to increase total electricity capacity to 19GW by 2030 (from an estimated 2GW in 2012), with geothermal contributing over a quarter to this and nuclear nearly a fifth. Undoubtedly this strategy is hugely ambitions; particularly considering that the country has yet to develop a nuclear, coal or gas power generation industry.

Renewables Expanding

Aspirations Too High?
Vision 30 Energy Policy, By Type and % of Total Capacity, 2030 (LHS) and Kenya Total Capacity, MW, By Type, 2022f (RHS)

BMI View: Kenya's aspirations to expand its non-hydro renewables industry, particularly geothermal and wind power, is well-documented and we have been following the country's progress towards the adoption of renewable energy closely. However, Kenya's 'Vision 30' energy strategy, outlining the trajectory of the country's energy agenda up to 2030, also looks to incorporate nuclear power, gas and coal-fired generation into the domestic power mix - sources that are currently not utilised within the country. Although this would no doubt help to secure its energy supply and reduce its dependence on unreliable hydropower and costly oil imports, we are sceptical as to whether this strategy can be realised, given the numerous barriers hindering the power, and wider energy and infrastructure sectors.

Kenya is adopting a multi-pronged strategy in an attempt to diversify its power mix a way from unreliable and climate- dependent hydropower and hydrocarbon imports. As such, the 'Vision 30' energy agenda, which provides a pathway for power expansion through to 2030, envisages the utilisation of both renewables and conventional energy technologies -including geothermal, wind power, coal, gas and nuclear generation. Overall, the strategy aims to increase total electricity capacity to 19GW by 2030 (from an estimated 2GW in 2012), with geothermal contributing over a quarter to this and nuclear nearly a fifth. Undoubtedly this strategy is hugely ambitions; particularly considering that the country has yet to develop a nuclear, coal or gas power generation industry.

Aspirations Too High?
Vision 30 Energy Policy, By Type and % of Total Capacity, 2030 (LHS) and Kenya Total Capacity, MW, By Type, 2022f (RHS)

Renewables Expanding

At present, Kenya's non-hydro renewables industry is relatively well-developed, thanks to its geothermal industry, which has been expanding since the early 1980s and currently contributes almost 20% to Kenya's total electricity generation.

Kenya Geothermal Projects
Station Company Location No. of units Installed Capacity (MW) Year Installed
Source: National Energy Policy 2012/BMI
Olkaria I KenGen Olkaria 3 45 1981
Olkaria II KenGen Olkaria 2 70 2003
Olkaria II KenGen Olkaria 1 35 2010
Olkaria III Orpower 4 Olkaria 3 13 2000
Olkaria III Orpower 4 Olkaria 1 35 2009

Furthermore, the state-owned utility KenGen is focusing on further expanding the geothermal industry, through the exploitation of the natural geothermal reserves at the Olkaria site - aiming to increase capacity to nearly 600MW by 2016, 1500MW by 2019 and 5GW by 2030. There are many factors helping to drive the industry, which also underpin our cautiously optimistic outlook for the sector. For example the high levels of government support backing the sector (Kenya's Budget Statement for the fiscal year 2013/2014, released in June 2013, has earmarked KES12.5bn for the geothermal energy segment), significant international funding from the likes of financial institutions and development banks, and the fact the country has nearly three decades of experience with the industry. That said, our forecasts are on the bearish side when compared to KenGen targets, and we expect geothermal capacity to reach nearly 900MW by the end of our 10-year forecast period to 2022.

There are also positive developments occurring within the Kenyan wind energy sector, with nearly 800MW of wind capacity in the project pipeline - the Lake Turkana wind power project the largest of all at 300MW. That said, this flagship development has witnessed numerous delays, and is still yet to en ter into construction, despite breakthroughs made this year with regards to financing ( see, 'Lake Turkana Wind Project Moving Forward, Albeit Slowly', May 2 ). We expect the project to go online in 2016, two years behind initial estimates .

Nuclear And Gas Targets Precarious

According to Kenya's May 2012 national energy policy release, the first nuclear plant of 1GW should be commissioned in 2022, followed by additional units of 1GW each in 2026, 2029 and 2031. However, given the country's lack of technical expertise and financial resources to harness this energy resource, we have not factored the first plant in 2022 into our forecasts and believe the government timeframe for nuclear expansion is overly ambitious.

Similarly to nuclear energy, we are also sceptical with regards to the country's gas ambitions. We have not included any gas-fired generation into our 10-year forecasts as we believe there are too many hurdles to overcome before this component of the Vision 30 strategy can be realised. The government is hoping to develop a liquefied natural gas (LNG) handling and storage facility in Mombasa, with a gas-fired power plant situated nearby to utilise LNG. Recent gas discoveries in neighbouring Tanzania and Mozambique do certainly provide upside in terms of Kenya's ability to source the fuel, but infrastructure bottlenecks within the country, as well as in Tanzania and Mozambique are likely to derail the process (see, 'Headwinds Amid Optimistic Outlook For Rovuma Gas', September 10 and ' Challenges Ahead As LNG Plans Advance, September 11). Moreover, despite promise, offshore exploration in Kenyan waters has yet to uncover commercial quantities of gas as has been the case the country's southern neighbours.

Upside For Oil

With these dynamics in play, we believe that oil will continue to dominate Kenya's thermal generation mix, despite the incorporation of coal into our forecasts towards the latter half of the decade. We expect annual average growth rates in oil electricity generation of 7.95% between 2013 and 2022. Providing upside for the oil-power generation sector and reinforcing our viewpoint that oil will retain its key role in the country's electricity mix. This is particularly true given the positive outlook for the commercial production in both Kenya and Uganda.

Oil Production Looking Up
Kenya Onshore Blocks And Regional Pipeline Projects

According to Tullow chief operating officer, Paul McDade, (in the announcement of the H213 financial results) Kenya could begin oil production as soon as 2016, with Uganda scheduled around 2017. In fact, we have witnessed rising optimism among Kenyan officials regarding their own resource potential and the likelihood that commercial production could begin in the next several years ( see, 'Frontier Markets Race To First Oil', August 29). With a rising oil industry in the region, increasing access to feedstock supports our view that oil will remain crucial in the supply mix, given challenges to more ambitious generation plans.

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This article is tagged to:
Sector: Power, Renewables
Geography: Kenya, Mozambique, Tanzania, Uganda
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