Affordability of Kenya's electricity central for expanding access

In a bid to boost electrification nationwide, Kenya recently moved to cut electricity connection fees by over 50%, while low-income customers will be able to pay the connection fee off in instalments added to their monthly bill. The revisions are expected to see a significant increase in the number of households connected to the national grid, which lines up with wider efforts to boost electrification rates to 70% by 2017. These efforts include, among other things, adding over 5000 MW of electricity generation capacity, increasing the number of renewable projects and reducing tariffs for end-users. However, some stakeholders argue that, given the high amount of government subsidy required to roll out new connections, the country might do better to adopt tailored solutions in remote and rural areas, such as personal solar photovoltaic (PV) systems.

Last Mile Connections

In May 2015 the government of Kenya officially launched the KSh34bn ($374m) Last Mile Connectivity Project (LMCP), which aims to connect 70% of the country to the national power grid within 18 months, from present levels of less than 50%. It will accomplish this in part by addressing a backlog of thousands of Kenyans who have waited years for connections. Expanding generation capacity for the 45m-person country has also been a priority in recent years as the government is looking to boost headline growth in secondary and tertiary sectors.

The CEO of Kenya Power and Lighting Company (Kenya Power), Ben Chumo, told the National Assembly’s Committee on Energy that an estimated 19,000 applicants, all of whom paid KSh35,000 ($385) in connection fees as far back as 2003, had yet to receive a refund or connection, with many customers asked to pay KSh70,000 ($770) for every pole needed to create a new connection. Applicants also faced the additional onerous requirement of having to wire their homes and buildings before receiving connections. The LMCP will see 24,000 km of new power lines laid out, with Chumo adding that new clients will not have to pay connection fees in advance.

Fee Reduction 

Weeks later, at a formal launch ceremony for the LMCP, President Uhuru Kenyatta announced that the connection fee for new customers had been reduced from KSh35,000 ($385) to KSh15,000 ($165), a 57% discount, with those who cannot afford the connection permitted to pay the tariff in monthly instalments over a period of three to five years. The reduction is expected to bring the total number of new connections up to 300,000. Under the plan, representatives from Kenya Power and the Kenya Rural Electrification Authority will go door-to-door to lay the groundwork for new connections, while a single application in one neighbourhood will see all houses in the area connected to the grid.

The new connections will be achieved in part by utilising low-voltage, single-wire earth return technology, as a single-wire transmission line offers a more cost-effective solution than traditional tri-wire connections. The Ministry of Energy will also provide houses that lack internal wiring with a “ready board”, including switches, sockets and bulb holders. In addition, authorities will install an additional 5320 transformers nationwide in a bid to further expand electrification, as all new connections must be located within a 600-metre radius of a transformer.

Cost Burden

Despite plans to install low-voltage lines, the cost of connecting new customers to the grid remains a major challenge for Kenya Power. When announcing the project, Chumo stressed that the company does not make money on connection fees, while the cost of a power pole has more than tripled since 2003, from KSh5000 ($55) to KSh16,000-18,000 ($176-198). Providing 300,000 subsidised connections will have financial ramifications and although the government has committed $14m, the LMCP requires international financing for successful implementation.

“Customers now pay less than $200 to get connected, but the actual cost of a connection is $800 more than what they are paying. The government is playing a key role in bringing together our economic partners to help us raise the funding,” Peter Mungai, the general manager of business strategy at Kenya Power, told OBG.

More Funds

The African Development Bank approved a $133m loan for the LMCP in November 2014, although some stakeholders have questioned whether costly connections for low-usage households are necessarily the best way of addressing the issue, given current consumption trends for off-grid customers. Chad Larson, finance director of M-Kopa, a private solar firm specialising in personal, off-grid PV systems, argued that small-scale solutions have a bigger role to play in boosting overall electrification rates.

“We’ve got a strong view that most Kenyan households don’t need to connect to the grid right now, because all the electricity needs of these households are limited to charging phones, powering small appliances, and for lighting; there are no dishwashers or air conditioning systems, no refrigerators,” Larson told OBG. “There is pretty reliable sunshine all year, and the amount of power that can be generated off a home of even 400 sq feet is more than these households could possibly use,” Larson added.

Rethinking Tariffs

In addition to the price reduction for consumers, the Kenyan government is hoping to attract more investors with low-cost power. While the decrease in tariffs is primarily aimed at improving household access, it will also make the country more competitive in energy-intensive sectors such as manufacturing.

In mid-2015 Albert Mugo, managing director and CEO of parastatal Kenya Electricity Generating Company, told OBG, “The government is aware that Kenya’s competitiveness as an investment destination for energy-intensive industries is largely dependent on the cost of power.”

In a bid to improve affordability, in late June 2015 Kenya Power announced it would, for the first time, reduce tariffs across the board for households that consume between 51 and 1500 KWh per month. The price cuts have also been made possible due to Kenya’s prioritisation of renewable energy sources, according to Chumo. “The savings have come principally as a result of the displacement of a number of diesel-powered plants, which are comparatively much more expensive to run than wind and geothermal plants,” he told OBG.