Success Stories

Feed-in tariffs in Kenya

Kenya’s energy profile is characterized by a predominance of traditional biomass energy to meet the energy needs of the rural households and a heavy dependence on imported petroleum for the modern economic sector needs. As a result, the country faces challenges related to unsustainable use of traditional forms of biomass and exposure to high and unstable oil import prices. In March 2008, Kenya’s Ministry of Energy adopted a feed-in tariff, based on the realization that “renewable energy sources (RES) including solar, wind, small hydros, biogas and municipal waste energy have potential for income and employment generation, over and above contributing to the supply and diversification of electricity generation sources”.

A feed-in tariff (FIT) is a policy instrument that makes it mandatory for energy companies or “utilities” responsible for operating the national grid to purchase electricity from renewable energy sources at a pre-determined price that is sufficiently attractive to stimulate new investment in the renewables sector. This, in turn, ensures that those who produce electricity from identified renewable energy sources such as solar, wind and other renewable sources have a guaranteed market and an attractive return on investment for the electricity they produce. Aspects of an FIT include access to the grid, long-term power purchase agreements and a set price per kilowatt hour (kWh).

Kenya’s FIT policy has as its objectives to: a) facilitate resource mobilization by providing investment security and market stability for investors in Renewable Energy Sources (RES) electricity generation b) reduce transaction and administrative costs by eliminating the conventional bidding processes, and c) encourage private investors to operate the power plant prudently and efficiently so as to maximize its returns. By taking a long-term commitment to the development of renewable sources of energy and stipulating a long-term power purchase agreements of a minimum of 20 years, the Kenya Government has taken a critically important step in the development of the country’s significant potential for renewable energy generation, while pursuing equally important economic, environmental and social policy objectives.

In January 2010, Kenya revised the FIT policy, which resulted in the addition of three renewable energy sources: geothermal, biogas, and solar energy resource generated electricity. In addition, the revised policy extended the period of the power purchase agreements from 15 to 20 years and increased the fixed tariffs per kilowatt-hour for pre-existing wind and biomass under the FIT.

Expected benefits
The advantages of this policy include: a) environmental integrity including the reduction of greenhouse gas emissions; b) enhancing energy supply security, reducing the country’s dependence on imported fuels; and coping with the global scarcity of fossil fuels and its attendant price volatility; and c) enhancing economic competitiveness and job creation. Initially covering wind, biomass and small hydro, the policy is planned to be to include geothermal sources of energy.

It is expected that the FIT policy in Kenya could stimulate about 1300 MW of electricity generation capacity. If the projected generation capacity is realized, this could contribute significantly to ensuring security of electricity supply in the country by increasing the reserve margin. Furthermore, since the resources used consist of relatively low-cost local fuels, it is likely to reduce costs for the consumer. Benefits targeted are a “triple-win” of additional renewables-based generation capacity to the country; enhancing employment and poverty alleviation in the rural areas; and increasing income opportunities for business development.

As Kenya’s greatest renewable energy potential is in rural areas, the effects of the feed-in tariff policy are expected to trickle down and stimulate rural employment. This can happen through the construction of power plants, but also in the context of agro-industries, in particular sugarcane, which is predominant in the country. It is estimated that the sugar factories have directly and indirectly contributed to job creation by supporting about 200,000 small-scale farmers within the sugar belt in western Kenya, and that between five and six million people either directly or indirectly benefit from the sugar factories.

Observed impacts
Since the announcement of the feed-in tariff policy, some sugar companies have planned to upgrade their biomass-based cogeneration potential in order to benefit from the FIT policy. While full effects have not been felt yet, Kenya provides an example of how forward-looking energy policy could contribute to matrix diversification, improved benefit streams to small rural producers, and enhanced local development.

  1. 1. Kenya Ministry of Energy, Feed-in-tariffs Policy on Wind, Biomass and Small-hydro Resource Generated Electricity, March 2008.
  2. 2. Kenya Ministry of Energy, Feed-in-tariffs Policy on Wind, Biomass, Small-hydro, Geothermal, Biogas, and Solar Resource Generated Electricity, 1st Revision, January 2010.
  3. 3. AFREPREN/FWD Energy, Environment and Development Network for Africa, The Role of Feed-in Tariff Policy in Renewable Energy Development in Developing Countries, September 2009.