An overview of Renewable Energy Financial Mechanisms in Kenya

Overview 

In Kenya, biomass accounts for about 68% for the primary energy consumption followed by petroleum at 22%, electricity at 9% and others at less than 1%. Solar energy is also used but mainly for drying. It is important the main source of biomass energy is wood fuel and charcoal which is not sustainable. However, programmes/projects for scaling Renewable Energy Technologies (RETs) up have been formulated and some are being implemented.

For the purpose of this discussion, I will describe the financial mechanisms I am aware of irrespective of the technology. The examples discussed in the paragraphs below will therefore cut across the RETs available in Kenya.

Financial mechanisms to scale up technology innovations 
 

Technology innovations are mainly done at the universities and research centers. Examples of financial mechanisms include but not limited to the following:

• Government budgetary support – the government allocates its research institutes budgets for developing new ideas and to develop and implement incubation programmes. A good example is the Kenya Industrial Research Institute (KIRDI) which is under the Ministry of Industrialization. This is mainly for R&D and in most cases do not reach commercialization stages. The Ministry of Energy also has energy centres accross the country to aid in research and development of alternative energy sources.   

• Innovation funds at the universities – Some Universities, e.g. Jomo Kenyatta University of Agriculture and Technology, have set up innovation funds to support research and development of new innovations. The funds are available to the university staff as well as external persons collaborating/linking with university staff. 
   

Financial mechanisms to scale up small and large renewable energy project development 

They include but not limited to the following:

• Small grants programme – A number of small renewable energy projects have benefited from the GEF small grants programme receiving up to US$ 50,000. The projects are small in nature. The challenge with this method is the sustainability and ownership of set up projects.  

• Equity – This is mainly popular in the sugar and tea industries where the companies finance the development of renewable energy projects in house. For example Unilever Tea Kenya Limited which has invested the company funds on hydropower projects with the aim of reducing power costs hence increasing returns. Another example is the Mumias Sugar Company which has financed the cogeneration project involving generation of power using sugar cane bargasse. 

• Long term debt (Bonds) – The Kenya’s leading electrical power generating company, Kenya Electrical Generating Limited (KenGen), launched a 10 year Public Infrastructure Bond Offer (PIBO) in August 2009 in order to raise funds for expanding the capacity of power generation and to reduce the reliance on hydropower by developing and strengthening the mix of generation modes (i.e. hydo, geothermal, wind and thermal). The bonds were listed in the Nairobi Stock Exchange (NSE). 

• Development loans - A biggest wind energy farm project in Kenya that is expected to generate 300MW has been established in the nothern part of by Lake Turkana Wind Power consortium (LTWP). The financing is partially from the investors and partially from a loan facilitated by the Africa Development Bank (AfDB). The project is estimated to cost around Euro 465 million and AfDB is facilitating about Euro 300 million (about 70% of the estimated costs). 

• Community financing – Some micro-hydro power plants in Kenya  have been majorly financed by the community with technical support from NGOs or the government. A good example is Tungu-Kabiri Community Micro hydropower project where community members raised funds to acquire land, donated construction materials and provided labour as well as providing cash for procuring materials which are not locally available. The community members bought the shares of the micro-enterprise hence boosting community ownership and sustainability of the project. 

• Policy instruments to enhance RET in Kenya – The Ministry of Energy is now implementing feed-in-tarrifs policy for for mini-hydros, wind and biomass resource generated electricity. This has attracted private sector investors particularly in the area of wind energy.
  Asset finance – A number of commercial banks are offering asset finance. This option is available for all customers including those intending to develop RET projects. However, this can only apply at the later stages of project development especially during operations and maintenance. 

• Government plans on Carbon trading – The government is planning to develop carbon emissions trading. According to the national budget for FY 2010/2011, the Minister of Finance proposed to develop a carbon emission trading scheme.  

• Government plans on improving accessibility of RE finance  – In FY 2010/11 budget, the government allocated some funds for the establishment of a green energy facility in partnership with a consortium of financers in order to provide loans to investors in the alternative energy sources.  

Financial mechanisms to scale up end-user finance 

Examples include (but not limited to): 

• Revolving fund schemes – An example of revolving fund mechanism is a local NGO reffered to as RETAP. Its revoliing fund credit scheme focus on promoting and creating awareness on RETs and promoting access of energy saving stoves to institutions (e.g. schools) and small businesses (e.g. restaurants) in rural and urban Kenya. RETAP partners with private enterprises to ensure accessibility of energy saving stoves through flexible and cheap credit schemes. 

• Cheap credit facilities through SACCOs – An example this method is Muramatii savings and credit cooperative (SACCO) for farmers in the tea sector in Central Province, Kenya. The SACCO offers cheap credit (solar loans) to its members to install PV systems. 

• Carbon credits (still under development) – A biggest wind energy farm project in Kenya that is expected to generate 300MW has been established in the nothern part of by Lake Turkana Wind Power consortium (LTWP). The project is under development and is expected to be operational from 2011. The project is expected to reduce carbon emissions and earn carbon credits. The project plans to transfer the proceeds of the carbon credits to the Kenya Power and Lighting Limited (KPLC) in order to reduce the end consumer tarrif.
   

Gaps in the finance continuum for renewable energy deployment in Kenya 

I believe the following are some of the gaps that are hampering financing of Renewable Energy Technologies in Kenya. This has therefore led to slow uptake or upscaling of RETs. 

• Inadequate technical or financial support for scaling up technology innovation for RETs;  

• Lack of adequate understanding of the Renewable Energy Technology investment by the Commercial financial institutions. Commercial financial institution feel that RET investment is risky especially during start up and development; 

•   Lack of reliable and accurate information regarding RETs; 

•  Lack of adequate policies to favour investment and growth of RETs especially with regards to financing RETs;  

• High levels of poverty especially in the rural areas hence impacting on the uptake of RETs;

• Over dependence on hydropower and fossil fuels as a means of generating electricity hence much focus on them.