By Fitch Solutions

Key View

  • There are strong upside risks for growth in solar and wind power capacity in place of geothermal power in Kenya following the introduction of an auction-based mechanism for new power projects.
  • Given that solar and wind power projects are on average less expensive to develop than geothermal power capacity while also having relatively short turnaround times, this holds strong upside risks that wind and solar projects will be favoured over geothermal capacity in any future auctions.
  • While we still forecast that geothermal power will remain the dominant source of electricity output in Kenya over the next decade – supplying more than half of total generation – we expect its growth will slow down with only 220MW of capacity forecast to be added from 2022 to 2031.

There are strong upside risks for growth in solar and wind power capacity in place of geothermal power in Kenya following the introduction of an auction-based mechanism for new power projects. Given the relatively lower costs associated with solar and wind power projects, we expect that this will make them ideally suited for the government’s plans to develop new power capacity along with its plan to provide universal electricity access to its population. The government’s pledge at COP26 in 2021 to be 100% reliant on renewables by 2030 further underlines our outlook.

Under the country’s 2017-2037 Least Cost Power Development Plan (LCPDP), one of the recommendations was for the shift towards an auction-based system for the development of solar and wind power projects, moving away from feed-in tariffs. In May 2021, the government released the updated 2021-2030 LCPDP which is aimed at encouraging the participation of the private sector in the country’s power sector. Additionally, the Kenyan government released its Renewable Energy Auction Policy (REAP) at the start of 2021 in order that future renewable projects may be procured in a competitive bidding system at more competitive prices. The REAP will apply to all renewable energy projects – except for geothermal, which will be developed under the Policy of Licensing of Geothermal Greenfields – above 20MW in size. Given that solar and wind power projects are on average less expensive to develop than geothermal power capacity while also having relatively short turnaround times, this holds strong upside risks that wind and solar projects will be favoured over geothermal capacity in any future auctions.

While we still forecast that geothermal power will remain the dominant source of electricity output in Kenya over the next decade (accounting for an annual average of 58% of the total share), we expect its growth to slow down with only 220MW of capacity forecast to be added from 2022 to 2031. Our outlook is informed by the fact that geothermal projects have been developed slower than planned, highlighted by the fact that the government has failed to reach its initial target of 15GW of geothermal power by 2020 and we do not expect them to reach their target of 5GW by 2030. We expect that the primary reason Kenya would continue developing this resource would be for its non-intermittent nature compared to solar and wind power.

It was reported in November 2021 that the Kenyan court had ordered that the 300MW wind farm, planned for development by Gitson Energy, be added to the list of approved projects by the Kenyan government after over five years of legal proceedings. Should the project go ahead, this would serve to highlight the shift towards non-hydropower renewable technologies other than geothermal in the market.

This article has been sourced from Fitch Solutions and can be accessed here