RENEWABLE ENERGY OPPORTUNITIES IN KENYA

RENEWABLE ENERGY OPPORTUNITIES IN KENYA A SNAPSHOT Prepared By for

CONTENTS The market... 3 The report... 3 Country overview... 4 The energy market... 5 The renewable energy market... 6 Feed-in tariff... 8 Notable Renewable Projects and Success Stories... 9 Key drivers of renewable energy development... 10 Key challenges... 11 About us... 12 Contact the Author... 12 Appendix I - List of completed and pending renewable energy projects... 13 Cover image: warrenski/flickr page 2

THE MARKET Kenya s renewable energy potential is unquestionable. Excellent wind, solar and geothermal resources alongside a government and business community committed to continuing industrial growth mean Kenya possesses the necessary attributes to pioneer large scale renewables in Sub-Saharan Africa. Without the fossil fuel resources of many fellow African countries, and with renewables contributing significantly to existing installed capacity, Kenya s forthcoming electrification is one in which renewables look set to drive. Supporting electricity demand and proven renewable resources are a stable, pro-renewable and ambitious regulatory regime, as well as an investment community willing to back Kenyan renewable energy projects. Factors highlighted by an attractive feed-in-tariff of 20 years for renewables as well as the 3.6 Billion US Dollars invested into Kenya s clean energy space from 2009-14. 3.6 BILLION US $ THE REPORT INVESTED INTO KENYA S CLEAN ENERGY SPACE FROM 2009-14. Ahead of the inaugural Kenya International Renewable Energy Congress to be held in Nairobi, Green Power Global have prepared this report to give a snapshot into the exciting opportunities provided by Kenya s renewable revolution. page 3

COUNTRY OVERVIEW Estimated at $66 Billion USD Kenya has the largest GDP in East and Central Africa and the 7th biggest on the African continent, whilst its capital city Nairobi is widely recognised as the commercial hub of East Africa. Kenya has a population of 48 million people, the majority of which come from Bantu sub-groups and for whom agriculture is the major employer. Recent years have however seen a growth in the Kenyan service sector and a marked increase in the role of manufacturing, telecommunication and finance in driving GDP growth which sits at a steady 5-7% per year. 48 MILLION PEOPLE NAIROBI CAPITAL US$ 66 BILLION GDP The Kenya Vision 2030 launched on 10th June 2008 by then President Mwai Kibaki is the country s development programme covering the period 2008-2030. The Vision s goal is to realise Kenya s objective to become a newly industrialising, middle income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment. Energy is one of 8 key sectors involved in the vision and critical to its fulfilment. page 4

THE ENERGY MARKET Kenya s current installed electricity capacity is estimated at 2.4 GW, 1.5 GW of which is grid connected and 500mw of which has come on line since mid-2014. Approximately 75% of current installed capacity comes from renewable resources with hydro and geothermal power dominant. The Least-Cost Power Development Plan 2013- has seen the setting of an ambitious target to raise installed electricity capacity to 22.7GW by 20. The Ministry of Energy and Petroleum controls energy policy, whilst approximately 70% of electricity is generated by quasi state company KenGen which is 70% state owned. Independent Power Producers in Kenya account for 28% of generating capacity. Since 1997 there have been 8 key players in Kenya s electricity market: The Ministry of Energy and Petroleum (electricity policy) KenGen (Kenya Electricity Generating Company) (Publicly listed 70% state owned power producer) Kenya Power and Lighting Company (KPLC) (owns and operates the transmission and distribution systems 50.1% state owned) Electricity Regulatory Commission (ERC) (deals with permits, licensing and recommendations on regulation) Kenya Electricity Transmission Company (KETRACO) (constructs and operates the transmission infrastructure) Geothermal Development Corporation (GDC) (SPV formed by the government to explore and realise geothermal power potential) Rural Electrification Authority (REA) (concerned with electrifying Kenya s off-grid and remote communities) Independent Power Producers Recent focus in the electricity market has centred on connecting more of Kenya s population to the grid, of which it is estimated 50% currently have access. Notably KETRACO are currently constructing over 4,000 KM of high voltage transmission lines. Costing $1.3 Billion USD over the next 3-4 years the project will deliver electricity access to a sizeable number of Kenyan s for whom affordable, readily accessible electricity was once a dream. 27 lines are involved in the electricity scale-up project, whilst it is also said that initial moves to develop infrastructure enabling the importing and exporting electricity at significant scale are being made. Most indicative of a clear and active campaign to improve grid infrastructure and access to electricity, as well as growing electricity demand and effective government support, has been KPLC s 11.24% rise in pre-tax profits for year ending June 2015. KPLC cited increased sales as a result of improved distribution efficiency and tariff reviews starting in 2013 as the key factor in its profit rise. page 5

THE RENEWABLE ENERGY MARKET Ranked second behind only South Africa for clean energy investment in Africa and sixth globally Kenya s renewable energy potential is vast. Already the world s 8th largest producer of geothermal energy, Kenya too possesses ideal conditions to exploit wind and solar resources for electricity generation. Vast resources and available capital for project development are supported by a pro-renewable political climate where renewable energy policy is both favourable and stable. With a 20 year feed-in-tariff for renewable resources established, as well as a zero rating of export duty and a removal of VAT on renewable equipment, the Kenyan government are actively facilitating renewable energy growth at utility scale, C&I scale and as an off-grid solution. Geothermal power has long been synonymous with Kenya s renewable energy sector and this shows no sign of changing any time soon. The Geothermal Development Company (GDC) is a government founded SPV designed to fast-track geothermal power development. With $2.68 Billion USD of funding over 10 years the GDC will remain critical to Kenya s aims to realise its geothermal potential. These aims are lofty too - the National Energy Policy estimates Kenya s geothermal potential at 10GW and is targeting 5.5GW of this to be on-line by 2030. Plagued with corruption allegations in recent years it is now hoped that the GDC is turning itself around to become a positive force in Kenya s geothermal development. *Source: UNEP: Kenya Country Report Kenya is one of the global rising stars for wind power development. Home to Africa s largest wind power project (the 310mw Lake Turkana Wind Farm) page 6

as well as a further 900mw in development or online, Kenya is striving to ensure its good wind resources play a significant role in its energy growth. Though recent projects have faced delays and barriers to development in the shape of resistant local communities (e.g. the 60mw Kinangop Wind Farm), the National Energy Policy is expecting 3GW of wind to be realised by 2030 and 1GW by 2020. Kenya s solar industry is in many respects more in its infancy than that of wind and geothermal, yet is also arguably that with greatest potential. In particular with regards to its ability to deliver cost-effective electricity to those off the grid as well as supplying the grid. Solar mini-grids, home solar kits and solar diesel hybrid systems are all being actively promoted as electricity solutions for Kenya s more remote communities. Meanwhile the first solar system with a PPA to supply electricity to the grid under the current FiT was realised in 2015 in the shape of the 600kW project at Strathmore Business School in Nairobi. 8th LARGEST PRODUCER OF GEOTHERMAL ENERGY IDEAL CONDITIONS TO EXPLOIT WIND AND SOLAR RESOURCES page 7

FEED IN TARIFF The current FiT for renewable energy can be viewed below. Whilst there have been some suggestions that the rate does not do enough to make utility scale solar commercially viable it does signify an active and consistent approach by regulators to promote renewable energy. FIT FOR PROJECTS LESS THAN 10MW DURATION INSTALLED CAPACITY (MW) STANDARD FIT (USD$ / KW/H) PERCENTAGE ESCALABLE PORTION OF THE TARIFF MAX CAPACITY (MW) WIND 0.5-10 0.11 12% 10 HYDRO BIOMASS 20 Years 0.5 0.105 8% 10 10 0.0825 0.5-10 0.10 15% 10 BIOGAS 0.2-10 SOLAR (GRID) 0.5-10 SOLAR (OFF-GRID) 0.5-10 0.10 15% 10 0.12 8% 10 0.20 8% 1 FIT FOR PROJECTS MORE THAN 10MW DURATION INSTALLED CAPACITY (MW) STANDARD FIT (USD$ / KW/H) PERCENTAGE ESCALABLE PORTION OF THE TARIFF MAX CUMULATIVE CAPACITY (MW) WIND 10.1-50 0.11 12% 500 GEOTHERMAL 35-70 20 0.088 20% for first 12 years and 15% after 500 HYDROPOWER Years 10.1-20 0.0825 8% 200 BIOMASS 10.1-40 SOLAR (GRID) 10.1-40 0.10 15% 200 0.12 12% 100 page 8

NOTABLE RENEWABLE PROJECTS AND SUCCESS STORIES SOLAR The Strathmore University 600kW solar PV project marks a huge stepping stone for progress in Kenya s solar industry. Whilst off-grid and C&I solar have for some time been accepted as cost-effective energy solutions there had been doubt about the commercial viability of gridconnected solar. In securing a PPA in 2015 under the current FiT of $0.12 USD per kilowatt hour Strathmore University are selling 250kW of their produced electricity to the grid. Comprised of 30 inverters, 2,400 panels and 1,200 optimizers the project serves as a beacon of progress for Kenyan solar. GEOTHERMAL The 140MW Akiira Geothermal Limited Project in Naivasha near Nairobi is expected to be fully operational by the end of 2017. Once it is finished Akiira will be the first private sector greenfield geothermal development in Sub- Saharan Africa, marking a significant breakthrough for Kenya s geothermal sector. Technical expertise is brought to Akiira by Ram Energy who also have a stake in the project, whilst the two main financial backers are Centum Investments Company and Frontier Investments. Pursued in two 70MW phases geothermal exploration risk for the project has been provided by Munich RE. WIND The 310MW Lake Turkana Wind Power project is the largest wind project in Africa and the jewel in the crown of Kenya s evolving renewable energy sector. The project is being developed by a consortium of shareholders including KP&P BV Africa, Aldwych International Limited, Vestas Wind Systems, Norfund, IFU and Finnfund. Debt financing of the project is being provided by the African Development Bank alongside Nedbank Capital and Standard Bank. Once completed the project will use 850kW Vestas turbines. page 9

KEY DRIVERS OF RENEWABLE ENERGY IN KENYA z Excellent solar, wind and geothermal resources z 5.5GW of geothermal targeted by 2030 z 3GW of wind targeted by 2030 z 500MW of solar targeted by 2030 z Ranked second for clean energy investment in Africa behind only South Africa z Steady GDP growth of 5-7% per year, industrialisation and increased electricity demand z Kenya 2030 Vision: Providing a high quality of life to all its citizens by 2030 in a clean and secure environment z Active commitment to connect more of the population to the grid z 20 year Feed-in-Tariff for wind, solar, geothermal, hydro, biogas and biomass z Geothermal Development Company fast-tracking geothermal development z Zero rated import duty and removal of VAT from renewable energy equipment z Clear commitment by government and regulators to renewable energy z Stable and favourable renewable energy policy z Over 4000 km of high voltage transmission infrastructure to be built in the next 3-4 years at a cost of $1.3 billion USD z 22.7GW of installed capacity targeted by 2030, up from 2.4GW today z Existing familiarity with and acceptance of renewable energy RE mix estimated at 75% of current capacity (including large hydro) page 10

KEY CHALLENGES Following over 40 in-depth interviews with the domestic and international renewable energy community we have identified this initial list of challenges and areas of interest: z Finance getting the money for projects and harnessing capital from a range of sources z Electricity demand for more growth and a larger grid we need not just more people connected to it but more demand z The high risk nature of geothermal exploration and the role of the GDC z A good pipeline and healthy targets for wind power, but a backdrop of land access and local community issues z The great off-grid potential for solar and potential for utility scale grid connected solar to take off z Currently only 1 company can sell power to the consumer - KPLC z Finding and working with local partners to realise bankable projects z Navigating government and regulatory infrastructure z Physical infrastructure and its ability to facilitate large scale renewable energy development z Making the FiT work for commercially viable projects z Commercial and industrial power users and their appetite for distributed renewable energy projects z The challenges in identifying 7 day power users and finding solutions for those with variable demand z Delivering clean and affordable electricity to off-grid communities z Residential scale solar power z Getting the first wave of utility scale projects on-line z Intermittency in electricity supply z Enhancing and leveraging from local expertise (both technical and financial) z Lack of grid connection in remote areas page 11

ABOUT US Green Power is the market leader in renewable energy conferences. Our portfolio of events includes market leading large scale conferences. Since 2003, over 22,000 delegates from over 152 countries have attended over 200 conferences, exhibitions, workshops and training courses providing strategic business intelligence to the renewable energy and sustainability industries. Our expertise lies in producing high quality, interactive conferences that provide ample networking opportunities for delegates, sponsors and partners. Global reach: We have successfully run events in 35 countries to date including the UK, USA, Singapore, Hong Kong, Germany, France, Spain, Italy, Portugal, Denmark, Austria, Switzerland, Belgium, The Netherlands, South Africa, India, Brazil, Mexico, Turkey, Mozambique, Ghana, Tanzania, Algeria, Morocco, Czech Republic, Argentina, Thailand, Hungary, Indonesia, Malaysia, Romania, United Arab Emirates. CONTACT THE AUTHOR: This report was produced in April 2016 by Robert Wilson Director Emerging Markets Direct Dial: +44 (0)20 84 6210 Email: robert.wilson@greenpowerglobal.com Web: www.greenpowerglobal.com page 12

APPENDIX I LIST OF MAJOR COMPLETED AND PENDING RENEWABLE ENERGY PROJECTS INDUSTRY PROJECT NAME / SPV SIZE MW STATUS REGION / STATE / LOCATION DEVELOPER / INVESTOR WIND Lake Turkana Wind Power Project 310 Construction commenced October 2014 Lake Turkana (NW) KP&P Africa B.V. and Aldwych International co-developers, 5 more shareholders - Vestas, KLP Norfund Investments, Danish Investment Fund for Developing Countries, Finnish Fund for Industrial Cooperation, Sandpipper Limited WIND Kinangop Wind Park 60 Frozen - local opposition Nyandarua County Central Kenya Africa Infrastructure Fund II WIND Ngong Hills Wind Farm 5.1 Operating WIND Isiolo Wind 150 WIND Marsabit Wind 50 WIND Oisuwa GEOTHERMAL Akiira One Geothermal Company Limited 140 mw (potential) Early construction /drilling Rift Valley Centum Investments, Ram Energy, Marine Power, Frontier Investment Management WIND Kipeto 102 70km sw of Nairobi Wind e MINI HYDRO Nithi Project (Lubilia Kawembe) 5.4 Late stage development WIND Wind for Prosperity Kenya Hybrid Power Project Off - Grid GEOTHERMAL Olkaria III 110 Operational Nakuru County Ormat page 13

GEOTHERMAL Olkaria I 185 Operational Nakuru County Kengen GEOTHERMAL Olkaria II 105 Operational Nakuru County Kengen GEOTHERMAL Olkaria IV 140 Operational Nakuru County Kengen GEOTHERMAL Olkaria V 140 Operational Nakuru County Kengen SOLAR Garden City 858kwp Operational Nairobi SolarCentury /Garden City SOLAR Isiolo 40 Pre-finance development Isiolo Greenmilenia Energy SOLAR Williamson Tea 1 Operational Changoi, Bornet Country Solar Century and Williamson Tea SOLAR Mini Grids in Western Kenya 1 In development Kisii and Nyamira Powerhive and Enel Green Power SOLAR Garissa Solar Park 50 In development Garissa CJIC (China Jiangxi Group for International Economic and Technical Cooperation Ltd) GEOTHERMAL Longonot 140 Early stage development Rift Valley Agil SOLAR 1 Development Rumuruti Kenergy GEOTHERMAL Olkaria 1 expansion 70mw (140-210) Under appraisal Kengen GEOTHERMAL Oiserian Flowers 2 MW Operational Oserian SOLAR Strathmore university 0.6 Operations Nairobi Strathmore University page 14

Nairobi, Kenya SHOWCASING KENYA S VAST RENEWABLE ENERGY POTENTIAL COMMERCIAL & INDUSTRIAL AND UTILITY SCALE, ON AND OFF GRID REGISTER HERE A EVENT