The principal law governing the ownership and structure of the power industry in Kenya is the Energy Act No 1 of 2019, which was enacted to align the energy sector with the Energy Policy, 2018 and the devolved functions of the national and county governments in accordance with the Constitution of Kenya 2010.

Assets in the generation segment are primarily state-owned through the Kenya Electricity Generating Company PLC (KenGen), which produces approximately 63% of the power generated in Kenya.  Other players in this segment include Independent Power Producers (IPPs) and the Rural Electrification and Renewable Energy Corporation (REREC), as well licensees in various off-grid generation systems.

The transmission segment is presently 100% state-owned, with the Kenya Electricity Transmission Company Limited (KETRACO) mandated to operate high-voltage transmission lines.

The distribution segment is dominated by Kenya Power & Lighting PLC (Kenya Power), which until recently was the sole retailer and system operator in addition to owning and operating part of the transmission infrastructure and the entire distribution network in the country. Over the last few years, this segment has seen the introduction of privately owned distribution and electricity retail players.

Generation, Transmission and Distribution

The principal state-owned players in the generation, transmission and distribution segments include the following:

• KenGen which is 70% owned by the government of Kenya and is listed on the Nairobi Securities Exchange;
• Geothermal Development Company (GDC) which is wholly owned by the government and was established to carry out geothermal exploration, production drilling and management of steam fields;
• Nuclear Power and Energy Agency (NUPEA) which is wholly owned by the government and is responsible for overseeing research and development of nuclear electricity generation in Kenya;
• KETRACO, which is responsible for planning, design, construction, ownership, operation and maintenance of electricity transmission lines (132kV and above), and is the designated System Operator;
• Kenya Power, which is listed on the Nairobi Securities Exchange, with the Government of Kenya holding a 50.1% stake in the entity; and
• REREC, which is wholly owned by the Government of Kenya and is charged with expansion of rural electrification and serves as the lead agency responsible for development of renewable energy resources (other than geothermal and large hydropower).

Independent Power Producers

IPPs currently generate power on a large scale and account for approximately 976 MW of generated power from various technologies including wind, solar, thermal, hydro, biogas and biomass.

The Energy & Petroleum Regulatory Authority (EPRA) maintains a Register of Licences for Electric Power Undertakings, which lists 18 captive power generators who, as at December 2022, account for approximately 140.8 MW power generation.

Sellers of Electricity to End-Users

Kenya Power is the principal majority state-owned authority that sells electricity to end-user consumers. However, there is an increasing number of players in the distribution and supply sectors; largely commercial and industrial customers.

Foreign Investment Restrictions

Both foreign and local investors are entitled to apply for an Investment Certificate subject to a minimum level of investment (USD100,000 and KES10 million, respectively). “Foreign assets” are defined in the Foreign Investments Protection Act to include:

• foreign currency, credits, rights, benefits or property;
• any currency, credits, rights, benefits or property obtained by the expenditure of foreign currency, the provision of foreign credit, or the use or exploitation of foreign rights, benefits or property; and
• any profits from an investment in an approved enterprise.

Local Registration Obligations

A foreign entity seeking a licence under the Energy Act is required to establish an office in Kenya and provide EPRA with an electronic, postal and physical address of the office. The licensee is also required to maintain such office until the expiry of the licence which has typically been an average of 20–25 years for generation and distribution licences.

Any entity that executes a project agreement under the Public Private Partnerships Act, including projects in the power sector, is required to establish a project company incorporated in accordance with the Companies Act.

Local Content Plan

While there are no mandatory thresholds for local content in the energy sector, the Energy Act requires licensees to comply with the local content obligations, which include the preparation of a Long-Term Local Content Plan. The term “local content” is defined in the Act as the added value brought to the Kenyan economy from energy-related activities through systematic development of national capacity and capabilities and investment in developing and procuring locally available workforce, services and supplies, for the sharing of accruing benefits.

As such, the Local Content Plan should ensure that consideration is first given to services provided within the county and goods manufactured in the country, where the goods meet the relevant specifications as prescribed by the Kenya Bureau of Standards (KEBS) or, in the absence of a Kenyan standard, any other international standards acceptable to KEBS. The Local Content Plan should provide for qualified and skilled Kenyans to be given first consideration for employment at all levels of the value chain, and adequate provision should be made for the training of Kenyans on the job.

Land Ownership

A key restriction on land ownership is that foreign nationals can only have a leasehold of up to 99 years over non-agricultural land. However, it should be noted that, prior to the installation of power generation infrastructure, development permission would need to be obtained under the Physical and Land Use Planning Act and agricultural land would need to be rezoned with a change of user effected from agricultural to industrial (eg, solar power plant) purposes.

Protection of Foreign Investments

The Constitution of Kenya protects all persons from deprivation of property and provides that no property of any description shall be compulsorily taken possession of, and no interest in or right over property of any description shall be compulsorily acquired, except where it is necessary in the interests of defence, public safety, public order, public morality, public health, town and country planning or the development or utilisation of any property in such manner as to promote the public benefit.

Compensation should be made promptly and in full, and the Constitution provides that courts may grant relief in the form of an order for compensation where it is determined that there has been a denial, violation or infringement of a right or fundamental freedom enshrined in the Bill of Rights, or a threat thereto.

These provisions are reiterated in the Foreign Investments Protection Act, which provides that no approved enterprise or any property belonging to such enterprise shall be compulsorily taken possession of, and no interest in or right over such enterprise or property shall be compulsorily acquired, except in accordance with the relevant law and subject to the prompt payment of full compensation.

Finally, the Land Act guides the process to be followed for compulsory acquisition and compensation upon the exercise of due diligence, which should include a final survey and the determination of acreage, boundaries, ownership and value. Notably, the Land Act clarifies that the National Land Commission should make payment of the compensation to all persons interested in the land before taking possession of the land.

Applicability of International Law

Private parties are at liberty to choose the applicable law governing their contractual arrangements. Agreements with the government of Kenya as a counterparty are usually required by the State Law Office to reflect the governing law as the Law of the Republic of Kenya.

The Public Private Partnerships Act specifically requires that the applicable law governing project agreements executed for the implementation of PPPs in Kenya shall be the Law of the Republic of Kenya. This would therefore be applicable to PPP projects in the energy sector.

Dispute Resolution

The Constitution of Kenya encourages alternative forms of dispute resolution, including mediation and arbitration.

Arbitral proceedings in Kenya are governed by the Arbitration Act and the Nairobi Centre for International Arbitration Act. Kenya is also a signatory to the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards and has acceded to the International Convention on the Settlement of International Disputes.

While several agreements incorporate provisions for international arbitral proceedings, following various international arbitrations relating to infrastructure projects in Kenya, including the power sector, the Government of Kenya has tried to ensure that the applicable rules of arbitration are the NCIA Rules.

Incentives or Protections to Encourage Foreign Investment

These are contained primarily in the Foreign Investments Protection Act and the Investment Promotion Act. “Investment” is defined to include contributions of local or foreign capital by an investor, including the creation or acquisition of business assets by or for a business enterprise, covering the expansion, restructuring, improvement or rehabilitation of a business enterprise.

Investment Certificate holders are entitled to an easier licensing regime, including:

• support from the Kenya Investment Authority for various licence applications from various national and sub-national governments and agencies;
• certain categories of work permits and dependant passes for expatriate staff and their families; and
• incentives under the Nairobi International Financial Centre (NIFC) regime which include:
1. exemption from any nationalisation or expropriation measures or any restrictions on private ownership;
2. freedom to repatriate profits and realise investments;
3. freedom for NIFC firms to recruit and employ staff of their choice on such terms as they wish to agree, subject to work permit provisions and any international treaty obligations entered into by the government of Kenya in respect of the terms of employment of employees; and
4. capability of being owned up to 100% by persons who are not nationals of, or resident in, Kenya.

Subject to EPRA’s prior approval, entities in the power sector are permitted to dispose of any of their assets by any means, including sale, transfer, merger and lease.

The sale of generation, transmission and distribution assets is governed by various laws and regulations including primarily the following.

• The Energy Act, Energy (Electricity Licensing) Regulations and Licence Conditions, all of which require a licensee to obtain EPRA’s prior approval before:
1. disposing of assets through a sale, transfer, merger, lease or any other means;
2. taking any action that may lead to a decrease in the licensee’s share capital;
3. allowing any acquisition by a third party of more than 25% of the licensee’s share capital;
4. implementing a change in control of the licensee; and
5. any increase or decrease of its authorised or paid-up share capital.
• The provisions of the Companies Act, the Competition Act and the Capital Markets Act would be applicable to mergers, amalgamations and acquisitions of private and publicly listed companies, as the case may be.
• The Public Procurement and Asset Disposal Act and the Public Finance Management Act would also be applicable to the disposal of assets by a state-owned corporation.
• The Income Tax Act would impact the proceeds of the sale of the investments.

Regulators and Review Process

The regulator responsible for mergers is the Competition Authority of Kenya (CAK). Where a merger is proposed, each of the undertakings involved is obliged under the Competition Act to notify the CAK of the proposal in writing; the CAK will then make a determination in relation to the proposed merger and may either decline or give an approval for its implementation with or without conditions. The CAK is also responsible for determining thresholds for transactions that require the mandatory merger notification, in which case mergers below the specified thresholds would not need to be notified to the CAK.

Where assets are owned by state-owned entities, the Public Procurement Regulatory Authority is charged with overseeing public asset disposal under the Public Procurement and Asset Disposal Act.

Minimum Requirements for Purchasers or Acquirers

As part of the licence application process, the applicant is required to submit documentation evidencing its financial, technical and operational qualifications to undertake the proposed generation, transmission or distribution activity. The licensee is also obliged to submit, at the minimum, the following to EPRA:

• an annual performance report incorporating financial and technical performance within 180 days of the end of the licensee’s financial year; and
• financial statements for each financial year, together with the report of an external auditor.

Any new purchaser of electricity assets or acquirer of a business would be required to demonstrate its financial and technical capabilities to EPRA, and to comply with the reporting obligations in the specified licence.

The government is tasked with facilitating the provision of affordable energy to all persons in Kenya and long-term planning is a collaborative effort between the two levels of government led by the Ministry of Energy (MOE), through the Cabinet Secretary who is mandated to prepare the Integrated National Energy Plan (INEP). National energy service providers are required to develop plans for provision of energy services while county governments are obliged to develop county energy plans, taking into account the national energy policy and all viable energy supply options.

These plans are consolidated into the INEP which incorporates fossil fuel, renewable energy and electricity master plans and is intended to serve as an energy sector inter-governmental document to guide the short, medium and long-term energy requirements of the country.

The MOE’s Draft INEP Framework sets out the procedures for preparation of the energy plans at both levels of government. The INEP is subject to review every three years and the Cabinet Secretary is tasked with preparing and publishing annual reports highlighting the progress of its implementation.

The Least Cost Power Development Plan (LCPDP) has historically been prepared as a collaborative effort between the MOE, the regulator and utilities within the power sector in Kenya and presents a 20-year plan for the power sector in the country, with the most recent being the 2020–2040 plan, published in May 2021.

Finally, county governments are charged with the preparation of County Energy Plans incorporating petroleum, renewable energy and electricity master plans. They are also required to undertake physical planning relating to energy resource areas such as dams, solar and wind farms, municipal waste dumpsites, agricultural and animal waste, ocean energy, woodlots and plantations for production of bio-energy feedstock, as well as the facilitation of energy demand by planning for industrial parks and other energy-consuming activities.

Following the enactment of the Energy Act, a taskforce was appointed to develop regulations to give effect to and operationalise various provisions of the Act. Close to 30 draft regulations have been prepared covering issues ranging from licensing, energy management, tariff setting, electricity market bulk supply and open access to more administrative matters such as complaints and dispute resolution.

Several draft regulations have undergone public consultation with the most recent between 2022 and 2023 including the Draft Mini-Grid Regulations, Draft Energy (Net Metering) Regulations, Draft Energy (Electricity Tariff) Regulations, Draft Energy (Electricity Regulatory Accounts) Regulations, Draft Energy (Integrated National Energy Plan) Regulations and Draft Energy (Solar Water Heating) Regulations.

New policies announced in the 2022/2023 period include the Renewable Energy Auctions Policy and the Feed-In-Tariffs Policy on Renewable Energy Resource Generated Electricity (Biomass, Small-Hydro and Biogas) for projects up to 20 MW (FiT Policy).

The scope of the FiT Policy, which replaces the 2012 version, is now limited to small-scale biomass, biogas and small hydro projects of up to 20 MW, with all solar and wind power projects – as well as other renewable energy projects larger than 20 MW – expected to be procured under the Auctions Policy.

Another policy expected to be finalised is the Policy on Licensing of Geothermal Greenfields. Once this policy is in effect, it shall apply to geothermal projects larger than 20 MW, which will fall outside the ambit of the Auctions Policy.

In late 2022, the MOE published the Draft Energy White Paper which proposes four outcomes aimed at propelling Kenya into a global leader in green energy and provides a framework to:

• establish energy as a transformational public good that is inclusive and serves the needs of Kenya’s population;
• establish Kenya as a global leader in the drive towards decarbonised economic growth;
• drive Kenya to take a quantum leap to 100 GW installed capacity by 2040, underpinned by renewable energy sources; and
• establish Kenya as an investment destination of choice for industries that are seeking to decarbonise.

Other non-policy-based developments that have impacted existing market players include the publication of EPRA’s draft Electricity Tariff-Setting Guidelines Report of November 2022. The Tariff-Setting Guidelines are intended to provide guidance to the electricity sub-sector on how to formulate proposed tariffs and apply for tariff review. 

On 24 March 2023, EPRA approved KPLC’s request for a review of its tariff. The new tariffs will cover the period 2022/23 to 2025/26 and took effect from 1 April 2023. Notable new tariffs include bulk tariffs, Special Economic Zones tariffs, as well as special tariffs to promote both clean cooking and electric mobility.

A unique feature of Kenya’s power industry is its reliance on renewable energy sources, including geothermal, wind, solar and hydro power.

Kenya was the first African country to tap into its geothermal resources, ranking as the 7th largest producer globally. At almost 870MW, Kenya is close to joining the Geothermal Gigawatt Club, making it the first African country to do so.

The Energy Act does not specifically list wholesale supply as a licensed activity, and the Energy Policy only references the wholesale electricity market once in recognition of Kenya’s undeveloped legal, regulatory and institutional framework for a competitive wholesale electric power market.

However, the definition of the electricity market in the Energy Act includes the sale of electrical energy to retail licensees for resale to consumers, while “Bulk Supply” is defined to mean the supply of electrical energy by a licensee to another licensee for the purpose of enabling the supply of electrical energy to consumers. The Energy Act also provides for the execution of Bulk Supply Agreements and Electricity Supply Contracts, and requires EPRA to review the electricity market on a regular basis with a view to enhancing competition, improving efficiency, increasing reliability and security of supply and improving the quality of service by all licensees.

In line with the above, the Draft Energy (Electricity Market, Bulk Supply and Open Access) Regulations contemplate that the electricity market shall consist of a wholesale and a retail market, with the former being comprised of generation licensees and other licensees who will trade through the intermediary of an operator while the latter shall purchase from the wholesale market and supply to consumers.

Competitive Wholesale Electricity Market

Kenya’s Power Market Study in the Electric Power Sub-Sector provides a roadmap for the phased introduction of a wholesale electricity market in four phases, as follows:

• Phase 1 – Bilateral Trading and Centralised Dispatch;
• Phase 2 – the Day Ahead Market;
• Phase 3 – the Real Time Market and Trading; and
• Phase 4 – Introduction of a Power Exchange Platform and transmission rights for bilateral contracts.

Imports and exports of electricity are permitted, subject to licensing by EPRA.

Kenya has traditionally signed Power Purchase Agreements (PPAs) with neighbouring states for the export/import of power. Subsequently, states have undertaken infrastructural development projects that promote power trade within the East African region. 

Kenya currently imports power from Tanzania’s Electric Supply Company (TANESCO), Uganda’s Electricity Transmission Company (UETCL) and Ethiopia’s Electric Utility (EEU). The country also exports power to Uganda and Tanzania.

The total generation is 2,613.1 MW, with geothermal being the leading contributor of power to the national grid, accounting for 45.5%, followed by hydropower and wind at 21.8% and 17.22% respectively.

There are presently no concentration limits regarding the percentage of electricity supply that is controlled by one entity. However, due to the current market structure, the majority of consumers are currently supplied by Kenya Power.

The CAK is mandated to investigate any economic sector it has reason to believe may feature one or more factors relating to unwarranted concentrations of economic power, and may require any participant in that sector to grant it access to records relating to patterns of ownership, market structure and percentages of sales.

EPRA is mandated to monitor, in consultation with the Competition Authority, the conditions of contractors’ trade practices and to review the electricity market on a regular basis with a view to enhancing competition. The Regulator also plays a role in ensuring fair competition and transparency in the implementation of a feed-in-tariff system.

The Energy (Electricity Licensing) Regulations empower EPRA to issue directives for the purpose of preventing any practice or arrangement that has the object or effect of preventing, restricting or distorting competition within the energy sector, and require that all licensees comply with its directives.

The Competition Act is the principal law that prohibits anti-competitive behaviour and establishes a market surveillance and enforcement process.

The Draft Energy (Electricity Tariffs) Regulations propose that EPRA will ensure the avoidance of undue discrimination between users and suppliers of services and abuse of dominant position or undue restriction of competition by any licensee.

Authority with Responsibility for Market Surveillance and Enforcement

The Energy Act mandates EPRA to review the energy market regularly with a view to enhancing competition. In carrying out this role, EPRA has powers to set, review and approve tariff changes and may also undertake investigations of various power sector players as may be necessary.

In addition to the general powers referenced previously, the CAK has power to, amongst other things, carry out an investigation following the receipt of complaints related to restrictive trade practices, abuse of dominance or abuse of buyer power.

Enforcement Procedures

EPRA has been granted the significant powers of enforcement under the Energy Act including the power to issue orders in writing requiring or prohibiting certain acts or things from being performed or done; formulating, setting and reviewing EHS and quality standards for the energy sector in co-ordination with other statutory authorities as well as investigating complaints and determining disputes between parties over any matter relating to licences and licence conditions under the Energy Act.

On the other hand, the CAK is obliged to make a determination upon the completion of investigations, and may declare that conduct under investigation constitutes an infringement of the prohibitions in the Competition Act; restrain the undertaking from engaging in that conduct as well as impose financial penalties of up to 10% and order entities with unwarranted concentration of economic power in any sector to dispose of such portion of their interests in the production, distribution or supply of services as CAK deems necessary to remove the unwarranted concentration.

Kenya has ratified the Vienna Convention on Substances that Deplete the Ozone Layer, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement.

The Climate Change Act was enacted to provide a regulatory framework to enhance Kenya’s response to climate change in line with the National Climate Change Framework Policy (Sessional Paper No 5 of 2016). Several county governments have also developed climate change legislation to guide their implementation of various measures to meet their obligations regarding climate change.

The Climate Change Act mandates the Cabinet Secretary in charge of climate change affairs to formulate a National Climate Change Action Plan (NCCAP). This is a five-year plan with the last one having expired in 2022 and work is underway on the NCCAP III. The NCCAP prescribes measures and mechanisms that will guide the country toward the achievement of low carbon, climate-resilient, sustainable development and is required to have measures to enhance energy conservation, efficiency and the use of renewable energy in industrial, commercial, transport, domestic and other areas.

In March 2023, the Ministry of Environment, Climate Change and Forestry published the Climate Change (Amendment) Bill which defines a framework for carbon markets in Kenya. The Amendment Bill enhances the Climate Change Council’s mandate to set the policy direction on carbon markets and sets out the principles governing trade in carbon markets. The Bill also proposes the implementation of carbon projects through Community Development Agreements. Notably, the Amendment Bill also seeks to establish a National Carbon Registry.

March 2023 also saw the promulgation of the Climate Change (Public Participation and Access to Climate Change Information) Regulations which are applicable to both public and private entities. These Regulations highlight the guiding principles for public participation on matters climate change and measures for management, storage and dissemination of information relating to climate change. 

Laws or Policies Directed at Limiting Carbon Emissions from Generators

While there are no specific carbon taxes or cap-and-trade policies yet in place, the Climate Change Act empowers the Climate Change Council to impose duties relating to climate change on both public sector and private entities if doing so is recommended by the Cabinet Secretary in charge of matters relating to climate change. The Act is also aimed at providing incentives and obligations for private sector contributions to achieving low carbon, climate-resilient development and promoting low carbon technologies, improving efficiency and reducing emission intensity by facilitating approaches and the uptake of technologies that support low carbon and climate-resilient development.

The draft Climate Change Amendment Bill also proposes the measurement, reporting and verification of greenhouse gas emissions by the Council.

Finally, the National Climate Change Framework Policy obliges the government to implement regulatory mechanisms that mainstream low carbon growth options in the planning processes and functions of the national and county governments in order to attain low carbon growth.

Emission Limits or Thresholds

Kenya submitted its initial Nationally Determined Contribution in December 2016, setting out both adaptation and mitigation contribution intended to abate greenhouse gas emissions by 30% by 2030 compared to the business-as-usual scenario. These were revised in 2020, with a more ambitious target of 32%.

The draft Climate Change Amendment Bill seeks to establish a National Carbon Registry which shall include a REDD+ carbon registry. Additionally, it prescribes that all projects geared towards reducing emissions from deforestation and forest degradation, conservation and sustainable management of forests and enhancement of forest carbon stocks are required to undergo REDD+ safeguard standards assessment. Kenya intends to use voluntary co-operation under Article 6 of the Paris Agreement and to develop further domestic legislation and institutional frameworks to achieve these targets.

There are no programmes currently targeted at encouraging or requiring the early retirement of early carbon-based generation. The Energy Act provides a comprehensive licensing and regulatory framework for persons undertaking electricity generation using coal, subject to compliance with environmental, health, safety, planning and other relevant legislation and guidelines. It also makes provision for the Cabinet Secretary to undertake the provision of financing, procurement, storage, maintenance and management of strategic stocks of coal for electricity generation.

Coal mining (open pit mining in particular) is still planned for the Mui Basin and coal is still being considered as a fuel option in the expansion of power generation in Kenya, due to its widespread deposits, production experience and relatively low costs.

There are currently no requirements or timelines for the early retirement of carbon-based generation in Kenya. However, the National Treasury published the draft National Green Fiscal Incentive Policy in January 2023 which seeks to identify and prioritise the implementation of a coherent suite of green fiscal reforms that will allow the country to exploit the opportunities of continuing a low emission development path while enhancing climate resilience and environmental sustainability. The policy proposes the phasing out of fossil-fuel based thermal plants and proposes to provide concessional funding or public support to pre-investment geothermal resource assessments. It also proposes tax exemptions and credits for off-grid renewable energy installations.

The Energy Act encourages the development and use of renewable energy and obliges the Cabinet Secretary to prepare a renewable energy resources inventory and resource map in respect of each renewable energy resource area. Biennial updates to this inventory should be published in the Kenya Gazette.

Additionally, the Cabinet Secretary is required to promote the development and use of renewable energy technologies, including but not limited to biomass, biodiesel, bioethanol, charcoal, fuelwood, solar, wind, tidal waves, hydropower, biogas and municipal waste.

Finally, the Energy Act establishes an inter-ministerial committee known as the Renewable Energy Resource Advisory Committee whose main function is to advise the Cabinet Secretary on the management, development, allocation and licensing of renewable energy resources.

Kenya Vision 2030, which is the country’s development footprint covering the period 2008 to 2030, aims at extending and strengthening national power distribution and transmission networks as well as increasing the generation capacity of electricity through investment in cheaper renewable energy. In addition to the documents referenced earlier, other key policy and strategic documents aimed at navigating Kenya towards attaining its target of 100% clean energy by 2030 include the Bio-Energy Strategy, the Kenya National Energy Efficiency and Conservation Strategy and the Baseline Study on the Potential for Power-to-X/Green Hydrogen in Kenya. Kenya’s Nuclear Power Development Programme is also intended to diversify energy resources for power generation through nuclear power development.

The KETRACO Transmission Master Plan 2020–2040 records approximately 6,325 km in route length (10,869 km in circuit length) of transmission lines and 12,782 MVA of substation capacity necessary to evacuate the increased installed generation capacity. A recent position paper by the Development Partners forum in promoting private sector participation in Africa’s power grids recognises the pivotal role that will be played by private capital in funding deficit for its planned transmission lines.

Kenya Power’s Distribution Master Plan outlines a proposal for required system reinforcement, upgrades and network expansion programme to ensure that the network is robust and reliable to transmit and carry the load demands as and when it grows. Kenya Power has, over the last five years, received support from development partners to increase electricity access and reliability through upgrading and expansion of the distribution network and associated infrastructure. Other programmes, such as the World Bank’s Kenya Off-Grid Access Project (KOSAP), which ends in June 2023, was designed to provide electricity to parts of the country that are not served by the national grid.

Kenya has developed a framework for, and encourages, the issuance of Green Bonds, with the Capital Markets Authority having issued its Policy Guidance Note on Green Bonds, while the Nairobi Securities Exchange published its Green Bond Listing Rules.

The National Treasury has also published the Kenya Sovereign Green Bond Framework under which it is expected that eligible green assets and projects identified from the national budget by Parliament will be financed in whole or in part from the proceeds of Sovereign Green Bonds. Identified projects include those aimed at developing local renewable energy production and/or achieving energy savings.

Capacity Targets for Alternative Energy

Based on the LCPDP, committed projects under construction will add an additional 853 MW in geothermal, hydropower, solar PV, wind and battery energy storage systems by 2030. A further 1,552 MW is expected from geothermal, hydropower, solar PV, wind, LNG and bio-energy from projects with valid PPAs approved by EPRA as at the date of the LCPDP.

The Draft Energy White Paper proposes an ambitious increase in Kenya’s generation capacity to 100 GW by 2040 through the same technologies, as well as developing industrial applications of hydrogen.

Procurement Process

Current energy projects and programmes are financed through a combination of the exchequer, multilateral and bilateral development partners, commercial finance and public private partnerships.

Under the FiT Policy and Auction Policy, the government of Kenya guarantees a technology-based fixed price for power feeding into the national grid, and EPRA sets the indicative FiT tariffs and benchmark tariffs for reverse renewable energy auctions.

Current FiT tariffs include:

• small hydro – 0–5 MW at USD0.09/kWh and 10–20 MW at USD0.076/kWh; and
• biomass and biogas – USD0.095/kWh up to a maximum of 20 MW.

Benchmark renewable auction tariffs include:

• wind – USD0.0597/kWh;
• solar – USD0.0575/kWh;
• small hydro (over 20 MW) – USD0.056/kWh; and
• biomass and biogas (over 20 MW) – USD0.084/kWh.

The costs of interconnection, including for construction, upgrading transmission/distribution lines, substations, associated equipment and wayleave acquisition, are to be borne by the developer.

EPRA has also published Guidelines for the Computation of Allowed Return on Equity and Return on Investment for generation, transmission and distribution projects within the country. The following mechanisms are used for calculating the Return on Equity:

• the Capital Asset Pricing Model (CAPM) shall be the preferred approach;
• the risk-free rate shall be the rate earned in government-issued long-term bonds, and shall be 12.8%;
• the market premium shall be the difference between the market return and risk-free rate;
• the beta shall be determined for each company individually; and
• the Return on Equity allowed for public utilities shall be 10.5% after tax.

The following mechanisms are used for calculating the Return on Investment:

• the return on investment shall be the weighted average cost of capital;
• the weighted average cost of capital shall be the average of the cost of equity and debt, weighted by the proportions of equity and debt that an efficiently financed company can be expected to use to fund its activities;
• the cost of equity shall be as determined by EPRA using the CAPM approach;
• the cost of debt shall be the actual cost of debt supported by term sheets; and
• the optimal capital structure shall be 75:25 (debt:equity).

The tax rate shall be the income tax rate as prescribed by the Income Tax Act.

Mechanisms for Providing Incentives or Subsidies

Key incentives through donor-funded programmes include Results-Based Financing (RBF) mechanisms which assure disbursement of funds to a recipient occurs only when a pre-agreed set of results has been achieved. RBFs have been instrumental in the provision of Stand-Alone Solar Homes Systems for Households and clean cooking solutions to several remote areas in Kenya.

Other fiscal incentives include the exemption from Value Added Tax (presently levied at 16%) for specialised equipment for the development and generation of solar and wind energy, including PV modules, direct current charge controllers, direct current inverters and deep-cycle batteries that use or store solar power.

The Energy Act is the principal law that governs the construction and operation of generation facilities.

Other relevant legislation and regulations impacting on generation projects include:

• the Energy (Electricity Licensing) Regulations;
• the Public Private Partnerships Act;
• the Public Private Partnerships Regulations;
• the Public Procurement and Asset Disposal Act;
• the Physical and Land Use Planning Act;
• the Public Finance Management Act;
• the National Construction Authority Act;
• the Competition Act;
• the Civil Aviation Act;
• the Environmental Management and Co-ordination Act;
• the Income Tax Act;
• the Value Added Tax Act;
• the Land Act;
• the Computer Misuse and Cybercrimes Act;
• the Employment Act;
• the Occupational Safety and Health Act; and
• the Scrap Metal Act.

Key applicable policies include:

• the Energy Policy;
• the Renewable Auctions Policy; and
• the Feed-In-Tariffs Policy.

The Energy Act requires any person who wishes to generate electrical energy exceeding 1 MW to obtain a licence from EPRA, with an exemption of power generated below 1 MW that is intended for the generator’s own use.

Further detailed licensing processes are captured in the Energy (Electricity Licensing) Regulations, which cover procedures for the application, issuance and suspension or revocation of the licence.

Applicants are expected to submit their application online through the EPRA portal together with the specified supporting documentation and fees. Hard copies are also required in triplicate.

Applications should be submitted online through EPRA’s designated portal and three hard copies should be delivered to EPRA’s offices.

Key considerations for EPRA include:

• the cost of the undertaking and financing arrangements;
• the ability of the applicant to operate in a manner designed to protect the health and safety of its employees and users of the service;
• the technical and financial capacity of the applicant to render the service for which the licence is required;
• the proposed tariff; and
• any representations or objections made by the public following a public advertisement of the applicant’s intention to apply for the generation licence.

Developers for renewable energy projects not exceeding 20 MW in biomass, biogas and small hydro technologies to be undertaken under the FiT Policy should first submit an Expression of Interest (EOI) to the Ministry of Energy for approval.

In addition to the generation licence discussed above, the following permits will also be required prior to constructing a generation facility:

• an electrical installation permit issued by EPRA for any person who wishes to carry out electrical installation work;
• an Environmental Impact Assessment Licence and Noise Permit issued by NEMA;
• registration of the contractor and the work site with the National Construction Authority;
• development permission issued by the county government; and
• approval for the height of any structure from the Civil Aviation Authority.

Public Participation

The principle of public consultation is enshrined in the Constitution of Kenya, which recognises the participation of the people as one of the national values and principles of governance and further provides that the State shall encourage public participation in the management, protection and conservation of the environment.

The Energy Act requires a person intending to lodge a licence application to place a 15-day public notice in at least two newspapers of nationwide circulation. The notice should inform the public of their right to make representations and objections to the grant of the licence, and to address these to EPRA.

The Environmental (Impact Assessment and Audit) Regulations specifically require that public participation is mandatory during the process of conducting an EIA Assessment Study and the project proponent is obliged, in consultation with NEMA, to seek the views of persons who may be affected by the project. This impacts all projects that may have a significant adverse environmental impact (including power and infrastructure projects).

Finally, the Physical and Land Use Planning Act (Development Control for Strategic National Projects) Regulations published under the Physical and Land Use Planning Act require a developer undertaking a strategic national project (which includes designated energy projects) to consult, publish, consider national security and hold stakeholders’ meetings before and during the development of the project.

The general terms and conditions contained in the licence for electric power undertakings address the following key issues:

• provisions for bulk and retail tariffs or charges for electrical energy and capacity for different types of licensees and classes of consumers;
• provisions for the determination of charges for use of the transmission and distribution network services;
• the term of the licence;
• the maximum capacity of supply of the undertaking;
• the area of supply of the undertaking;
• a requirement to comply with all applicable environmental, health and safety laws;
• a stipulation that the licensee is subject to liability under tort and the contract laws;
• change of control, merger and disposal restrictions;
• financial and performance reporting obligations; and
• incident reporting obligations.

A generation licence also requires the licensee to comply with laws applying to the development, building, operation or maintenance of the undertaking. The generation licensee is further required to co-ordinate with the transmission or distribution network operator for the conveyance of electrical energy produced by it from its generating station or plant and to comply with the instructions, if any, of the system operator.

Amendment or Relaxation of a Term/Condition of Approval

The Energy Act prohibits EPRA from altering, revising or modifying a term or condition of the licence without the consent of the licensee.

The Form of Licence addresses circumstances when the licensee’s obligations may be relaxed, such as when the licensee is prevented from performing any of its obligations under the licence or permit due to force majeure. In this case, the licensee is obliged to notify EPRA of the obligations they are prevented from performing as soon as reasonably practicable, and EPRA has discretion to suspend those obligations for so long as the force majeure continues, subject to certain conditions.

The Energy Act provides that a person may develop energy infrastructure on, through, over or under any public, community or private land, subject to the provisions of relevant written law.

The applicant for a generation licence must demonstrate rights to the land on which the generation plant will be installed, either through ownership of the land or through a long-term lease or licence for the land. The same is applicable for solar rooftop projects, where the generator must demonstrate rights of access to the property owner’s rooftop if it is not the owner.

The Energy Act recognises that, for purposes of promoting energy investments, the national and county governments should facilitate the acquisition of land for energy infrastructure development. The Cabinet Secretary is therefore empowered under the Energy Act to apply for the compulsory acquisition of land in compliance with the Land Act where it is demonstrated that a licence holder reasonably requires such land for the purposes of constructing or operating energy infrastructure and has failed to acquire it by agreement after reasonable attempts to do so. To this end, the Energy (Electricity Licensing) Regulations require the applicant to state whether there will be a requirement for compulsory acquisition of land to be given through the licence.

Rights to the Surface of Land

The acquisition of surface rights to land that is privately owned is based on a willing buyer/lessee – willing seller/lessor basis. Parties negotiate the compensation based on existing market rates, subject to such premiums or discounts as they may deem necessary.

The Energy Act requires any person intending to develop any energy infrastructure to seek the prior consent of the landowner and, where such person cannot be traced, to place a public advertisement and announcements on local radio stations. If the owner of the land cannot be traced, the licensee is then obliged to deposit the compensation for such land into a special compensation fund.

The Land Act defines “compulsory acquisition” as the power of the State to deprive or acquire any title or other interest in land for a public purpose subject to the prompt payment of compensation. It is important to note the obligation under Article 40 of the Constitution, which recognises the rights of untenured occupants and records that provision may be made for compensation to be paid to occupants in good faith of land acquired even where they do not hold title to the land.

Another key piece of legislation is the Prevention, Protection and Assistance to Internally Displaced Persons and Affected Communities Act, which requires the government and any other organisation to prevent internal displacement, including in situations resulting from development projects. Any displacement and relocation due to development projects is only considered lawful if it is justified by compelling and overriding public interests and is conducted in accordance with the Act and the Great Lakes Protocol on Protection and Assistance to Internally Displaced Persons, of which Kenya is a signatory.

Finally, the Physical and Land Use Planning (Development Control for Strategic National Projects) Regulation provides for instances where public land that is required for strategic national projects by a public body may be reserved. In these circumstances, the reservation of public land is required to be undertaken during or after the preparation of a national physical land use development plan or county physical land use development plan.

The Energy Act requires the removal of all infrastructure and the rehabilitation of the land, and all decommissioning activities must meet any good practices that may be prescribed by the Cabinet Secretary in regulations. Where energy infrastructure is removed, the surface of the land should be restored to its former condition as far as possible by the licensee; failure to do so may result in the restoration being carried out by the owner of the land, with costs recoverable from the licensee. The Energy (Draft Abandonment and Decommissioning) Regulations are expected to further provide guidance on decommissioning generation facilities.

National Environmental Management Authority (NEMA) may issue an environmental restoration order requiring the person on whom it is served to restore the environment as near as it may be to the state in which it was before the taking of the action that is the subject of the order. Any person who fails or refuses to comply with an environmental restoration order commits an offence and is liable to imprisonment or a fine.

The Scrap Metal Act includes a framework for the disposal of critical national infrastructure, including physical and virtual assets or facilities related to electricity generation, transmission and distribution.

The state entity responsible for the critical national infrastructure is required to dispose of scrap metal from critical national infrastructure to the Numerical Machining Complex and the Kenya Shipyard Limited for smelting into billets. Where there is inadequate capacity at either of these facilities, the state entity is required to seek approval to partner with a local smelter.

Funding Decommissioning

The Energy (Electricity Licensing) Regulations require that an application for a generation licence shall include details of any expected subsequent substantial capital outflows, including major decommissioning costs.

All the laws listed in 4.1 The Construction and Operation of Generation Facilities and the Kenya National Transmission Grid Code are applicable to the construction and operation of transmission facilities.

Environment reviews are required as discussed in 4.2 Obtaining Approvals for the Construction and Operation of Generation Facilities.

The approval process is similar to that described for generation facilities.

Additional documents and information to accompany an application for a transmission licence include:

• a sufficient description of the actual or proposed locations of the electric supply lines and electrical plant constituting the intended transmission system and the area to which the application relates;
• an indication of the extent to which, and the locations in which, those electric supply lines are or will be placed underground;
• the identification of the voltages of the electric supply lines forming part of the intended transmission system;
• a statement of particulars of the persons from whom, and the points at which, the applicant expects for the next five years to receive the electricity for transmission;
• particulars of the expected connection points, quantities and interconnections to other transmission systems;
• proposed metering arrangements;
• forecast annual maximum demands for the next five years in their transmission system (MW or GW) and energy (GWh) to be transmitted; and
• a single line diagram of the transmission system.

The public participation obligations for generation projects are applicable to power transmission projects.

Specific conditions that need to be adhered to by a transmission licensee include:

• to build, maintain and operate an efficient, co-ordinated and economical transmission system;
• to comply with the directions of the system operator;
• to provide non-discriminatory open access to its transmission system for use by any licensee or eligible consumer upon the payment of fair and reasonable transmission or wheeling charges;
• to provide information to enable EPRA to approve the wheeling/transmission fees;
• to ensure the transmission system is operated with enough capacity (and, if necessary, augmented or extended to provide enough capacity) to provide network services to persons authorised to connect to the grid or take electrical energy from the grid;
• to operate, maintain (including repair and replace if necessary) and protect its transmission grid to ensure the adequate, economic, reliable and safe transmission of electricity; and
• to operate its network in co-ordination with the transmission or distribution networks to which it is connected directly or indirectly.

The provisions described in 4. Generation Facilities are applicable to power transmission projects.

A transmission licensee has exclusive rights to provide transmission services and to construct and operate transmission facilities within a specified geographical territory, subject to the provision of non-discriminatory open access to any licensee or eligible consumer upon the payment of fair and reasonable transmission or wheeling charges. The exclusive rights are obtained through a transmission licence issued by EPRA pursuant to the provisions of the Energy Act and subject to the non-discriminatory open access obligations.

The Energy Act, the Energy (Electricity Licensing) Regulations and the Kenya National Transmission Grid Code are the principal laws that govern the provision of transmission services and the regulation of transmission charges and terms of service.

Tariff setting is presently the function of EPRA, which is mandated to set, review and approve tariffs and tariff structures as well as investigate tariff charges.

The Draft Energy (Electricity Tariffs) Regulations propose a framework for EPRA to set, review and adjust power tariffs and tariff structures. Furthermore, EPRA is expected to provide reasonable assurance that licensees will receive revenues that will cover the net costs of providing the services to which the tariffs relate, and to provide economic and reputational incentives.

The Energy Act requires all contracts for the provision of transmission network services to be submitted to EPRA for approval before execution, which shall ensure that the rates or tariffs established in the contract are just and reasonable. EPRA has published Guidelines for the Computation of Allowed Return on Equity and Return on Investment for generation, transmission and distribution projects within the country, which should be considered when setting tariffs for transmission charges.

Kenya’s Power Market Study notes that a key principle to be used in developing the wheeling tariffs is that network costs should be estimated by voltage level.

With specific reference to the quality of supply and service, the Energy Act requires a licensee to collect, analyse and maintain such data as is necessary to enable the licensee to monitor and report to EPRA on the reliability and quality of supply and service. The Kenya National Transmission Grid Code sets out rules and technical standards for connection to and use of the grid in a manner that will ensure reliable, efficient and safe operation. These obligations are reiterated in the Draft Energy (Electricity Supply) Regulations.

Finally, the draft Energy (Electricity Market, Bulk Supply and Open Access) Regulations provide key terms and conditions to be incorporated in a Transmission Service Agreement/Wheeling Agreement, while the Draft Energy (Electricity Reliability, Quality of Supply and Service) Regulations are proposed to address matters related to performance standards for the reliability and quality of supply and for the quality of service, as well as procedures for monitoring reliability, quality of supply and service and establishing the mode of compensation where consumers incur damage as a result of failure, poor quality or irregular electricity supply by a licensee.

The Energy Act defines “open access” as non-discriminatory provision for the use of an electric transmission or distribution system by any licensee or consumer.

The Act also provides that a transmission licensee has the duty to provide non-discriminatory open access to its transmission system for use by any licensee or eligible consumer upon the payment of fair and reasonable transmission or wheeling charges, as shall be prescribed in regulations made under the Act. The Draft Energy (Electricity Market, Bulk Supply and Open Access) Regulations propose that eligible consumers will have a load of not less than 1 MVA in the distribution system or 10 MVA in the transmission system.

The Draft Energy (Electricity Market, Bulk Supply and Open Access) Regulations, further provide a framework for applications for open access and the payment of wheeling and use of system charges.

As far as technically and economically practicable, a transmission entity is required to ensure that the transmission system is operated with enough capacity to provide network services to persons who are authorised to connect to or take electrical energy from the grid.

Open access in the transmission segment is regulated under Section 136 of the Energy Act and is subject to the payment of transmission or wheeling charges, which are set or approved by EPRA.  Subject to the payment of the transmission or wheeling charges, users of a transmission service have the right to a transmission system that is operated with enough capacity to provide network services and that is operated, maintained and protected by the transmission licensee to ensure the adequate, economic, reliable and safe transmission of electricity.

The Energy Act establishes the role of a System Operator, which is responsible for matching consumer requirements or demand with electrical availability or supply, maintaining electric power system security and arranging for the dispatch process. Kenya Power has historically been central to the electricity demand planning process and also served as the System Operator until KETRACO’s designation in January 2022 and the transfer of this function is presently underway.

The designation of KETRACO as the System Operator is in line with the provisions of Section 138 (9) of the Energy Act, which requires the System Operator not to be involved in the direct or indirect buying or selling of electrical energy, which is Kenya Power’s core business.

Draft Energy (System Operations) Regulations are currently under review and are intended to provide a framework for the safeguarding of efficient, safe, reliable and co-ordinated systems operations of the Transmission Network.

All the laws listed in 4.1 The Construction and Operation of Generation Facilities, together with the Kenya National Distribution Grid Code, are applicable to the construction and operation of electricity distribution facilities.

The provisions relating to generation and transmission projects, as described in 4. Generation Facilities and 5. Transmission Lines and Associated Facilities, are applicable to power distribution projects.

Additional documents and information to accompany an application for a distribution licence include:

• specific information relating to the locations of the electric supply lines and electrical plant constituting the intended distribution system;
• the extent to which, and the locations in which, those electric supply lines are or will be placed underground;
• the particulars of arrangements made for the distribution of electricity and the expected connection points;
• the proposed metering arrangements;
• details of the voltage levels for the next five years; and
• details of the distribution system above 11 kV, including the location of infeeds (connection points), overhead lines, interconnectors, cable routes and associated substations, showing which electric supply lines, cables and substations are to be constructed and which are already in existence, as well as all electric supply lines and electrical plant effecting connection to the system operated by any other authorised distributor and points through which it is proposed that electricity would be conveyed to the applicant’s distribution system.

The public participation obligations relating to generation and transmission projects, as described in 4. Generation Facilities and 5. Transmission Lines and Associated Facilities, are applicable to power distribution projects.

The Energy Act provides that EPRA shall process the licence within 60 days of confirming that the application is complete, subject to there being no objections to the licence application.

The provisions described in 4. Generation Facilities relating to generation projects are applicable to power distribution projects.

The provisions described in 4. Generation Facilitiesrelating to generation projects are applicable to power distribution projects.

Like transmission licensees, a distribution licensee has exclusive monopoly rights to provide distribution services within a specified geographical territory, subject to the rights of eligible consumers who are entitled to choose any licensee to be their supplier of electrical energy for their own use upon the payment of use of system charges.

The Energy Act contemplates that the distribution system within a licensee’s licensed area may consist of the electric supply lines planned and built by Rural Electrification & Renewable Energy Corporation (REREC) or the relevant county government, in addition to those planned and built by the licensee.

Exclusive rights are provided for in the Energy Act and the relevant licence that specifies the licence area.

The Energy Act, the Kenya National Distribution Grid Code and the Energy (Reliability and Quality of Electrical Energy Supply and Service) Regulations are applicable to the provision of distribution services and the regulation of charges and terms of service. The Draft Energy (Electricity Tariffs) Regulations and the Electricity (Generation, Transmission, Distribution and Supply) Tariff Setting Guidelines also seek to promote a fair, transparent and data-driven methodology of determining tariffs.

The process for establishing distribution system charges and terms of service are similar to those applicable to the transmission sector.

The Energy Act requires that Contracts for Bulk Supply and Electricity Supply Contracts for Retailers shall include tariffs to be approved by EPRA, which ensures that the rates or tariffs are just and reasonable. Use of system charges applicable to other licensees and eligible consumers for non-discriminatory open access to a distribution network are also expected to be just and reasonable.

A just and reasonable tariff is defined as one that enables the licensee to maintain its financial integrity, attract capital, operate efficiently and compensate investors for the risks assumed. The Guidelines on Return on Equity and Return on Investment published by EPRA in November 2021 are also applicable to distribution projects within the country and would have an impact on the final tariffs proposed by distribution companies.

Additionally, the Draft Energy (Electricity Tariffs) Regulations, and the Electricity (Generation, Transmission, Distribution and Supply) Tariff Setting Guidelines propose the guiding principles in determination of a tariff and the applicable methodology in the calculation of tariffs.

Retail tariffs are published by EPRA, with the most recent being the KPLC Retail Electricity Tariff Review for the 2022/23–2025/26 4th Tariff Control Period effective 1 April 2023. The tariffs were issued based on application by KPLC submitted to EPRA in October 2022 for approval. EPRA also publishes tariffs charged by off-grid licensees per area of supply and these have ranged from KES17.46 to KES72 for domestic consumers and KES21.83 to KES82 for business consumers.

The Energy Act entitles persons aggrieved by a decision of EPRA to appeal to the Energy and Petroleum Tribunal within 60 days of the decision. A further right of appeal to the High Court against a decision of the Tribunal is available within 30 days of the Tribunal’s decision.