The case for private sector power transmission in Kenya
Access to cheap and affordable electricity has been identified as one of the key drivers for Kenya to attain its Vision 2030 goals as well as the Big 4 agenda. In a bid to achieve these objectives, the government of Kenya aims to deliver universal access to electricity by 2022 and as such, it has implemented various measures to incentivise private sector investment in the generation of electricity in the country.
These incentives include providing letters of support for new investors as well as various tax measures aimed at improving returns for investors. Through the Last Mile Connectivity Project, the government has enhanced access to electricity in rural areas. All of these measures have helped to expand access to electricity from 32% of the population in 2014 to 75% in 2018, making Kenya one of the highest-ranked countries in Africa for access to electricity.
The drive for cheaper power has led to the exploration and development of renewable energy sources, largely in remote areas of the country. This poses a challenge for efficient and effective evacuation of power from these sources and as such, there is a need to increase investment in transmission infrastructure. Currently, Kenya’s transmission network is approximately 6,295 kilometres, with Kenya Power and Lighting Company Limited (KPLC) owning 3,930 kilometres and Kenya Electricity Transmission Company Limited (KETRACO) owning 2,365 kilometres. The transmission network comprises 400kV, 220kV and 132kV lines.
According to the Kenya National Electrification Strategy (2018 – 2022), KETRACO (as the main body mandated to develop transmission lines) plans to develop a total of 5,821 kilometres of power transmission lines and 65 high voltage substations by 2022 at a cost of US 4.1 billion. However, the utility has limited funding, with less than 25% of the investment cost currently secured from the government and development finance institutions. With increased pressure on exchequer funding, KETRACO may need to consider other options if it will deliver its transmission line development programme on target.
The recently-enacted Energy Act, 2019 provides for the liberalisation of both the distribution and transmission subsector in Kenya. This presents an opportunity for KETRACO to consider Public Private Partnerships (PPPs) and Engineering, Procurement, Construction (EPC) + Financing frameworks to complement its present funding sources. It has also identified pilot lines it intends to develop under a PPP model and has developed a PPP framework.
Globally, there are several models that have been used to attract private sector investment in the development of transmission lines. Privatisation, Independent Power Transmission (IPT), Whole-of-Grid Concessions and Merchant Investments are some of the models currently in practice. According to the World Bank, the most appropriate model for private sector participation in the development of transmission lines in Africa is the IPT model. The IPT model incorporates provisioning of rights and obligations associated with a single transmission line or more to a private sector developer.
However, the World Bank has also found that no country in Africa has yet managed to successfully implement pure IPT networks. Emerging nations such as India, Brazil, Peru, Colombia, Mexico and Chile have successfully tapped into private sector investment in transmission lines through the IPT model. There are also variants under the IPT framework, which include Build Own Operate (BOO), Build Own Operate Transfer (BOOT), Build Transfer Operate (BTO) and EPC+F models. A few countries in Africa such as Cameroon, Mali, Senegal and Côte d’Ivoire are using the Whole-of-Grid Concessions model to develop transmission lines.
