The Cabinet has lifted the moratorium on procurement of new independent power producers (IPPs) in Kenya in order to increase power generation. The moratorium was implemented following the recommendation of a task force that was formed by former President Uhuru Kenyatta in 2021 to review power purchase agreements (PPAs). Since then, Kenya Power has not signed any new PPA with any IPP for over a year. However, the Cabinet has now lifted the moratorium, allowing energy investors to sign new contracts with the utility for the supply of electricity. The move has been necessitated by the biting drought which has reduced dispatch of hydroelectric power and allows more IPPs to set up shop to cushion the country from power supply hitches during future droughts.
Kenya Power says that power imports from Ethiopia of 200MW, which started in January, have significantly helped to plug the deficit occasioned by local hydropower generation shortfalls due to the drought. However, the country’s reserve margin—the amount of unused available power generation capability—is at 4%, and therefore, onboarding new power generators to the grid is necessary. This low reserve margin means that any drastic fall in generation from the hydropower plants during droughts will continue to force the country to resort to expensive thermal power to plug the deficit.
The Cabinet has approved a framework for engagement of these IPPs through energy auctions as opposed to the current feed-in tariffs regime. Under the feed-in tariffs regime, the firms are guaranteed fixed prices for the energy they supply to the grid. In the new energy auction system, however, the IPPs will bid for the supply of power to the grid, and the lowest bidder will win the right to supply energy to the grid during that cycle.
“The new framework will enable the State to procure clean energy at prices that reflect those prevailing in the market, giving consumers the benefit of competition in pricing,” said the Cabinet.