ENERGY SECTOR OPPORTUNITIES IN KENYA BUSINESS SWEDEN 2016 Business Sweden in Nairobi
KENYA AIMS TO BE A MIDDLE-INCOME ECONOMY BY 2030 Kenya has a long-term development plan named Vision 2030 which aims to transform the country into a middle-income economy by year 2030 The plan comprises of three key pillars: economic, social and political development Economic Pillar Aims to achieve an average economic growth rate of 10% per annum until 2030 Social Pillar Seeks to create just, cohesive and equitable social development in a clean and secure environment Political Pillar Aims to realize an issue-based, people-centred, result-oriented and accountable democratic system Enablers and Macro-Foundations Macroeconomic stability, infrastructural development, science, technology and innovation, land reforms, human resources development, security and public sector reforms KENYA S KEY ONGOING PROJECTS ARE GUIDED BY THIS VISION, WHICH IS AIMED AT GENERATING ECONOMIC GROWTH SOURCE: KENYA VISION 2030 BUSINESS SWEDEN 5 JANUARY, 2016 2
ENERGY DEMAND OUTSTRIPS SUPPLY, AND THE GOVERNMENT IS ACTIVELY INVOLVED IN THE SECTOR Kenya s current total electricity generated is 1,350 megawatts (MW) Energy supply The Kenya Electricity Generating Company (KENGEN) generates ~80% of the total electric output The other 20% is produced by Independent Power Producers (IPPs); Iberafrica Power, Westmont Power, Orpower 4 and Tsavo Power Company Demand and accessibility Only 32% of the population has access to electricity (71% in urban areas and 8% in rural areas); biomass fuel such as wood and charcoal meets the basic energy needs of the rural areas and urban poor Kenya has 6.2 million households without electricity Hydro power is the leading source of electricity generation Government involvement The government is the majority owner of the main power generation company KENGEN at 70% ownership, in addition to having ownership in varying degrees of all other key sector players The government also has the authority to cap prices as demonstrated in May 2013 by stopping the proposed increase of electricity prices by utility company Kenya Power Key ongoing developments Kenya is expected to begin importation of electricity from Ethiopia through the Eastern African Power Pool project, Phase 1 of which is expected to be completed in 2019 As more expensive diesel powered plants are retired in favour of renewable sources, energy costs are expected to fall in the long run The country has set the ambitious target of producing 5,000MW by 2030 SOURCES: MINISTRY OF ENERGY AND PETROLEUM KENYA, KENYA POWER, KENGEN, BUSINESS DAILY AFRICA, LIGHTING AFRICA, KENYA VISION 2030 STRATEGY, GEOTHERMAL DEVELOPMENT COMPANY BUSINESS SWEDEN 5 JANUARY, 2016 3
DISTRIBUTION TRANSMISSION GENERATION GOVERNMENTAL INSTITUTIONS ARE MANDATED WITH VARIOUS ROLES IN THE ENERGY SECTOR MINISTRY OF ENERGY KENGEN Kenya Power (Distribution) Geothermal Development Co. Independent Power Producers (IPPs) Kenya Power (Transmission) GDC sells steam to IPPs for electricity generation End- Users Imports Kenya Power distributes power countrywide & collaborates with REA to facilitate connectivity and distribution of power in rural areas ENERGY REGULATORY COMMISSION Generation companies sell power to Kenya Power KETRACO Rural Electrification Authority(REA) R E G U L A T I O N CHARACTERISTICS The Ministry of Energy is responsible for facilitating provision of energy in Kenya The industry regulator is the Energy Regulatory Commission Power Generation: The generation of energy is done by KENGEN, the GDC who subsequently supply steam to the IPPs, and soon from imports Power Transmission: Kenya Power purchases power from KenGen, the IPPs and import companies, and is responsible for transmission KETRACO is in charge of planning, design, building and maintenance of electricity transmission lines Power Distribution: Kenya Power distributes and retails power to end-users The Rural Electrification Authority facilitates distribution of power to rural areas in cooperation with Kenya Power SOURCES: BUSINESS SWEDEN ANALYSIS, KETRACO, RURAL ELECTRIFICATION AUTHORITY BUSINESS SWEDEN 5 JANUARY, 2016 4
HYDRO MAKES UP ~50% OF KENYA'S ENERGY SOURCES WHILE THE INDUSTRIES DOMINATE CONSUMPTION SOURCES OF ELECTRICITY IN KENYA, 2013 Household 22% Geothermal 15% Diesel 37% Other Commer -cials 16% *Others 2% Other 2% Hydro 46% CONSUMPTION OF ENERGY IN KENYA, 2013 Industry 60% CHARACTERISTICS Hydro power accounts for almost 50% of Kenya s energy composition Diesel power is second at 37% and is mainly from the country s diesel driven Kipevu III, Kipevu II and Rabai power plants Kenya is Africa's largest geothermal energy producer and geothermal energy accounted for 14% of Kenya's net electricity generation Steam is harnessed by the 100% government owned Geothermal Development Company and sold to independent power producers for electricity generation Kenya s industries are the country s largest energy consumers followed by households SOURCES: MINISTRY OF ENERGY AND PETROLEUM KENYA, KENYA ASSOCIATION OF MANUFACTURERS, NATIONAL OIL CORPORATION OF KENYA *OTHERS: WIND, 0.3% & COGENERATION, 1.6% BUSINESS SWEDEN 5 JANUARY, 2016 5
A DECREASE IN THE DEPENDENCE ON HYDRO POWER IS EXPECTED WITH GROWTH OF OTHER SOURCES BY 2030 KENYA S ENERGY SUPPLY MIX 0.03% 15% 37% 46% 8% 19% 13% 11% 9% 26% 9% 5% HYDRO POWER Hydro power which currently accounts for almost 50% of current total supply is expected to fall to 5% by year 2030 This source has long dominated Kenya's electricity generation, however, droughts have often caused severe shortages The bulk of Kenya's hydro electricity supply comes from stations at dams along the upper Tana River, as well as the Turkwel Gorge Dam in the west Geothermal energy is expected to grow significantly to 26% Year 2012 Year 2030e Hydro Diesel Geothermal Wind Natural Gas Coal Nuclear Imports SOURCES: MINISTRY OF ENERGY AND PETROLEUM KENYA, NUCLEAR ELECTRICITY PROJECT COMMITTEE BUSINESS SWEDEN 5 JANUARY, 2016 6
FOSSIL AND NUCLEAR ENERGY ARE THE EXPECTED NEW ENTRANTS IN ENERGY SUPPLY IN NEXT 10 YEARS OIL & GAS There are 23 International Oil Companies (IOCs) in the 44 licensed exploration blocks in Kenya As of September 2013, 39 wells had been drilled with oil being discovered in 3 wells: Ngamia 1, Twiga 1 and Etuko1, and natural gas discovered in the Mbawa 1 well. Further exploration is still underway Kenya has one of the largest crude oil refineries in East Africa COAL In year 2010 the Ministry of Energy and Petroleum discovered commercial coal deposits in Mui basin of Kitui County It is expected that 960MW of power will be generated from the Mui basin coal by 2016 Another 960MW is expected to be generated in Kilifi/Lamu County using imported coal NUCLEAR POWER Nuclear energy is expected to provide affordable and reliable electricity by contributing 19% to the national grid by year 2030 The Kenya Nuclear Electricity Board expects the first nuclear plant of 1,000MW to be commissioned for operation in 2022 THE DISCOVERY OF OIL AND GAS IS EXPECTED TO HAVE A POSITIVE EFFECT ON THE ECONOMY IN THE LONG TERM SOURCES: MINISTRY OF ENERGY AND PETROLEUM KENYA, KENGEN BUSINESS SWEDEN 5 JANUARY, 2016 7
RENEWABLES TO CONTRIBUTE TO MORE DYNAMIC MIX, BUT SOLAR NOT YET INCLUDED IN NATIONAL GRID GEOTHERMAL ENERGY Geothermal Development Company plans to drill 1,400 steam wells to provide steam for up to 5,000 MW of geothermal power capacity by 2030 The total potential of geothermal power capacity in Kenya is estimated to be 7,000 to 10,000MW WIND ENERGY The Ngong Hills Wind Farm operated by KENGEN is the only major wind farm currently contributing electricity to the national grid Wind energy s contribution to the national grid is expected to grow from 0.03% in 2013 to 9% in 2030 The USD870 million Lake Turkana Wind Power Project commenced in 2014 and will provide 300MW when completed in 2016 SOLAR ENERGY Electricity is distributed via the national grid, however 68% of the population has no access to it A solar market has developed over the years to provide electricity to those isolated from the grid and has a penetration rate of 7.5% Kenya changed its policy in 2013 on solar energy allowing solar power producers who were previously restricted to selling their power independently to consumers to sell to the national grid New rules by the regulator now require that all new buildings connected to the national grid install solar water heaters 80% of the population in rural areas has no access to electricity and is the potential size of the demand for solar energy solutions GROWTH IN USE OF CHEAPER RENEWABLES EXPECTED TO CONTRIBUTE TO A FALL IN ENERGY PRICES SOURCES: BUSINESS MONITOR INTERNATIONAL, LAKE TURKANA WIND POWER PROJECT, GEOTHERMAL DEVELOPMENT COMPANY, LIGHTING AFRICA BUSINESS SWEDEN 5 JANUARY, 2016 8
NON-RENEWABLE ENERGY EXPECTED TO TOP ENERGY MIX BY 2030 FOLLOWING DROP IN HYDRO POWER USE KENYA S ENERGY SOURCES COMPOSITION BY 2030 Natural Gas (11%) Energy Non-Renewable Renewable Diesel (9%) Coal (13%) Nuclear (19%) Geothermal (26%) Hydro (5%) Wind (9%) 52% 48% Imports (8%) KEY DRIVERS IN KENYA'S ENERGY SOURCES MIX IS TO ENSURE SUPPLY STABILITY AND TO MEET THE HIGH ENERGY DEMAND SOURCE: BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 5 JANUARY, 2016 9
THE SECTOR HAS VARIOUS DEVELOPMENTS WHICH PROVIDE OPPORTUNITIES FOR SWEDISH COMPANIES Generation of Geothermal Energy Small Hydropower Development Oil and Coal Exploration The GDC has removed upfront risks for investors by conducting infrastructural development, exploration and drilling of wells in the Rift Valley region KENGEN and private investors are welcome to compete for licenses to set up power plants at these sites About 300 small hydropower development sites have been identified locally with a potential of generating ~600MW Development of these sites is open to private investors There are opportunities for exploration of hydrocarbons and petroleum in north eastern Kenya International investors can participate in the Mombasa Petroleum Trading Hub development through monetary investment, joint venture or under Public Private Partnerships Transformer Supply Direct Financing Power Africa initiative The government intends to connect 1 million customers to electricity in the next 5 years This will require a total of 20,000 transformers. An estimated 2,000 transformers will require repairs annually Other equipment required includes switchgears, insulators and electricity meters The Ministry of Energy intends to borrow USD800 million over the next 5 years to finance infrastructure projects to be implemented by the Rural Electrification Authority It is expected that the Swedish government's USD1 billion contribution to the Power Africa initiative will create opportunities for Swedish companies to invest in African energy by helping to mitigate the risks to private sector investors SOURCES: MINISTRY OF ENERGY OF KENYA, THE CLIMATE INVESTMENT FUNDS, MINISTRY OF STATE FOR PLANNING KENYA BUSINESS SWEDEN 5 JANUARY, 2016 10
CONTACT US BUSINESS SWEDEN IN KENYA Business Sweden Eden Square, 3rd floor, off Westlands road Box 13799, 00800 Nairobi T +254 20 3749760 kenya@business-sweden.se www.business-sweden.se/kenya BUSINESS SWEDEN 5 JANUARY, 2016 11