Why Kenya's clean electricity is expensive

Kenyan consumers continue to pay high power tariffs despite 90 per cent of the country’s electricity coming from renewable sources.

Energy experts have said that Kenya has built one of the world's greenest electricity systems, powered almost entirely by geothermal steam, rushing rivers and wind but millions of households and businesses are yet to gain the benefits of cheaper electricity.

The experts say that over 90 per cent of Kenya's electricity comes from renewable sources, making the East African nation a global showcase for the energy transition.

But consumers continue to pay some of East Africa's highest power tariffs, exposing a costly contradiction at the heart of one of Africa's most ambitious clean energy programmes.

FSD Kenya Climate Finance Lead, Mugwe Manga has said the answer lies less in how electricity is generated than on how it is financed, transmitted, distributed and priced.

"The answer to this conundrum is not as straightforward as it may seem. One must look at the entire energy system holistically to understand the drivers of the end cost of power," Manga said.

He said Kenya provides few direct subsidies to cushion electricity prices, particularly for manufacturers, unlike countries like Morocco, Egypt, France and China.

“While generation costs are broadly comparable with global averages, consumers ultimately pay for inefficiencies elsewhere in the electricity value chain,” he explained.

According to Manga, one of the biggest contributors is Kenya's ageing electricity distribution network, with more than 20 per cent of electricity lost through technical failures and illegal connections, compared with a global average of between 8 per cent and 10 per cent.

"That offers a great low-hanging fruit to improve efficiency and pass that efficiency dividend to end consumers through reduced tariffs," he said.

He also stated that another major cost driver is financing, with renewable energy projects across Africa borrowing at significantly higher interest rates than similar projects in wealthier countries because investors perceive greater risk, a phenomenon often referred to as the "Africa premium."

Those financing costs eventually filter through to consumer tariffs.

Just last week, Parliament directed Energy and Petroleum Cabinet Secretary Opiyo Wandayi to develop a policy to guide the government's plan to renegotiate electricity supply agreements with major power producers.

The MPs said that lower wholesale prices will give Kenya Power room to reduce electricity bills without undermining the utility's financial stability.

 The proposed policy will also establish a framework for affordable electricity procurement, regular reviews of power purchase agreements (PPAs) and more competitive sourcing of electricity generation.

The experts have also stated that the high cost of electricity has become a persistent complaint among manufacturers, who argue that it is eroding Kenya's competitiveness despite the country's renewable energy advantage.

A recent Kenya Association of Manufacturers (KAM) report found that Kenya has some of the highest industrial electricity tariffs among major African economies and neighbouring countries, with industrial users paying between $0.18 and $0.23 per kilowatt-hour, compared with about $0.03 in South Africa and Egypt and $0.05 in Morocco and Ethiopia.

KAM noted that the high energy costs, combined with taxes and other business charges, make Kenyan manufacturers less competitive and discourage new industrial investment.

Manga stated that about 60 per cent of Kenya's electricity is generated by state-owned KenGen, which operates many of the country's oldest plants, while independent power producers account for most of the remainder.

He noted that many private generators entered the market in the late 1990s after Kenya liberalised electricity generation to address chronic power shortages.

Among the most debated provisions are "take-or-pay" clauses, which require Kenya Power to make agreed payments even when not all contracted electricity is consumed.

The contracts are designed to reassure lenders financing large power plants by guaranteeing predictable revenues.

"When developing power plants, developers need to borrow debt and this debt needs to be repaid on the back of PPA payments. Modelling on guaranteed payments provides comfort to debt providers," Manga explained

Kenya experiences electricity shortages during periods of peak demand and increasingly relies on imports from Ethiopia's Grand Ethiopian Renaissance Dam. During periods of lower demand, some contracted electricity may go unused.

Rather than treating surplus electricity as waste, Manga said battery storage could capture excess renewable energy and release it when demand rises, improving efficiency and reducing overall system costs.

Monthly electricity bills are also influenced by fuel-cost adjustments, taxes and foreign exchange movements, which Manga estimates account for about 30 per cent of tariffs.

Industry executives say lowering electricity costs will require reforms beyond simply building more renewable generation.

"Kenya's renewable resource base is a major advantage, but electricity prices are determined by the whole system, not only by the cost of power generation. They also reflect how power is contracted, transmitted, distributed and recovered," said Albert Nganga, senior regulatory manager at CrossBoundary Energy.

Kenya has invested heavily in generation through long-term PPAs that consumers continue to finance today, he said. Improving how electricity is delivered through the grid while better matching supply with growing demand would reduce costs.

“Implementing open-access electricity market reforms would allow large consumers to buy electricity directly from generators, creating greater competition while generating new revenue for the grid through use-of-system charges. Reducing regulatory barriers for industrial captive power systems will also lower energy costs for sectors such as manufacturing, mining, cement and food processing,” Nganga explained.

Kenya Renewable Energy Association, Chief Executive Cynthia Angweya-Muhati said investors also need greater policy certainty.

"Renewable energy investments are long-term by nature, often spanning 20 to 30 years," she said. "Investors therefore require confidence that taxation, licensing requirements, market rules and procurement frameworks will remain stable throughout the life of a project."

She said frequent changes to taxes on solar equipment, batteries and other renewable energy technologies, coupled with lengthy approval processes, have undermined investor confidence.

Similarly, she explained that expanding local-currency financing, blended finance and credit guarantees would lower financing costs, while accelerating rooftop solar, mini-grids and battery storage would reduce pressure on the national grid and lower costs over time.

The experts hold that Kenya's next phase of the energy transition depends as much on modernising the electricity network as expanding renewable generation.

Investments in transmission infrastructure, digital grid management, smart metering and battery storage, alongside reducing technical and commercial losses has also been cited as a measure to improve efficiency and lower costs.

At the same time, Manga has welcomed the Electricity Market, Bulk Supply and Open Access Regulations, 2025, saying they could increase competition by allowing generators to sell electricity directly to large consumers and regional power pools.

He, however, warned that delays in approving new generation projects remain a concern. Since a government moratorium in 2020, Kenya Power has signed few new PPAs, slowing investment in domestic generation while increasing dependence on imported electricity.

Angweya-Muhati explained that the priorities are straightforward which include creating predictable investment policies, modernising the grid and accelerating distributed renewable energy.

"Kenya has already demonstrated that renewable energy can power economic growth while reducing carbon emissions. The next phase is to ensure that these renewable energy resources translate into lower electricity costs, greater private sector investment and improved energy access for every Kenyan," she said.