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Does Kenya need Coal?

 

In 2015, the Government of Kenya launched an ambitious plan to add 5,000 MW of electricity generation capacity to the grid in 40 months with the aim of improving availability of supply and thereby support economic growth. The excess electricity generation capacity was to supply flagship projects such as the electrification of the Standard Gauge Railway (SGR), a steel plant and Lamu port. The implementation of these projects was to lead to the industrialization of the country and transform Kenya into a middle-income economy by 2030.

However, in 2017, media reports indicated that the government had abandoned this plan because electricity demand did not grow at the anticipated rate. Despite indications that the 5,000 MW plan had been abandoned, plans to construct a 1000 MW coal power plant in Lamu remained. In 2017, Amu Power, an Independent Power Producer, signed a 25-year power purchase agreement with Kenya Power, allowing it to supply electricity generated from coal to the Kenyan grid pending an environmental impact assessment  license and partial risk guarantees to be awarded by the government to lenders in the project.

Public discourse has brought to the fore numerous arguments for coal with some parties indicating that additional capacity from coal would drive industrialization, as has been witnessed in many developed countries such as the US, Germany and China in the past. This article analyses this position with the aim of determining whether additional supply from coal will actually improve industrial performance.

Excess electricity generated

Electricity is indeed a requirement for socio-economic development and industrialization. However, Kenya currently has excess electricity generation capacity and therefore does not need supply.   In 2017, in the Daily Nation, Cabinet Secretary for Energy Charles Keter indicated that the government was slowing down the implementation of the 5000 MW plan because of insufficient demand due to the counties’ failure to invest in mega-industries, which would serve to drive electricity demand. One can infer from this statement that the country has excess electricity capacity.  Further, another article published in the Daily Nation indicated that Kenya Power had indefinitely halted the signing of new power purchase agreements because of excess capacity.

In fact, Kenyans have been paying for unutilized supply for the past five years. An analysis of data in Kenya Power’s annual reports indicates that the reserve margin (the difference between peak demand and installed generation capacity) has ranged from 22% to 45% between 2014 and 2018. In many nations, the recommended reserve margin is 15% or even less, to allow for demand growth and maintenance of power plants. According to the government, installation of further electricity capacity at the present rate would only increase excess capacity and thereby the cost of electricity.

Additional electricity capacity has not served to improve the performance of the manufacturing sector. Despite the existence of excess electricity generation capacity, the Economic Survey 2019 shows that the contribution of the manufacturing sector to the gross domestic product has declined from 10% in 2014 to 7.7% in 2018. These statistics indicate that electricity capacity in Kenya is not the impediment towards productivity as commonly touted. Rather, the manufacturing sector has repeatedly indicated that high cost of electricity sometimes up to 40% of the cost of production, and unreliable supply caused by poor transmission and distribution network has hindered its growth. [2] [3].

Contribution to excess capacity

Addition of a coal plant to Kenya’s electricity generation mix will cause an increase of Kenya’s electricity cost by contributing to excess capacity. The Least Cost Power Development Plan (LCPDP) 2017-2037, an electricity generation plan prepared by the government, indicates that a coal power plant, if constructed, would be utilized at a maximum capacity factor of 4.1% between 2024 and 2036, leading the levelized cost of electricity to peak at approximately KES 16 per kWh in 2024. The LCPDP also analyses an additional scenario, where the addition of coal power to Kenya’s electricity generation mix is delayed to 2029. In this scenario, the cost of electricity is KES 12.3 per kWh indicating that coal is not the best solution for Kenya’s electricity generation mix in the earlier periods.

The government should instead direct efforts to improve the transmission and distribution network, in order to increase the reliability of supply, enable a reduction in suppressed demand, and assist in the overall growth of consumption. This is a low-hanging fruit for a country that has its focus on increasing electricity demand. Affordability of electricity also needs to be a priority to enable domestic consumers enjoy the benefits of universal connectivity and allow the manufacturing sector to reduce production costs, therefore reaching the desired growth and competitiveness of the sector.

This article was written by Ms. Sarah Odera, Ag. Director, Strathmore Energy Research Centre and Prof. Izael Da Silva, Deputy Vice Chancellor, Research and Innovation. You can contact us at serc@strathmore.edu.

 

If you have a story, kindly email: communications@strathmore.edu

 

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