POWER AFRICA: Solar Bankers investigates Kenya for opportunities in solar – Part I

The General Situation – Hydropower

It is difficult to determine whether the Kenyan economy provides the framework for a healthy solar industry. Kenya’s geography seems to suggest there is considerable potential for a profitable market in solar resources. Annual horizontal insolation in Kenya peaks at around 2000 kW/m2, and an installed 1 kW in solar capacity can generate 2000 kWh (in Germany it will generate only around half). But Kenya’s solar resources remain widely unexploited, viewed as too expensive and lacking potential. And not only does solar energy account for less than 1% of Kenyan energy production: it is so unpopular that it appears to be deliberately expelled from and neglected within the realm of governmental planning. The Kenyan authorities, a small yet clout-rich network of production and distribution monopolies, prefer to concentrate on expansively exploiting geothermal resources.

But the pillar upon which Kenyan energy production currently rests is hydropower – a pillar now increasingly eroded and rendered unstable. Hydropower accounts for around 45% of Kenya’s total installed capacity and grid-provided electricity, but is, ironically, neither sustainable nor reliable. Kenya’s hydropower infrastructures are frequently incapacitated by drought, causing vast urban power collapses. The socioeconomic effects of these meltdowns extend from interrupting the activities of grid-connected, urban households to fully debilitating those sectors of the economy relying on electricity to function – industry and services. In fact, the Kenyan economy is especially vulnerable to electricity shortages because its industry and services – telecommunications, financial services, IT – comprise around 76% of its GDP. It is estimated that recent power outages have accounted for cumulative industrial costs equivalent to 7% of GDP.

The unreliability of the Kenyan power grid has, hence, resulted in business expansion being associated with great risk and cost. This has created disincentive to expand or establish a business in services or manufacturing. Private investment (both domestic and foreign) into these vital sectors is deterred because power shortages so significantly limit productivity and render production unreliable. Investors and managers are reluctant to finance increased production and trading activities dependent on a volatile grid. They anticipate that expansion will entail increased expenditures in contingency planning for the event of a power outage. But, more importantly, they also anticipate that the increased costs of managing a collapse in expanded production and trading will outweigh the benefits of expansion. And, probably, those businesses having previously suffered from power shortages and having neutralized the costs stemming therefrom, will be financially unable to expand anyway. These developments contribute to stagnation in Kenya’s economic growth, as power shortages have rendered the expansion and establishment of larger-scale businesses significantly unattractive to investors.

So, issue #1: an over-reliance on unreliable and outdated hydropower for supplying the public grid.

To read about our opinion on the development of Kenya’s energy infrastructures, see our upcoming article.


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