Kenya’s energy sector is undergoing a structural overhaul as the government moves to renegotiate contracts with independent power producers, targeting provisions that have forced electricity consumers to pay for generation capacity left sitting idle on the national grid.
The Energy and Petroleum Regulatory Authority, working alongside the Ministry of Energy, is engaged in talks with multiple power companies to restructure agreements long criticised as unfavourable to Kenya Power, the state distribution utility. Central to the dispute are take-or-pay clauses, which obligate Kenya Power to pay for electricity regardless of whether it is actually dispatched to the grid.
These arrangements have contributed to a buildup of expensive excess generation that consumers ultimately absorb through their bills. Kenya’s retail electricity tariffs rank among the highest in sub-Saharan Africa relative to average incomes, a factor economists say undermines the competitiveness of local manufacturing and discourages industrial investment.
The renegotiations are also intended to compel renewable energy developers — operating wind, solar and geothermal plants — to install battery energy storage systems alongside their generation assets. Storage technology would allow producers to firm up variable output, reducing grid instability and lowering reliance on expensive diesel-powered emergency generation during peak demand.
Kenya has made substantial strides in clean power, with geothermal facilities in the Rift Valley and the Lake Turkana Wind Power project providing the majority of grid-connected electricity. However, the intermittent nature of wind and solar without storage has created technical and commercial complications for grid managers and dispatchers.
Consumer advocacy groups have welcomed the renegotiation effort but are pressing for any resulting savings to be passed directly to households and businesses rather than retained within the utility’s balance sheet.
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