How PPPs can propel Kenya's Climate Action Agenda

Powering a Sustainable Future:How PPPs can propel Kenya’s Climate Action Agenda;

The World Meteorological Organization recently reported that global temperatures will rise to 1.5°C above pre-industrial levels in the next five years.

This prediction exceeds the Paris Agreement’s long-term goal of keeping the temperature increase below 2°C, with a target limit of 1.5°C.

On October 24th, we marked the International Day of Climate Action, highlighting the urgent need for measures to combat climate change.

Investing in renewable energy is important not only for reducing greenhouse gas emissions but also for enhancing energy security and promoting economic development.

Fortunately, Kenya is leading the renewable energy revolution, with green energy sources like geothermal, hydroelectric, wind, and solar accounting for approximately 90 per cent of generation, according to the Energy & Petroleum Regulatory Authority (EPRA).

How Public-Private Partnerships can address climate action;

Kenya’s development road map, Vision 2030, targets a 100per cent renewable grid energy mix as a primary objective.

The country’s ability to attract international private investment into the required energy infrastructure is fundamental to achieving this objective.

With such investment, Kenya can continue its path to sustainability and security of energy supply while creating jobs, improving access to electricity for communities and driving growth in the economy.

Africa’s largest wind farm, the Lake Turkana Wind Power (LTWP) project, is an indicator of the positive impact that successful public-private partnerships (PPPs) can deliver.

The Government of Kenya, through the Kenya Transmission Company (KETRACO), built a 438km transmission line that integrates LTWPs clean energy into the Kenyan national grid.

Through this line, LTWP delivers reliable, low-cost energy bought at a fixed price by Kenya Power over a 20-year Power Purchase Agreement.

Commissioned in 2018, the wind farm, which consists of 365 turbines, each generating 850 kW of power, is now in its sixth year of full operations.

Over this period, it has not only delivered 12 per cent of Kenya’s total grid energy consumption but also built a body of evidence pointing to clear and objective environmental, economic, employment and community benefits brought about by the project.

The success of this project also illustrates the potential for renewable energy to combat climate change while addressing Kenya’s heavy reliance on fossil fuels.

In 2023 alone, LTWP avoided 605,428 tonnes of [MS1] CO2 emissions and generated 11.04 per cent of Kenya’s grid power, displacing approximately €91 [MS2] million (around $100 million) in fuel imports in the year.

Since commissioning, the cost of fuel displaced by LTWP, according to EPRA’s official figures, stood at €533 million (KSh 68.4bn).

LTWP’s energy production has benefited Kenya’s balance of trade and foreign currency reserves by reducing the need for fuel imports.

This was especially important in recent years when sharp energy price increases and foreign currency availability drove inflation and a cost-of-living crisis in many global economies, including Kenya’s.

Kenya’s growing power demand;

Kenya’s energy demand will continue to be driven by a growing population, industrial growth and increased demand for mobility.

This will increase fuel imports in the coming years if renewable and sustainable alternatives are not put in place.

The need to attract investment into clean and reliable generation capacity and the required transmission infrastructure to deliver it to end users is fundamental to keeping Kenya on its path towards the Vision 2030 goal.

According to EPRA’s latest statistics, Kenya’s current annual electricity demand is 12,652 gigawatt-hours (GWh).

The International Energy Agency projects that between 2024 and 2026, the country’s electricity demand will increase by 5.7 per cent, reaching 13,055 GWh annually by 2027.

Through PPPs, Kenya can effectively leverage the strengths of both the public and private sectors, leading to sustainable energy solutions that support economic growth and environmental protection.

PPPs enable the pooling of both public and private resources, allowing for significant capital investment in energy infrastructure projects that might be challenging for the government to fund alone.

How LTWP funding was structured;

The LTWP project involved a consortium of 16 partners who raised USD 680 million through private equity, commercial debt, development finance, and risk guarantees.

The project is underpinned by equity investment put at risk largely by private funders.

This was supported with debt funding from several multinational institutions such as the African Development Bank, East African Development Bank, and European Investment Bank, as well as from bilateral organisations such as Development Finance Institutions from the Netherlands, Finland, France and Germany, among others.

**An aerial view shows the power-generating wind turbines seen at northern Kenya’s Lake Turkana Wind Power Project Sept. 4, 2018, in Loyangalani, Kenya{photo/courtesy]**

These investments were made possible through the negotiation of a bankable PPA with KPLC and backed by the Government of Kenya.

The result of this collaboration between national and international public and private organisations was to secure the largest privately owned investment in Kenya’s history and the largest wind farm in Africa, which remains Kenya’s lowest cost tariff from a large-scale independent power producer to the energy mix.

The project directly benefits consumers across the country and has created over 500 jobs over the 20-year life of the project.

80 per cent of the company’s employees are residents of Marsabit County, where LTWP is the largest private employer.

What the Kenya Government should do;

It is no secret that bringing together the financial, legal, technical and operational capabilities required to deliver such projects is a monumental task.

While LTWP demonstrates that it is possible and that the resulting benefits make the effort worthwhile, the bar for success remains high.

To compete for such resources and secure the necessary clean energy infrastructure to meet future demand, Kenya must focus efforts on creating a strong platform that fosters success.

This includes strengthening policies and regulations that support renewable energy development and create a more conducive environment for investment.

It also involves streamlining and clarifying bidding, procurement and permitting processes and providing clear guidelines for PPPs.

Finally, and fundamentally, a clear road map forecasting energy needs and the intended generation mix to meet these needs, underpinned by detailed grid studies, is essential.

In providing a clear schedule of what infrastructure the country intends to procure and install, how it intends to procure it and when, the Government of Kenya will allow developers to plan accordingly and apply resources to respond directly to specific needs as defined by the country.

Public confidence is needed;

Transparency is also critical for the success of PPPs as it builds trust between all stakeholders – the government, private partners, local communities and members of the public.

When all stakeholders have access to clear and accurate information, it builds confidence in the partnership and the project’s intentions.

Transparent practices hold all parties accountable for their commitments and obligations.

When decision-making processes and project outcomes are open to scrutiny, an environment of public support and approval can emerge, reducing avenues for allegations of mismanagement to populate public discourse and act as a barrier to such investments.

By ensuring that procurement processes are well planned, well communicated and transparent,more companies of the right capability and profile can compete for project contracts, leading to better pricing and service options for the government and enhancing the overall quality of projects.

This, in turn, reduces risks associated with energy projects such as construction delays, cost overruns, and operational challenges and allows effective mechanisms for sharing these risks to be agreed upon, thereby reducing the financial burden on the government and investors, and mitigating potential losses.

This way, Kenya can use PPPs to meet its growing energy needs by facilitating the implementation of large-scale renewable energy projects.

These collaborative efforts will enable the mobilisation of private investment and expertise, making Kenya an attractive destination for investors looking to engage in sustainable development

By leveraging PPPs, Kenya can ensure that energy projects are not only efficient and economically viable but also environmentally friendly.

Ultimately, these partnerships provide a win-win scenario for all stakeholders involved while advancing Kenya’s transition toward sustainable energy solutions.