Dwindling energy reserves highlight Uhuru's PPA ban

Kenya’s dwindling electricity reserves have drawn attention to the ban on new power purchase agreements (PPAs) by former President Uhuru Kenyatta three years ago, which led to the cancellation of 92 power projects that were in the early stages of development.

Kenya is under increasing pressure to increase power generation amid low reserves. Energy Secretary Opiyo Wandayi said last week that Kenya experienced load shedding in August due to low power reserves.

“During the last peak demand of 2,239 MW recorded on August 21, 2024, 6 MW was discharged from the grid while the reserve margin was only 9 MW compared to the system requirements of 310 MW,” the CS said in a statement.

The abandoned projects had a total production capacity of 2,345.07 MW.

At the time of the ban in 2021, six projects had started PPAs, 28 other agreements were under negotiation and 58 projects were awaiting discussions.

A task force appointed by Mr Kenyatta recommended the cancellation of all unsigned power purchase agreements. The decree was implemented, ending the negotiations.

“All unsigned PPAs should be cancelled. This will help align the new PPAs with the LCPDP (Least Cost Power Development Plan) as reviewed and, if necessary, revised under the new arrangements recommended by the task force,” said the team chaired by Mr. John Ngumi.

President Kenyatta cancelled the power purchase agreements because of their high costs and long duration.

Many of the power purchase agreements were for renewable energy projects and so the government wanted cheaper tariffs because of the rapidly falling costs of renewable energy technologies.

The currency used for long-term foreign currency contracts has also raised concerns. The government has wanted all new projects to be signed in Kenyan shillings to protect consumers from foreign exchange losses.

Among the cancelled projects, 44 aimed to produce electricity from solar energy, with a total capacity of 1,093.1 MW, while 35, with a total capacity of 900.72 MW, aimed to produce from hydropower.

Five projects aimed to generate electricity from wind with a total production capacity of 202.5 MW, while eight other biogas projects totaling 148.75 MW were also suspended.

It is not yet known whether some of the cancelled projects will be revived.

Although the government lifted the ban last February, no new power purchase agreements have been signed since then. The result is a situation in which the country’s electricity demand, particularly at peak times, is now increasingly close to what power producers can produce.

Kenya will add an additional 285 MW of renewable energy to its national grid by 2027, boosting the country’s rapidly dwindling electricity reserves, Energy Principal Secretary Alex Wachira said on Wednesday.

He said a pipeline of geothermal power projects, including the 100MW Paka in Baringo County, would help the country meet its growing energy demand while promoting green energy production.

“Looking at the rotational reserve and capacity of the country, I am happy that we have about 35MW coming by 2025 from Globeleq, based in the UK, and for Kaishan, China, after unlocking some challenges in the coming days, that will give us about 70MW by the same period or first quarter of 2026,” the official said on the sidelines of a symposium on geothermal development in Nakuru.

Electricity rationing was widespread in Kenya in the 1990s, forcing the country to open the sector to private investment through IPPs.

Investments in new generation capacity, both by state-owned KenGen and independent power producers, have helped to stabilise electricity supplies and end rationing.

Kenya, however, has been slow to add new production capacity in recent years to meet growing demand.