Kenya to construct its first hybrid solar plant

From the newsletter

East Africa's leading electricity generating company, KenGen, has launched a tender for a Design and Build Contract for its first solar plant with battery energy storage systems. The initiative is being funded by the French government. KenGen, a Kenyan parastatal, is primarily known as a producer of geothermal energy, ranking top in Africa.

• The renewables competition between state-owned corporations and private entities in Africa is driving shifts in business models. South Africa's power utility, Eskom, is another entity that recently announced its venture into solar and other renewables.

• Kenya is currently facing increased electricity demand that threatens its grid stability. No new power purchase agreements have been signed since 2018. The country has relied on electricity imports, mainly from Ethiopia, as a short-term solution.

More details

• The project will be built at $60 million. It will involve a solar photovoltaic power plant integrated with a Battery Energy Storage System (BESS), a High Voltage (HV) Substation, and a Transmission Line. This project is part of the Kenya Green and Resilient Expansion of Energy (GREEN) programme, funded by the World Bank, with KenGen appointed as the implementing agency. Pictured is the Managing Director and CEO, Eng. Peter Njenga. 

• The attractiveness of renewables has significantly reshaped market dynamics. Hybrid projects, once limited by high technology costs, are now becoming a common trend. Multiple countries are piloting grid-scale projects with battery storage, with recent examples including Togo, Chad, and Senegal, all of which have solar-plus-BESS storage projects under development. This innovation will address the intermittency that concerns many grid planners.

• Kenya is also pioneering its grid-scale hybrid projects. KenGen currently generates about 60% of Kenya's electricity, mainly from geothermal and hydropower, with a small share from thermal power. The company is now venturing into solar. Two months ago, it also announced plans to enter the commercial and industrial (C&I) solar market, which has shown great growth potential over the last five years.

• The power generation sector, especially in the C&I segment, is crowded with many players, including foreign companies. However, KenGen stands a fair chance to compete given its experience in the sector and substantial revenue backing.

• The grid challenges faced by Kenya since the Power Purchase Agreement (PPA) moratorium took effect have left the country exposed to growing demand. Moreover, the renewable energy injected into the grid over the past few years has come from intermittent sources, creating more problems during peak hours. As a remedy, imports from neighbouring countries have been the alternative.

• The Kenyan government is proposing that all new renewable projects incorporate a battery energy storage component, and such projects will receive priority going forward. However, even as it promotes this, it is also proposing to standard-rate inputs for solar, wind, and geothermal energy, removing them from their current zero-rated status. This would subject them to the 16% VAT rate, further increasing the cost of implementing renewable energy projects.

Our take

• Kenya's plans to prioritise projects with BESS is a move that will see more integration of renewable energy projects. However, its policy change to remove VAT exemption for renewable energy technologies will increase costs and likely slow down the adoption pace.

• Renewables have been proposed as the less costly option, but this has been supported and enabled by favourable government policies. Introducing VAT will make them comparable in cost with fossil fuels and kill the momentum of cost-driven adoption.

• National utility companies have to wake up and align their power generation to include renewable sources. This way, they can attract companies that value green production of their goods for a guaranteed market. This will be a revenue boon for the cash-struggling national utilities.