High energy costs make Kenya uncompetitive and unattractive to some foreign investors. One of the reasons multinationals prefer Cairo or Johannesburg is Kenya’s high cost of power. Fixing the power issue could encourage more investors to set up shop in Kenya.

In the past decade, several multinational firms have moved out of Kenya, shifted part of their production facilities elsewhere or cut down on their Kenya operations. The list includes Cadbury, Reckitt & Benkiser, Procter & Gamble, Bridgestone, Colgate-Palmolive, Johnson & Johnson and UK’s Unilever.

But this trend could change if Kenya follows through on plans to increase electricity generation capacity from the present 1,664 megawatts to 5000 megawatts.

“The capacity we have today was developed more than four decades ago and was meant to supply homes,” said Davis Chirchir, cabinet secretary for energy and petroleum in an AFKInsider interview. “This is why local industries have been closing down or foreign firms relocating. We must be a least-cost destination by providing industry with power that is competitive.”

Kenya’s electricity generation mix comprises of 40 percent hydro with the rest coming from other sources including geothermal and diesel generators. High cost of diesel means the cost of power in Kenya is high, especially during seasons of dry weather when it has to rely heavily on thermal generators.

“The government has already allocated $1 billion in the 2013-2014 budget, cash that will be used for transmission and distribution while the private sector will do most of the generation,” Chirchir said.

To ensure that the 5000-megawatt power plan meets strict deadlines, the Ministry of Energy and Petroleum appointed a committee, headed by President Uhuru Kenyatta, that provides the head of state with periodic progress reports.

Big-ticket projects that will benefit from Kenya’s increased power supply include construction of the standard-gauge railway from Mombasa port to Malaba on the Kenya-Uganda border; an oil pipeline; the Lamu Port; and Konza technology city; and other mining and irrigation projects spread across the country.

“Cost of power is still high, not only for industry but also domestic consumers,” said Tiberius Barasa in an AFKInsider interview. “Many multinationals have had to relocate to such destinations as Ethiopia, Egypt or South Africa and this means loss of jobs for Kenya.” Barasa is a public policy analyst and economist at Maseno University, Kenya.

While Kenya has increased geothermal generation and also expanded hydro electricity production, it will take a while before costs come down, Barasa said.

While Kenya had planned to achieve the 5000-megawatt increase in 40 months, this timetable has been adjusted to 72 months as a result of delays in projects lined up.

“We expect cost of power to fall from the present 13 cents to 14 cents (U.S.) to three cents per kilowatt hour,” said Engineer Patrick Obath, a senior energy analyst, in an AFKInsider interview. “It is not only a matter of increasing supply but also ensuring that it is reliable and the right mix.”

He warns that while Kenya is keen to increase its power supply, the challenge remains ensuring that there is also sufficient demand to take up that extra power.

“There is a balancing act between ensuring that generation matches up with consumption to ensure consumers do not pay more because of idle capacity,” Obath said.

Demand for power is expected from the nascent mining industry, irrigation, construction of the oil pipeline, petrochemicals, steel industry, standard gauge rail lines and special economic zones to be set up in Kisumu, Lamu and Mombasa.

Although current geothermal power production is in the range of 240 megawatts, this is against a potential of 10,000 megawatts that are yet to be exploited.

The Ministry of Energy and Petroleum is expected to publish requests for proposals inviting independent power producers to participate in generation while the government concentrates on transmission and distribution.

“Injection of an additional 400-500 megawatts of geothermal power will drastically shift the cost as more thermal power is removed from the grid,” Obath said. “There is a lot of potential in geothermal which can be harnessed immediately.”

While the government is opening bids for various power projects, manufacturers are concerned about and more preoccupied with quality, cost and delivery issues.

“Even with a deficit supply situation, quality of power available is poor with delivery affected by such factors as rains which causes frequent outages,” said Vimal Shah, CEO of Bidco Oil Refineries Ltd. “Cost of power is still prohibitive — 16-18 cents (U.S.) per kilowatt hour, making this destination less competitive.”

He added that exploitation of geothermal energy, wind and solar has the potential to change the current mix, which comprises mainly of expensive thermal power.