Energy Consumption and the Rising Prices in Kenya: What are the Implications?
Energy is at the heart of any economic transformation. It runs and powers industries, commercial enterprises and households, and forms a key input in almost all the goods and services produced and consumed in the modern-day economy. Moreover, investments on energy also trickle down to various sectors of the economy, thus spurring economic growth.
With Kenya’s solid quest to transition her economy from largely primary (agricultural) to secondary (manufacturing) and tertiary (service) sectors which are highly energy-intensive, the supply of clean, affordable, and reliable energy remains fundamental.
The Kenya Vision 2030 envisions a middle-income economy offering decent jobs and high quality life to its citizenry. This portends increased energy demand and consumption due to rapidly expanding, wholly energy driven manufacturing, agriculture, Information and Communications Technology (ICT) and transport sectors; the rising urban population with tastes for modern electrical appliances; and a growing demand for modern energy in the rural areas. It is for this reason that concerted efforts are being made to exploit alternative energy sources that will increase generation, reduce loses and ensure clean and affordable energy at stable prices.
Kenya’s current energy mix mainly comprises biomass (69%), petroleum (22%) and electricity (9%). The country has made great strides to be energy self-sufficient by initiating exploration and various investments in oil, gas and renewable energy. According to the Ministry of Energy, Kenya’s Rift Valley Basin has geothermal potential of close to 10,000 MW while wind energy potential is well more than 3,000 MW. Solar energy capacity remains infinite since many parts of the country receive sunshine throughout the year. However, going by the latest Economic Survey report released in 2018 by the Kenya National Bureau of Statistics, geothermal (in Olkaria I-V units) and wind (mainly from Ngong) power generation stood at a paltry 644 MW and 25.5 MW, respectively. Therefore, the current green power generation is way below Kenya’s renewable energy potential while solar energy remains largely unexploited. The low clean power generation points to low levels of investment in renewable energy. Oil exploration is currently being undertaken by Tullow Oil and other companies. The four main blocks with commercially viable oil are in Lokichar, Lotikipi and Kerio Valley basins, with the first exportation of oil expected in 2021. In addition, there are other energy exploration activities in Lamu basin, coastal Kenya and Kitui County.
Biomass (charcoal and wood fuel) is the largest, single most consumed energy in Kenya. It is predominantly used for cooking, heating and lighting. However, unsustainable and unimpeded biomass consumption leads to mass deforestation that accelerates climate change which interferes with food production and puts the current and future livelihoods in jeopardy. The consumption of biomass also poses grave health risks to households due to exposure to smoke (indoor) pollutions.
Currently, Kenya imports all her petroleum products. Petrol and diesel are mainly used by the transport and the manufacturing sectors. Kerosene, on the other hand, is largely used by poor households in the rural and urban areas for cooking, lighting and heating. Liquefied Petroleum Gas (LPG) is mainly used for cooking and heating. However, the share of green energy for lighting, cooking and heating is still very low among households in Kenya. This is due to the current high electricity and LPG prices, low power connectivity, and the unavailability of clean cooking alternatives in the remote parts of the country.
For the past five consecutive years (2012-2017), Kenya’s consumption of petroleum energy has been on the rise going by data from the Kenya National Bureau of Statistics. The consumption of petroleum energy in 2014, 2015 and 2016 was 3,937,900, 4,738,500 and 5,044,200 tonnes, respectively. The consumption in 2015 saw the greatest increase from the previous year as the country consumed 800,600 tonnes more. The long dry spell in 2015 led to increased deployment of fossil fuels to generate power as an alternative to hydroelectric power. This led to increased demands for the expensive fossil fuels.
Electricity consumption has also grown as the country expands access to the rural areas. From a consumption of 3320.7 GWH in 2000 to 8,053.20 GWH in 2016, electricity consumption has grown by nearly 60% during the period from 2000 to 2016. Generation has also increased from 4,178.9 GWH in 2000 to 10,057.7 GWH in 2016. Electricity remains crucial in powering households, industries and other commercial entities within the economy.
Despite the growing energy consumption patterns, the Kenyan economy has experienced rapid and persistent rise in energy prices that have had far reaching consequences. Poor households bear the greatest brunt of energy price increase. Not only are they forced to pay higher prices, but also find modern energy out of their reach, thus opting for ‘dirty’ and health-risk traditional energy forms such as charcoal, firewood and kerosene.
High kerosene prices lead many of the rural households to greater consumption of biomass since it is cheap and readily available. According to a study by the Green Africa Foundation in 2015, Kenya loses over 5.6 million trees daily for wood and charcoal burning. Increased consumption of biomass causes massive clearing of Kenya’s already low forest cover. The country’s forest cover currently stands below 7%, against the United Nations (UN) and Kenya’s own National Forest Policy (NFP) which recommends a minimum forest cover of 10%. Intense land clearing for wood and charcoal exposes large portions of land to gully erosion which has constantly annexed sizable arable lands. Additionally, expensive fuels and power leads to higher costs of production in the manufacturing sector which is then passed on to consumers. Industries may also shift their resources from the energy-intensive to sections that use less in a bid to minimize production costs. This resource shifting and or cuts in production may potentially lead to job loss and higher prices for the industrial goods and services.
Higher power prices also wear away Kenya’s manufacturing sector competitiveness regionally and globally, thereby denying the domestic industries of revenue. The Kenya Association of Manufacturers (KAM) in 2017 pointed that the manufacturers domestically pay electricity tariff of Ksh 15 per kilowatt hour. This is more than double what they pay in Ethiopia and Egypt at Ksh 4 and Ksh 6 per kilowatt hour, respectively. Industries in South Africa pay a tariff of Ksh 9 per kilowatt hour. Among the East African counterparts, manufacturers in Uganda and Tanzania face a tariff of Ksh 12 and 14 per kilowatt hour, respectively. Higher energy costs are also prohibitive to prospective investors, and erodes Kenya’s image as a destination hub for investments. All these greatly hamper Kenya’s quest to expand her manufacturing sector and further entrenches poverty as job opportunities shrink.
The above scenarios have thus clearly affirmed that there is need to diversify and decarbonize Kenya’s energy mix to ensure security of supply. A mix of policies will steer the economy towards generation and consumption of green, affordable, reliable, and environmentally sustainable energy.
Firstly, Kenya needs to have sufficient strategic petroleum energy reserves to act as energy security measure to cushion the domestic economy whenever there are oil price spikes and unexpected supply disruptions in the international market. The storage should be managed by the national government only to be released during emergency times.
Secondly, there’s need for more public-private partnerships (PPPs) to deepen investments in renewable energy for more green, cheap, and environmentally sound power to a wider majority, especially for those in the rural areas. The corollary implications will be lower power tariffs to end users and increased electrification rate. Unfortunately, off-grid power solutions are yet to be embraced by the government since such options are missing in the current Kenya Power’s Master Plan. Many who are far from the national grid will thus continue to be without electricity.
Lastly, the share of clean energy in the household’s energy mix needs to be increased. Local industries need to be capacitated to manufacture LP gas cylinders as opposed to the current situation where they are wholly imported. Local production and distribution of the cylinders will greatly reduce cooking gas prices, thereby increasing their uptake. Presently, the 25% import duty charged on imported gas cylinders is shifted to consumers, which makes many shun the LP gas and opt for traditional fuels – firewood, charcoal and kerosene which are relatively cheaper and readily available. Local manufacturing will also create job opportunities both in the production and supply chain and generate tax revenue to the government.
Author: Brian Obiero, Young Professional, KIPPRA
Photo: Ministry of Energy, Kenya