Electrification Drive Will Improve Business Environment

BMI View: Efforts to improve Kenya's inadequate electricity infrastructure will show significant returns over the next 10 years. The country's total electricity generation will double between 2013 and 2023, though many rural areas will remain underserved.

Government efforts to upgrade Kenya's dilapidated power sector are continuing to gain speed: the CEO of state-owned electricity distributor Kenya Power recently pledged to connect a million new customers to the grid before the end of the 2014/2015 fiscal year.

This ambitious target - which would increase the firm's customer base by 36% - may not be feasible given the short time-frame. Over the medium term, however, we predict that Nairobi will succeed in improving Kenya's power infrastructure, bringing electricity to millions of people and boosting economic competitiveness.

A Poor Starting Point
Sub-Saharan Africa - 2014 Energy Generation Per Capita, KWh

BMI View: Efforts to improve Kenya's inadequate electricity infrastructure will show significant returns over the next 10 years. The country's total electricity generation will double between 2013 and 2023, though many rural areas will remain underserved.

Government efforts to upgrade Kenya's dilapidated power sector are continuing to gain speed: the CEO of state-owned electricity distributor Kenya Power recently pledged to connect a million new customers to the grid before the end of the 2014/2015 fiscal year.

This ambitious target - which would increase the firm's customer base by 36% - may not be feasible given the short time-frame. Over the medium term, however, we predict that Nairobi will succeed in improving Kenya's power infrastructure, bringing electricity to millions of people and boosting economic competitiveness.

A Poor Starting Point
Sub-Saharan Africa - 2014 Energy Generation Per Capita, KWh

Kenya's power industry is weak, even by African standards. The country's ageing power infrastructure produces just 9.8 terawatt hours (TWh) of electricity annually. Given Kenya's large population, this figure would provide only enough energy for each person in the country to run a large television for about one hour each year. Zimbabwe produces more than twice as much electricity per head of population.

A poor transmission and distribution (T&D) system leaves most Kenyans cut off from even this limited supply. The World Bank estimates that just 18% of Kenyans have access to electricity. The country's Rural Electrification Agency (REA) estimates that the figure is 26%, with the discrepancy largely due to definitional questions relating to shared and intermittent access. Access varies significantly across the country. Around 70% of people in Nairobi have access to the power grid, though frequent blackouts limit their ability to use it.

Reasons For Optimism

There are several reasons to believe that this dire situation may finally be changing. A combination of government funding for rural electrification and private investment in generating capacity has already begun to boost output. Distributed electricity programmes are bringing power to isolated communities, while Kenya is far ahead of its peers in taking advantage of the opportunity offered by renewable power technologies.

Green Shoots Of Improvement
Kenya - Power Generation By Type, TWh

By 2023 we predict that electricity output will reach 20.6TWh, more than twice the figure for 2013. Most of the increase will come from Kenya's booming renewable energy sector, which is taking advantage of the country's ample wind and geothermal potential. Rising renewable production, combined with a weak traditional power industry, will give Kenya one of the world's greenest energy sectors (see 'Significant Renewables Potential But Risks Ahead', July 11).

Rising Output Will Boost Growth...

An improved electricity grid will significantly improve Kenya's economic competitiveness, helping to spur investment in power-hungry industries such as manufacturing and food processing. A more reliable supply of electricity will be especially important for smaller firms, which struggle to afford expensive diesel generators (see 'Kenyan SMEs Set To Outperform', July 2).

Investment in renewable energy may also help spur new industries as Kenyan firms use their experience to expand elsewhere in the East African Rift Valley region. Government plans for a nuclear power plant are fanciful, but we predict that Kenya will become a regional hub for renewable power investment, production, and innovation.

...But Many Will Be Left Behind

Even so, we stress that many rural Kenyans will not benefit from this boom in electricity production. Some will receive electricity from small-scale local sources - such as rooftop solar panels - but only a few will have full connections to the national grid.

A recent study by America's National Bureau of Economic Research found that rural electrification rates remained around 5.5% in communities where the REA recently built transmission stations. Half of the unconnected houses were within 200m of a low voltage line, but administrative problems and high costs prevent these people from accessing the electricity flowing just over their heads.

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This article is tagged to:
Sector: Country Risk, Power
Geography: Kenya
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