1 Legal and regulatory framework

1.1 What role does the state play in the renewables industry and which national legislative and regulatory provisions have relevance for the renewables industry in your jurisdiction?

Kenya has a regulated renewable energy market, in which independent power producers have a growing presence following the full unbundling of the sector under the new Energy Act, 2019. The sector is regulated by:

  • the Ministry of Energy and Petroleum, the lead government ministry in energy matters; and
  • the Energy and Petroleum Regulatory Authority (EPRA), the sector regulator.

While the role of the private sector is expected to slowly increase in generation, transmission, distribution and supply:

  • Kenya Electricity Generating Company PLC (KENGEN), the state-run generating company, is still the primary generator;
  • Kenya Electricity Transmission Company Limited (KETRACO) is still the sole transmitter of electricity; and
  • Kenya Power and Lighting Company PLC (Kenya Power) is the sole offtaker.

The main regulatory frameworks governing the industry include:

  • the Constitution of Kenya 2010, which vests natural resources in the people of Kenya and empowers the government to regulate natural resources on behalf of Kenyan citizens;
  • the Energy Act 2019 and the regulations thereunder, which repealed the Energy Act 2006, the Kenya Nuclear Electricity Board Order 2013 and the Geothermal Resources Act 1982, and which have consolidated all laws relating to energy – including renewable energy – in Kenya;
  • the Feed-in Tariff Policy 2012, which promotes the generation of electricity from renewables by enabling producers to sell electricity generated from wind power, biomass, small hydro, geothermal, biogas and solar resources at a pre-determined tariff for a certain period;
  • the Public-Private Partnerships Act, 2013, which promotes private sector participation in the financing, construction, development, operation and maintenance of development projects through diverse financing arrangements; and
  • the Public Procurement and Asset Disposal Act 2005 and the regulations thereunder, which regulate government procurement processes for energy projects.

Other national laws which touch on the energy sector include:

  • the Environmental Management and Co-ordination Act 1999;
  • the Land Act 2012;
  • the National Construction Authority Act 2011;
  • the Public Finance Management Act 2012;
  • the Income Tax Act (Cap 470 Laws of Kenya);
  • the National Transmission Grid Code; and
  • the National Distribution Grid Code.

Key subsidiary laws applicable to the renewables industry include:

  • the Energy (Appliances' Energy Performance and Labelling) Regulations 2016;
  • the Energy (Energy Management) Regulations, 2012; and
  • the Energy (Solar Photovoltaic Systems) Regulations, 2012.

Proposed legislation currently undergoing public participation include:

  • the Climate Change (Amendment) Bill, 2023, which proposes a policy and institutional framework to govern carbon markets in Kenya;
  • the Energy (Net-Metering) Regulations, 2022; and
  • the Energy (Solar Water Heating) Regulations, 2022.

1.2 Which bilateral or multilateral instruments or treaties with effect in your jurisdiction have relevance for the renewables industry?

Kenya is a signatory to the Paris Agreement 2015. In its nationally determined contribution, Kenya aims to achieve a 30% reduction in greenhouse gas emissions by 2030. The 2017–2037 Least-Cost Power Development thus plans for the targeted expansion of renewables including solar and wind into the national mix.

In a treaty signed in March 2023, the European Investment Bank committed to support green hydrogen investment in Kenya.

In March 2017, Kenya became the 83rd signatory to the Energy Charter Treaty. This was a strong signal that Kenya is committed to pursuing its renewable energy goals according to international standards on investment promotion and protection.

Kenya ratified the Convention of the African Energy Commission, 2001 in December 2006. The African Energy Commission is a specialised agency of the African Union established by African heads of state and governments in 2001, with the goal of leading cooperation in the development and implementation of energy policies and programmes. Its conference of ministers of member states meets once every two years.

Kenya ratified the African Continental Free Trade Agreement in 2018. The treaty, signed by 54 of the 55 African Union states, allows participating countries to trade with each other amid global trade protectionism and enables them to bargain collectively on the international stage.

Kenya is a party to the Eastern African Power Pool (EAPP), an intergovernmental organisation established in 2005 to promote the optimum development of energy resources in the region. Ten countries are currently members of the EAPP (Burundi, the Democratic Republic of Congo, Egypt, Ethiopia, Kenya, Libya, Rwanda, Sudan, Tanzania and Uganda).

Kenya has bilateral agreements with Uganda, Tanzania and Ethiopia which allow for the import and export of cheap renewable power from and to each other.

1.3 Which national regulatory bodies are responsible for enforcing the applicable laws and regulations? What powers do they have and what is their general approach in regulating the renewables industry?

Several bodies were established and/or expanded by the Energy Act, 2019. These include the following:

  • EPRA: EPRA is the primary regulator of the energy sector.
  • Energy and Petroleum Tribunal (EPT): The renamed Energy and Petroleum Tribunal (EPT) is a quasi-judicial body with an expanded mandate, as it may now hear and determine disputes arising under the Energy Act "and any other written laws". Unlike its predecessor, the EPT now has wide powers to grant equitable relief synonymous with the courts of law in Kenya – including injunctions, penalties, damages and specific performance – and the power to review its judgments and orders.
  • Rural Electrification and Renewable Energy Corporation (REREC): While inheriting the rights and responsibilities of the Rural Electrification Authority, the new REREC's extended mandate also includes policy formulation, including the development and updating of Kenya's renewable energy master plan. REREC is also responsible for:
    • establishing energy centres in counties;
    • developing, promoting and managing the use of renewable energy (excluding geothermal);
    • coordinating renewable energy research;
    • developing appropriate local capacity for renewable technologies; and
    • offering clean development mechanisms such as carbon credit trading, among others.
  • REREC also helps Kenya to gain hard currency from selling carbon credits in the international market while also expanding renewable energy in the Olkaria geothermal fields in Naivasha.
  • Renewable Energy Resource Advisory Committee (RERAC): RERAC is an inter-ministerial committee whose mandate is to advise the cabinet secretary on matters concerning the allocation, licensing and development of renewable energy resources, among other things.

1.4 What role do regional or local government or public bodies play in the renewables industry?

Further to the devolution principle espoused in the Constitution of Kenya, the Energy Act, 2019 assigns roles to both the national government and county governments. The act provides that the national government is the owner of all renewable energy rights and is responsible for policy formulation and integrated national energy planning and regulation, under EPRA.

EPRA is further empowered to:

  • regulate electricity and renewable energy;
  • regulate energy purchase contracts;
  • set and review energy tariffs;
  • resolve disputes; and
  • formulate national codes to promote energy efficiency.

County governments, on the other hand, are empowered to:

  • aid the national government in formulating county energy plans to incorporate renewable energy and electricity master plans, plans for industrial parks and other energy consuming activities;
  • regulate electricity and gas reticulation; and
  • regulate biomass, biogas and charcoal in the counties.

The act further establishes a Rural Electrification Programme Fund to accelerate electricity infrastructure in Kenya. Local business empowerment and host community beneficiation are also emphasised in the act, and must be promoted by both national and county governments. The act also makes it mandatory for all energy companies to include local content in their operations. Their plans to do so must be submitted annually for approval by EPRA.

2 Renewables industry

2.1 Which renewable technologies are considered relatively mature in your jurisdiction, and which are emerging as potentially new technologies in the market?

Mature renewable technologies in Kenya include:

  • hydropower, with an installed capacity of 826.23 megawatts (MW);
  • geothermal, with an installed capacity of 799 MW; and
  • wind, with an installed capacity of 436 MW

Biomass – whose main sources are charcoal and wood fuel – is popular in rural Kenya. However, it has depleted forest cover in Kenya over the years and is thus discouraged by government policy. Identified opportunities in biomass include generating:

  • up to 120 MW of electricity with minor investments; and
  • about 200 MW with modest investments in cane fields and cane-crushing capacity.

Small solar energy is increasingly popular among Kenyans. With installed solar capacity ranging from 4 MW to 8 MW, Kenya is very active in the commercial photovoltaic system in the developing world. Kenya seeks to further expploit wind energy potential, given that Kenyan winds buck intermittent trends. Municipal waste is underexploited, especially given that bio-waste accounts for 60% of solid waste in cities and towns. A proposed waste-to-energy power plant project between Nairobi city county and KENGEN is a current example. Finally, biogas potential in Kenya has been identified in municipal waste, sisal and coffee production.

2.2 Who are the key players in the renewables industry in your jurisdiction?

Kenya Power is empowered to manage distribution, KETRACO to manage transmission and KENGEN to manage generation. The Geothermal Development Company was established as a public agency to regulate capital-intensive geothermal resources. The Ministry of Energy and Petroleum formulates national policy in the energy sector; while the Rural Electrification and Renewable Energy Corporation oversees the development of rural electrification projects on behalf of the government.

Independent power producers build, own and operate power stations and sell the power to Kenya Power, the main offtaker. The Energy and Petroleum Regulatory Authority, the regulator, reviews electricity tariffs and enforces safety and environmental regulations in the power sector.

Other upcoming private sector players include:

  • M-KOPA;
  • Strauss Electricity;
  • PowerGen Renewable Energy;
  • Vuma Biofuel;
  • Sistema.bio;
  • X-Solar;
  • Engie Energy Access Kenya;
  • Solektra International;
  • Kenya Biogas Program;
  • Biogen Kenya;
  • Biopane Energy;
  • Kings Biofuels;
  • Go-Solar System Limited;
  • KenGreen energy;
  • RockWill Green Energy;
  • Equator energy;
  • KENSEN-Kenya Solar Energy;
  • Flexi Biogas Solutions; and
  • Eco-charcoal Ltd.

2.3 How much do renewables currently contribute to the domestic energy mix? What are the near-term projections for the role they will play?

Renewable sources constitute 81% of electricity generation sources in Kenya, these being:

  • geothermal (48.4%);
  • hydro (35%);
  • wind (10.4%); and
  • solar (0.9%).

Government projections contained in the power development plan for the period 2017 to 2037 seek to expand this further:

  • Geothermal is projected to have installed capacity of 2647 megawatts (MW) by 2037, up from 650 MW in 2017, with potential of 10000 MW;
  • Hydro is projected to have installed capacity of 1782 MW by 2037, up from 805 MW in 2017, with potential of 3000–6000 MW;
  • Wind is projected to have installed capacity of 845 MW by 2037, up from 325 MW in 2019, with a potential of 90,000 square kilometres having wind speeds of 6 metres per second and above; and
  • Solar is projected to have installed capacity of 852 MW by 2037, facilitated by Kenya's location near the Equator, which sees it receive 4-6 kilowatt-hours per square meter per day evels of insolation, with a potential area of 106,000 square kilometres.

3 Utility-scale renewables projects

3.1 What utility-scale renewables projects are currently operational or planned in your jurisdiction? What are their key features?

The Lake Turkana Wind Farm project – a 310-megawatt (MW) energy project and the largest wind farm in Africa – is fully operational. The project was financed at €623 million by the African Development Bank.

The Olkaria Geothermal Power Station with current installed capacity of 810.3 MW in the Rift Valley supplies 500,000 homes (including 70,000 in rural areas) and 300,000 businesses, with a further potential of 10000 MW.

The Seven Fork Hydro Power Station along Tana River, which consists of 5 power plants- Masinga ,Gitaru,Kamburu, Kindaruma & Kiambere, with an installed capacity of 543.2 MW is the oldest and largest hydro power project in Kenya. Another large scale hydro ulitity is the Turkwel Power station located along the Turkwel river with an installed capacity of 106MW.

Another recently launched utility scale project is the 55 MW Garissa Solar Power Project.

Planned projects include:

  • the 100 MW Baringo Silali-Paka Geothermal Project;
  • the 140 MW Olkaria VI Geothermal Plant;
  • the 1045-kilometre (433 km in Ethiopia and 612 km in Kenya) Eastern Electricity Highway Project– which has a power transportation capacity of 2000 MW in both directions, is 90% complete and expected to go live in early 2024;
  • the Raising Masinga Dam Hydropower Project;
  • the Seven Forks 40 MW Solar Photovoltaic Project;
  • the Karura 90 MW Hydropower Plant;
  • the Samburu 300 MW Photovoltaic Solar Power Generation Project;
  • the Samburu Solar Project (40 MW);
  • the Kopere Solar Park in Kisumu (22.7 MW);
  • the Witu Solar Project (40 MW);
  • the Isiolo County Solar Project (40 MW); and
  • the Nakuru Solar Project (25 MW).

3.2 What authorisations are required for the construction and operation of utility-scale renewables projects in your jurisdiction?

A total of 22 clearances are applicable to investors in the renewable energy sector, although not all investors must obtain all 22 clearances:

  • Six are sector specific;
  • Three are general environment-related clearances;
  • Seven are general clearances necessary to establish a company; and
  • Six must be obtained to own/lease the land and construct the power plant.

The general procedures to establish a company are described in detail in the Doing Business Survey 2011 of the International Finance Corporation and the eRegistry of the Kenyan government. The clearances vary in nature and in scope. Some clearances must be obtained by all investors under the Feed-in Tariff Policy; others only by those investing in specific energy resources. For example, investors in wind energy must obtain clearance from the Kenya Civil Aviation Authority to ensure that high structures do not interfere with air traffic. On the other hand, geothermal investors must obtain:

  • approval of an expression of interest;
  • exploration authority;
  • aviation clearance;
  • an environmental impact assessment licence;
  • an abstraction permit;
  • rent clearance;
  • rates clearance;
  • land registration;
  • a geothermal resource licence;
  • an electricity generation licence;
  • a power purchase agreement (PPA) with Kenya Power;
  • approval of the PPA from the Energy and Petroleum Regulatory Authority (EPRA);
  • approval of change of use; and
  • a development permit.

3.3 Do these authorisations vary in respect of the location of the energy source, the location of the asset or the involvement of a foreign entity?

Authorisations vary based on the nature of the asset. National laws still govern the renewables industry for now, as counties are yet to localise the Energy Act, 2019.

Authorisations do not vary based on the nationality of the investor, as the act does not discriminate. Foreigners can fully own private as well as listed companies in Kenya. However, they still need endorsement from the Kenya Investment Authority to invest in Kenya. Further, foreigners are unable to own agricultural land unless with Presidential exemptions and can only own a leasehold of up to 99 years over non-agricultural land. However, on expiry of the leasehold term a renewal of the lease may be sought.

3.4 What is the procedure for obtaining such authorisations? How long does this typically take? Who is responsible for issuing them?

See question 3.2. These authorisations are obtained from:

  • the Ministry of Energy;
  • EPRA;
  • the National Environment Management Authority;
  • the Water Resources Management Authority;
  • landowners (private, or public agencies such as the Kenya Forestry Service or the Kenya Wildlife Service);
  • the Ministry of Lands;
  • county governments;
  • Kenya Power; and
  • the Civil Aviation Authority.

The process takes about 24 months.

3.5 What are the key features of such authorisations, including any process for renewal and the rights and obligations of the holder?

Many licences afford the issuer excessive discretionary power. Other than the expression of interest, which is a policy decision that may be beyond the control timelines, investors should be certain of the requirements and decision criteria in good time.

Moreover, some general environmental and security clearances can only be requested in a sequential manner, as follows:

  • environmental impact assessment (EIA);
  • water permit;
  • aviation clearance; and
  • geothermal licence.

Although the National Environmental Management Authority (NEMA), the environment regulator, will request the opinions of each specific authority as part of the EIA licensing procedure, investors are still expected to obtain each specific licence themselves. In addition, both environmental and energy licences may have conditions attached to them that must be observed, including in relation to the submission of compliance reports.

Environmental licences are for the period prescribed in the licence. They can be renewed for such further periods as may be prescribed or specified in the licence. Energy licences are valid for the period prescribed in the licence and may be renewed for a further period of five years, provided that an application is made 30 days prior to the expiry of the initial licence.

Other than geothermal authorisations, all other renewables lack specific gazetted legislation. Legislation is in the pipeline, and are a priority of the new cabinet secretary in order to enhance investor confidence in the field.

3.6 Can these authorisations be transferred? If so, how and subject to what consents? Do any restrictions apply to the transfer?

An environmental licence can be transferred, provided that:

  • the transfer is in respect of the approved project;
  • the director-general of NEMA is notified in writing of the transfer by both parties no later than 30 days after the transfer; and
  • the transfer does not take effect until the date on which the director-general is notified of the transfer.

Renewable energy licences can also be transferred, provided that the consent of either the cabinet secretary or the regulator (depending on the energy source) is obtained.

3.7 What obligations apply in relation to decommissioning? How is this funded?

The Energy Act, 2019 provides that at the end of the period of operation, the owner of a generation plant must:

  • remove all infrastructure introduced onto the land for its operations;
  • rehabilitate the land; and
  • carry out all other actions that may be prescribed.

In addition, either the EIA licence or the energy licence will specify the decommissioning conditions that each project owner must comply with. Approval for the decommissioning of a plant, for instance, must be obtained from the Energy and Petroleum Regulatory Authority at least three months before commencement.

Currently, there are no security deposits required for future decommissioning liabilities.

NEMA has also published the National Draft Guidelines on Mine Site Decommissioning and Rehabilitation to address unsustainable practices on sites for artisanal and small-scale mining operations in Kenya. The guidelines also outline best practices in the industry to assist the following parties in ensuring that mining sites are sustainably decommissioned and rehabilitated upon cessation of the mining operations:

  • mining operators;
  • ministries, departments, counties and agencies;
  • environmental experts;
  • the private sector;
  • civil society organisations; and
  • communities.

3.8 What are the main barriers to the development of utility-scale renewables projects in your jurisdiction?

Challenges include:

  • long lead times from concept to production (usually more than five years);
  • steep upfront capital costs;
  • the intensive investment in transmission and other support infrastructure for existing load centres needed in order to reduce system losses;
  • complicated licensing/approval requirements;
  • a lack of adequate local talent in the industry;
  • a lack of adequate storage in power generators;
  • a lack of adequate public information on renewables; and
  • community resistance to large projects.

3.9 Environmental issues

  1. What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?
  2. What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?
  3. Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?

(a) What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?

The Environmental Management and Coordination Act, 1999 (EMCA) governs the environmental licensing of renewable generators in Kenya. Permits issued by the environment regulator, NEMA, include:

  • EIA licences;
  • noise and/or vibration permits;
  • import/export licences for controlled substances and prior informed consent documents; and
  • annual licences to own/operate a waste treatment or disposal site (if any) at the project site.

To operate a power station, the law also requires the owner to ensure that the cooling systems used are suitable alternatives with zero ozone-depleting potential (see the Environmental Management and Coordination (Controlled Substances) Regulations 2006).

The EMCA has subsidiary legislation which investors should be aware of, including:

  • Environmental (Impact Assessment and Audit) Regulations, 2003;
  • Environmental Management and Co-ordination (Water Quality) Regulations, 2006;
  • Environmental Management and Co-ordination (Air Quality) Regulations, 2014
    , which are proposed to be amended through draft regulations of 2022; and
  • Environmental Management and Co-ordination (Waste Management)
  • Regulations, 2006.

(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

The EMCA has a whole Section XII on environmental offences. Upon conviction of an offence by NEMA, a renewables generator will be liable to:

  • fines ranging from KES 50,000 to KES 2 million;
  • imprisonment for up to two years; or
  • both a fine and imprisonment.

Further, Section 14 of the EMCA is clear that when an offence is committed by a body corporate, the body corporate and every director or officer of the body corporate who had knowledge of the commission of the offence and who did not exercise due diligence, efficiency and economy to ensure compliance with the act will be guilty of the offence. Where an offence is committed under the EMCA by a partnership, every partner or officer of the partnership who had knowledge of the commission of the offence and who did not exercise due diligence, efficiency and economy to ensure compliance with the act will be guilty of an offence. Further, a person may be personally liable for the offence, whether committed by him or her on his or her own account or as an agent or servant of another person. An employer or principal will be liable for an offence committed by its employee or agent under the EMCA unless the employer or principal proves that the offence was committed against its express or standing directions.

(c) Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?

NEMA exercises general supervision and coordination over all matters relating to the environment and is the principal instrument of government in the implementation of all policies relating to the environment in Kenya. It is active in enforcing its licence conditions as well as investigating public complaints of pollution.

The EMCA also establishes the National Environment Council, which formulates policy and directions for the purposes of the act.

The provincial and district environment committees promote the decentralisation of environmental management and enable the participation of local communities.

Finally, the Public Complaints Committee is the administrative mechanism for addressing environmental harm.

3.10 Health and safety issues

  1. What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?
  2. What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

(a) What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?

The project site must:

  • be registered as a workplace with the director of occupational safety and health (Occupational Safety and Health Act 2007); and
  • observe conditions under the Employment Act, 2007.

Section 11(g) of the Energy Act, 2019 further mandates EPRA to formulate, set, enforce and review environmental, health, safety and quality standards for the energy sector, including in the review of licence applications and audits of existing energy facilities, in coordination with other statutory authorities. These regulations may be forthcoming from the Ministry. EPRA works to achieve its objectives in collaboration with statutory authorities such as:

  • NEMA;
  • the Directorate of Occupational Safety and Health Services; and
  • the Kenya Maritime Authority.

Further, under Section 214(1) of the Energy Act, 2019, energy utilities are mandated to notify NEMA in writing within 48 hours of:

  • any accident or incident causing:
    • loss of life;
    • personal injury;
    • explosion;
    • oil spill; or
    • fire; or
  • any other accident or incident causing harm or damage to the environment or property which has arisen in Kenya or within Kenya's exclusive economic zone or outer continental shelf.

EPRA can opt to direct that an investigation be carried out and take such action as it deems necessary.

(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

The Occupational Safety, Health and Injury Benefits Authority is responsible for the implementation of occupational health and safety.

The national legislation empowers inspectors to:

  • enter, inspect and examine work premises at any time, day or night, with or without prior notice;
  • take measurements, photographs, samples and recordings for the purpose of examination and investigation;
  • ask for registers, documents, certificates and notices to inspect, examine and copy them;
  • interview anyone;
  • conduct medical examinations, for inspectors who are medical practitioners; and
  • take a police officer along with them if necessary.

If an occupier or its representatives do not cooperate with the inspector or obstruct the execution of his or her duties, it commits an offence and is liable to a fine of up to KES 100,000, imprisonment for up to six months or both.

Labour inspectors are authorised to:

  • conduct proceedings arising under the Occupational Safety and Health Act;
  • obtain samples of any substance used or intended to be used at a workplace;
  • address a cause of imminent danger by seizing it or causing it to be rendered harmless; and
  • issue notices (improvement or prohibition).

Breaches for non-compliance with the Occupational Safety and Health Act include:

  • fines ranging from KES 50,000 to KES 500,000;
  • imprisonment for a term of three to six months; or
  • both.

4 Distributed generation projects

4.1 What are the key differences in relation to small-scale distributed generation projects compared to utility-scale projects in your jurisdiction with regard to the regime discussed in question 3?

The requirements are the same, save that small renewable projects are eligible for the Feed-in Tariff Policy, as opposed to fixed tariffs, if they:

  • fall within the size requirements; and
  • are based on wind, biomass, small hydropower, geothermal, biogas or solar.

4.2 What are the main networks that apply to small-scale distributed generation projects in your jurisdiction?

Small-scale distributed generation projects are rarely connected to the centralised grid. They are mostly decentralised in rural, hard-to-reach areas and aim to serve diffuse populations over large areas.

5 Taxes and incentives

5.1 What national, regional and/or local incentives are available as subsidies or support to facilitate the deployment of renewables projects in your jurisdiction?

On 30 January 2023 the Kenyan government published a draft National Green Fiscal Incentives Policy Framework for public comment. The policy framework addresses a wide range of issues, including:

  • policy goals and guiding principles; and
  • green fiscal policy interventions.

Some of the policy tools that are set out include:

  • carbon taxes;
  • rebates;
  • subsidies;
  • tax exemptions;
  • ecological fiscal transfers;
  • research grants;
  • concessional loans;
  • guarantees;
  • interest-rate subsidies; and
  • the creation of a green bank.

These measures are anticipated to help stimulate a shift towards low-carbon, climate-resilient and environmentally sustainable practices. They also aim to promote private sector green investment.

In August 2022, the Ministry of Energy lifted a ban on negotiations for new power purchase agreements (PPAs) while also providing clarifications on existing processes and approval mechanisms. This development is expected to drive investment in the renewable energy sector.

5.2 Are any tax reliefs available for investment in renewables projects?

The Finance Act, 2021 amended the First Schedule of the Value Added Tax Act to exempt specialised solar and wind energy equipment from value added tax (VAT). This was after VAT at a rate of 14% had been imposed on solar equipment in 2020, making solar products unaffordable and discouraging the realisation of universal electrification. The new law has put back the country on track towards achieving its green energy goals.

5.3 Have there been any interventions affecting renewables projects in terms of their ability to be constructed or operated, or their ability to earn revenue, in your jurisdiction?

A ban on PPA negotiations was previously imposed by the Ministry of Energy to prevent an increase in power bills due to idle capacity charges charged by independent power producers, as well as inflated prices charged by some. The then President Uhuru Kenyatta cancelled all ongoing PPA negotiations under Kenya Power following the recommendation of a taskforce on power sector reforms. This was lifted in August 2022.

Future PPA negotiations will be in line with the Least Cost Power Development Plan (LCPDP). This system is designed to leverage the country's renewable energy sources, thus incentivising investment in the renewable energy sector. In line with this, the Ministry of Energy has issued guiding principles on the LCPDP for the integration of renewable energy and emerging technologies.

5.4 What other incentives are available to promote the development of the renewables industry in your jurisdiction?

See question 5.2 and 5.3.

6 Financing structures

6.1 Is debt financing typically used and are there any particular structures that are common for renewables projects in your jurisdiction?

Most large-scale utilities are government backed. In January 2012 the government announced the establishment a Green Energy Fund to boost renewable energy generation. The fund is intended:

  • to "lend to viable projects at concessional rates";
  • to provide a "trust fund for training and research"; and
  • to develop project proposals.

Concessional loans would be disbursed through commercial banks.

The government also relies on development finance and receives substantial support from international organisations towards supporting renewable energy development. This assistance is coordinated through the Kenya Joint Assistance Strategy (KJAS), which constitutes 15 major development partners, including the World Bank, the African Development Bank (AfDB) and Agence Française De Développement. The KJAS partners have signed agreements with the government on partnership principles that will coordinate the support.

Generally, external debt financing from either impact investors in Africa or financing agreements from development financiers such as the AfDB, Finnfund and the Eastern and Southern African Trade and Development Bank is also used to finance private projects.

Local private debt in Kenyan commercial banks is less common.

6.2 What are the advantages and disadvantages of these different types of structures?

Concessional finance from development financiers has longer repayment plans, which can be renegotiated, and lower interest rates than commercial loans or debt impact investing.

6.3 What other considerations and concerns should parties bear in mind when deciding on a financing structure for a renewables project?

Most debt repayments are pegged on the dollar and, given the rising inflation in Kenya (currently 7.9%), repayments in the shilling are burdensome to debtors.

6.4 What main financing institutions are active in your jurisdiction?

See question 6.1.

6.5 Which financing markets are usually turned to for sources of debt in your jurisdiction, (eg, local, London, New York)?

Impact investors based in Africa and development financiers, including:

  • the World Bank in New York;
  • the AfDB in Abidjan; and
  • the International Monetary Fund in Washington DC.

7 Transmission, distribution and export

7.1 What are the applicable processes for connecting renewables projects with transmission, distribution and export networks in your jurisdiction? Do these processes differ between different types of renewable technologies and between renewables and non-renewable projects?

See questions 3.3 and 3.4.

Renewable technologies only differ with respect to on-grid and off-grid technologies, as the former are connected directly to the centralised grid. One would need to enter into arrangements with KETRACO, the current sole transmitter and Kenya Power the current sole off-taker.

7.2 What requirements and restrictions apply to the export of renewable energy onto the network?

Kenya exports to Uganda and Tanzania, and imports from Ethiopia and Uganda, with interconnected grids. Restrictions in remote areas pertain to cost, given that KETRACO – the monopoly transmitter – has not built transmission and distribution lines in remote areas in Kenya. A power purchase agreement with the offtaker, Kenya Power, is the main requirement to secure transmission and distribution within the network.

7.3 What other considerations and concerns should be borne in mind in relation to the transmission, distribution and export of renewable energy in your jurisdiction, including participation in ancillary services, wholesale electricity trading markets, network charging arrangements specific to renewables and the ability to construct part of the connection infrastructure? Are there long queues and delays for connection?

See question, 3.3, 3.4 and 7.1.

The process from application to licensing takes about 24 months.

Kenya exports to Uganda and Tanzania, and imports from Ethiopia and Uganda, with interconnected grids. Licensing in Kenya thus opens up access to the larger East African market.

7.4 Are there any initiatives, reforms or consultations relating to the connection of renewables projects?

Yes, the implementation of the 2018 African Continental Free Trade Agreement with respect to the movement of energy across the continent will be a game changer in terms of opening up Kenya beyond the East African power market to the African renewables market. Further, once in force, the draft Net Metering Regulations of 2022 will promote the installation of renewables at the grassroots level, as households take advantage of the initiative.

8 Storage

8.1 What processes and rules apply to parties wishing to construct and operate a storage (eg, battery, hydrogen, hydro) project in your jurisdiction?

Battery storage is still in its infancy in Kenya. However, the Kenyan government has grand ambitions to develop this technology. In February 2023 the government announced it was seeking investors in battery energy storage systems to store underutilised excess solar and wind during off-peak hours, in order to fast-track Kenya's goal of transitioning to 100% electricity generation from renewable sources by 2030.

However, there is no current framework in place for the integration of battery energy storage systems into the country's generation mix.

The government is also engaging development partners such as the World Bank to draft a policy on battery energy storage systems to drive investment.

8.2 Are there any barriers to the development of storage projects in your jurisdiction?

See question 8.1. The industry is in its infancy and needs a regulatory framework to promote interest and investment.

8.3 What other considerations and concerns should be borne in mind in relation to the development of storage projects in your jurisdiction?

See question 8.1.

9 Competition

9.1 Are there any dominant players, including dominant purchasers, in the renewables industry in your jurisdiction?

Even though in principle, Kenya is a liberalised electricity market, state-run generation company KENGEN is still the main producer of energy and KETRACO the sole transmitter; while Kenya Power, in which the government owns a 51% stake, remains the sole distributor of electricity.

9.2 Are there any pro-competition measures that are targeted specifically at renewables generators?

In January 2021, the Ministry of Energy published its Renewable Energy Auction Policy (REAP), which outlines the approach to be adopted for renewable energy procurement in Kenya – in particular (and not dissimilar to the South African model), through competitive auction. Unfortunately, the REAP – which was prepared with the assistance of the World Bank – does not appear to have been formally adopted, even though it has been recognised by the Presidential Taskforce and certain recommendations have been made in this regard.

10 Disputes

10.1 In your jurisdiction, do disputes typically go to arbitration or litigation, and does this vary for different types of disputes? What sorts of matters tend to come up in disputes?

It is difficult to ascertain statistics of players who prefer arbitration to litigation due to the confidential nature of arbitration. Litigation disputes are mainly brought by the public on land and environmental issues. It would be fair to state that most commercial disputes prefer arbitration to litigation. Disputes involving foreign players and the state trigger arbitration clauses and are arbitrated outside the country at the International Centre for Settlement of Investment Disputes (ICSID) given that Kenya is party to the ICSID convention and has bilateral investment treaties with several countries. Publicised disputes mainly revolve around the cancellation of licences by the government, with the government prevailing in those publicised cases. Disputes between foreign players not involving the state are settled at international forums such as the International Chamber of Commerce, the United Nations Commission on International Trade Law, the Stockholm Chamber of Commerce and the London Court of International Arbitration. Commercial disputes involving mainly local players would be arbitrated with the Chartered Institute of Arbitrators, Kenya Branch established in 1984 or at the Nairobi Centre for International Arbitration, established in 2013. The Energy and Petroleum Tribunal primarily hears disputes involving licences issued or declined by the regulator, the Energy and Petroleum Regulatory Authority.

10.2 Have there been any important disputes in the public domain that relate to or may potentially impact on the renewables industry or the deployment of renewables projects?

See question 5.1 on the policy ban on power purchase agreements, which has since been lifted.

11 Trends and predictions

11.1 How would you describe the current renewables landscape and prevailing trends in your jurisdiction?

The off-grid renewable energy sector in particular is on an upward trajectory. The sector is generally well governed and promotes and supports private-sector stakeholder input.

Current trends reflect the government's commitment to truly liberalise transmission and distribution, given system losses of more than 20%. The agreement between Africa50 and Power Grid Corporation of India to jointly develop the Lessos to Loosuk and Kisumu to Musaga transmission lines under a pioneering public-private partnership model has taken these schemes one step closer to financial close, potentially establishing a model for private sector finance in African transmission network development.

Another new trend is the increase in impact and angel investors in the sector. Innovative finance is emerging to plug the $14 billion to $18 billion financial gap, in a bid to achieve seamless generation, transmission and distribution of off-grid electrification targets that would buttress Kenya's predominantly on-grid solutions.

11.2 What influence are net zero commitments having on the development of the renewables industry in your jurisdiction?

The Energy Act, 2019 is modelled on Kenya's climate goals and references these in several places. In order to accelerate investment in renewable low-carbon energy, the act provides for the creation of an inventory and resource map of renewable energy resources. This map will be produced by the government through the Ministry of Energy and Petroleum and should considerably reduce the financial burden on investors. Under the old act, investors were required to provide feasibility studies in support of their projects.

Mapping renewable energy resources will also help to achieve the act's goal of mitigating greenhouse gas emissions by promoting renewable energy and introducing carbon credit trading under the Clean Development Mechanism.

11.3 What new developments are anticipated in the next 12 months, including any proposed legislative reforms?

Regulatory interventions anticipated in the coming year include the adoption of:

  • the Energy (Net-Metering) Regulations, 2022;
  • the Energy (Solar Water Heating) Regulations, 2022;
  • the Climate Change (Amendment) Bill, 2023;
  • a Ministry Study on the Regulatory Impact of Net Metering in Kenya; and
  • a Ministry Viability Assessment of the Solar Water Heating Industry in Kenya.

12 Tips and traps

12.1 What are your top tips for renewables generators in your jurisdiction and what potential sticking points would you highlight?

Approximately 75% of Kenya's population is connected to electricity. The remaining 25% live in more remote areas, away from the easier-to-connect towns and cities of the more densely populated south. In particular, most large-scale industry is now resorting to solar power installations to reduce the cost of electricity. Kenya – which is located right on the Equator – enjoys a yearlong supply of ample sunshine, making it easy to operate both small-scale and large-scale solar power systems. Kenya Power has also joined the solar movement, announcing that it will contract with private firms to install solar panels for interested customers under a design-build-finance-operate model.

While the regulatory requirements and application processes for energy licences are tedious and lengthy, once this hurdle has been cleared – and despite political statements every now and again – Kenya Power, the country's main offtaker, has proved a creditworthy partner for the industry.

Finally, the Energy Act, 2019 has truly liberalised the sector and promoted the uptake of renewables. However, subsidiary legislation needed to operationalise the act is still in the pipeline and should be urgently enacted by the cabinet secretary.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.