2013-12-09 13:34:34 - Recently published research from Business Monitor International, "Kenya Power Report Q1 2014", is now available at Fast Market Research
We have revised our forecasts this quarter, taking into consideration domestic and international developments, downwardly revising our outlook for gas and upwardly revising that for oil. However, we maintain our view that Kenya's power sector suffers from a capacity deficit, with insufficient supply to meet consumer demand in peak demand periods. In addition, the country remains over-reliant on hydropower.
This, in turn, has exposed the country to widespread power outages, which are acting as a significant constraint to economic and social development. As such, the country has put forward some ambitious capacity expansion and diversification targets in its 'Vision 2030' programme, which aims to incorporate nuclear power, gas and coal-fired generation into the domestic power mix - sources that are currently
not utilised within the country. Although this would help to secure its energy supply and reduce its dependence on unreliable hydropower and costly oil imports, we are sceptical as to whether this strategy can be realised, given the numerous barriers hindering the power, and wider energy and infrastructure sectors.
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Inadequate electricity generating capacity, limited diversification and a consequently unreliable power supply have been perennial problems in Kenya for over a decade. The country has also experienced a divergence between planning and implementation, with repeated delays and cancellations preventing adequate refurbishment and expansion of its ageing capacity - ultimately leading to a significant shortfall. The vast majority of Kenya's generating capacity is based on domestic hydropower, while geothermal and thermal power supply the rest of the country's requirements. Yet, this unreliable source has exposed the country to chronic power shortages, driving up costs.
Electricity is crucial to economic growth, and the Kenyan government has thus included the expansion and restructuring of the power sector among the key elements of its 'Vision 2030' strategy. The country will require an installed capacity of over 19 gigawatts (GW) to meet its projected peak demand in 2030. To meet this target, the country is considering a variety of fuels and technologies for its new capacity. Although hydropower generation remains vulnerable to drought and variations in rainfall, additional hydro facilities are being developed to reduce the country's dependence on costly oil-fired capacity. Yet, in Kenya's 'Vision 30', the government also listed coal- and gas-based generating projects as a way to provide electricity supply over the medium term.
We highlight that over the longer term, non-hydro renewables are also set to play a much bigger role in the country's energy mix, with geothermal the favoured form of renewable energy, as its potential is considerable. As such, BMI anticipates that Kenya's overall power generation will grow by an annual average of 8.8% between 2013 to 2017, with non-hydropower renewables driving this growth, thanks to an annual average increase of 18.2%.
Key trends and developments in the country's power sector:
* A nationwide blackout in Kenya in May 2013 highlights the inefficiencies within the country's power grid. Despite the fact that improving the electricity transmission and distribution (T&D) network is a key area of focus for the government and investment is being channelled into the sector, supply disruptions continue to hinder Kenya's social and economic progress and are likely to undermine the country's capacity expansion plans.
* Kenya has been indicated as one of the countries that will benefit from the 'Power Africa' scheme, which aims to improve electricity infrastructure in Africa. The announcement of the plan represents a great opportunity for the country to attract much-needed investment for its underperforming power sector.
* The Ministry of Energy and Petroleum has announced plans to generate over 5,000 megawatts (MW) of power over a period of 40 months. The aim is to reduce the high cost of electricity, which has largely been blamed on hindering the country's competitiveness in the global market. In order to achieve this goal, the government has said it will rely on thermal, especially coal, as it is cheaper than geothermal. It is inviting bids from the private sector for a number of projects, including the 900-1000MW of coal-fired power at Lamu, as well as the generation of 700-800MW of power using liquefied natural gas at Dongo Kundu in Mombasa.
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