KenGen to enter captive power market in Kenya

From the newsletter
The Kenya Electricity Generating Company (KenGen) plans to enter the captive power market, selling electricity directly to users. It has invited consultants to assess the opportunities in captive solar PV & geothermal technologies. This planned market entry is driven by the growing trend of own-power generation and the defection of customers from the national grid.

• KenGen is the main supplier of electricity to Kenya Power, accounting for about 60% of the electricity supplied while independent power producers account for 40%. The exit of customers from the grid directly affects KenGen's revenue stream.

• In the tender advert, KenGen states, "This has led to the suppression of grid power demand, reducing the revenue base for KenGen. As part of KenGen's expansion and diversification strategy, the organisation intends to venture into the business opportunity that the new market niche of captive power has presented."

More details

• The Energy Act 2019 introduced changes that allowed companies to self-generate power for their own consumption. Since then, captive power generation has grown to reach 533 MW – roughly 15% of Kenya's installed energy capacity as of the end of June 2024. The captive market is projected to reach 1 GW by 2030 and a market value of more than $1 billion.

• Solar power is the most preferred technology, contributing 229 MW, followed by biomass (162 MW), waste heat recovery cycle (84 MW), hydro (33 MW), thermal (21 MW), and geothermal (4 MW).

• KenGen wants a share of this growing market. In the tender advert, KenGen outlines the key information it seeks from the consultant, including market status, available and emerging renewable power generation technologies, and potential opportunities. It also seeks to understand the business models and the technical, financial, and economic viability of the market. In addition to that, KenGen is interested to know the challenges and risks of the legal, regulatory, and policy framework, as well as a market entry strategy.

• The company’s generation fleet projects are mainly focused on hydropower and geothermal energy. However, the company now wants to venture into solar projects, given the global decline in solar prices – about 80% in the last decade. Solar has emerged as a strong competitor to other renewable energy technologies, and KenGen believes it's the right moment to invest.

• KenGen's entry into the captive solar market is strategic. It is targeting its upcoming Green Energy Park in the geothermal-rich area of Naivasha. The park, to be developed in four phases between 2025 and 2045, will host a variety of industries. These include light industries, such as warehousing, logistics, and supporting industries, as well as medium and heavy industries, such as manufacturers of fertilisers, iron and steel, plastics, packaging, and fabricated metal products.

• Their entry will rattle energy companies focused on the C&I customer segment. KenGen comes with substantial capital and experience in the sector and utilises one of the most reliable and cheapest technologies, geothermal energy. Though geographically limited, the expected regulations allowing the wheeling of power will enable them to generate and sell their electricity anywhere.

Our take

• KenGen will use its financial resources and extensive experience in the energy sector to disrupt the Kenyan C&I solar market. Their entry will undoubtedly intensify competition for established players like CrossBoundary Energy and EColigo. However, KenGen's status as a parastatal entity could potentially impact its agility. Decision-making processes within parastatals can be slow and bureaucratic. This can slow down KenGen's ability to swiftly close deals.

• The battle for market control will be won by offering attractive propositions to customers. Competition will be fierce in securing Power Purchase Agreements (PPAs) and crafting competitive leasing agreements. Factors such as pricing, contract terms, and financing options will be crucial.

• On the other hand, KenGen's established relationship with government agencies, long-term experience in the sector, and deep understanding of the regulatory landscape could provide a competitive edge. But in the end, the customer is the king and those companies that will provide comprehensive solutions are likely to win.