Kenya's fast-growing energy industry powers on, and is hungry for more

There are opportunities opening up thanks to expansion plans in electricity generation as well as development of recently discovered oil reserves.

KENYA is open for business but investors needed to link with companies in the country to exploit the host of opportunities opening up in the country’s energy sector.

This was the message to South African firms at the recent Kenyan trade and investment summit held at the Sandton Convention centre, in Johannesburg.

“Please partner with Kenyans. You will be able to participate in our countrywide expansion programme if you work with Kenyan companies,” chairman of the Kenya Pipeline Corporation, John Ngumi told delegates attending a panel discussion focusing on developments in the country’s energy space.

He added that changes to South Africa’s visa policy, which has generated some controversy, were hindering the ability of the two nations to trade with one another.

“I can’t think of a more tragic move or more tragic practise…for South African companies, than the completely and deservedly maligned Visa policy today,” Ngumi said. “Because you will not get this business if we aren’t able to come here and talk to you.”

South Africa’s visa policy has tightened in recent years making it more onerous for business people from not only Kenya but many African countries to travel to South Africa.

It has been reported however that the after discussions between the countries the costs for Kenyan business and student travellers, as well as those applying for medical visas has been reduced.

These diplomatic challenges aside Ngumi along with other speakers noted that there are a range of investment opportunities opening up in Kenya thanks to expansion plans in electricity generation, as well as its development of its recently discovered oil reserves.

The country currently has just under 2200 megawatts of installed electricity generating capacity according to the most recent draft of Kenya’s national energy and petroleum policy, published by its energy ministry.

Around two thirds of this power comes from renewable energy such as hydro, geothermal and wind power, while the remaining electricity is generated by plants that run on fossil fuels such as diesel and petrol.

But the country’s electricity demand is set to rise as economic growth ticks up.

According to the ministry electricity demand has shown an upward trend since the 2004/2005 financial year, when peak demand was around 899 MW. It has since risen to 1512 MW by December 2014, while the number of electricity consumers has trebled from just over 735 000 in 2004/05 to well nearly 3-million in June 2014.

The demand is being driven by the development of industrial parks, resort cities, the iron and steel smelting industry, railways as well as the development of the Lamu corridor. The Lamu corridor, officially known as the Lamu Port South Sudan Ethiopian Transport corridor (LAPSETT), is a major infrastructure project aimed at creating transport linkages between Kenya, South Sudan and Ethiopia.

Given these development, peak demand is projected to grow from 1512MW as at December, 2014 to 3,400MW by 2016 and to 5,359MW by 2018 according to the ministry.

To meet this need the Kenyan government has embarked on the “5000MW +” project which aims to increase this capacity to just over 6700 MW by 2017.

The largest contributions to the additional power will come from geothermal, coal and liquified natural gas (LNG).

The provision of this additional power will also require investment in additional transmission and distribution infrastructure with only 35% of Kenyans connected to electricity.

Kenya’s energy sector is also expected to grow with the discoveries of onshore oil. The most significant of these has been in the south Lokichar basin, where an estimated 600 million barrels of recoverable oil reserves have been found, and this could potentially rise to over 1-billion barrels.

Largely unexplored
Daniel Kiptoo, petroleum legal advisor at the ministry of energy and petroleum, highlighted that although Kenya was still a frontier destination for oil exploration these discoveries were significant.

“We are looking at a very small area within Kenya,” he told delegates.

“Kenya remains largely unexplored which is an opportunity.”

Although oil prices globally have plummeted, which has depressed oil majors’ appetite for investing in new exploration projects, Kiptoo viewed this situation as temporary.

“We believe that price will recover,” he said. “We hope that this is a situation that the industry will overcome”

Bloomberg reported in August that the country is also already in talks with neighbouring Uganda over the financing for the construction of a planned oil pipeline linking the two countries.

In light of the opportunities in Kenya’s energy sector, and similar work being done to expand South Africa’s energy sector there were lessons the countries could learn from one another said George Kotsovos, executive vice president for power and infrastructure finance at Standard Bank.

Kenya had done much to educate investors in the market as to what the expectations are. Given Kenya’s plans to grow electricity capacity by 5000 MW, there was an opportunity to learn from the roll out of South Africa’s own renewable energy independent power producer programme (REIPPP) he said.

“One of the first things that comes to mind is around the standardisation process that we’ve seen in South Africa for the renewable energy programme,” he said

 “Maybe its something that can get replicated in Kenya a bit more aggressively and in other African markets.”

The REIPPP, which has allowed independent power producers to bid for various renewable energy projects, has been commended for its transparency and has helped bring in over R160-billion in investment into the country.

Kotsovos added that counter party support – in this case the extent to which the Kenya government stood behind its utility companies – was also important, in order to attract potential investors and financiers.

“If you look at what’s happened in South Africa, the South African government has stood fully behind Eskom in putting together the Renewable Energy [programme],” he said.

“At some point government needs to make sure that its giving the market the right message around what support its going to provide to its utility, to its it’s generation company, to its transmission company and so forth to make sure that the market is comfortable that counter party support is there.”

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