PAYNE INSTITUTE STUDENT COMMENTARY SERIES: COMMENTARY

By Yara Alexandra Lima

July 6, 2023

Abstract–Africa represents some of the world’s largest reserves of both renewable and non-renewable energy sources, however, it accounts for half of the world’s power deficit. As it is stated in the literature, there is a direct correlation between the availability of consistent and inexpensive electricity and the development of a country. Considering this information, many African countries are working towards developing their energy sector and, consequently, improving their economic, social, and political framework. Kenya is an example of a country that invested in its energy sector and is now reaping the benefits of a strong and comprehensive energy sector. The strategies employed by Kenya can serve as a great example for other African countries that aim to develop their energy sector. This paper will discuss the key strategies employed by Kenya to develop its energy sector and increase its electrification rate. The possibility of applying these policies in other African countries, namely Angola, will also be analyzed.

1. Introduction

The African continent is home to some of the world’s largest natural resource reserves. The continent is rich in both renewable and non-renewable energy sources, and it represents 7.6%, 7.5%, and 3.6% of the world’s oil, natural gas, and coal reserves, respectively [1]. Additionally, the renewable energy potential of Africa, for each energy source, was estimated to be 10 TW for solar power, 350 GW for hydropower, 110 GW for wind power, and 15 GW for geothermal energy sources [1].

Despite Africa’s large energy reserves, it represents a significant part of the world’s electricity deficit [2]. While countries in North Africa and South Africa have electrification rates of about 99% and 86%, respectively, countries in sub-Saharan Africa (excluding South Africa) have an average electrification rate of 35% [3]. Many African countries have been looking for ways to address their energy shortage issues and increase their electrification rate [4]. To take advantage of Africa’s large clean energy reserves, countries such as Kenya, Nigeria, and Ghana have started implementing policies and developing long-term plans to explore their existing natural resources, increase their electrification rate and develop their economy [4].

2. Kenya: Energy Sector

Kenya is located in East Africa, and it is known for its attractive landscape and immense wildlife reserves [5]. The country is bordered by South Sudan and Ethiopia to the north, Somalia and the Indian Ocean to the east, Tanzania to the south, and Lake Victoria and Uganda to the west [5]. Kenya is a great example of a country that overcame its challenges and built a strong and striving renewable energy sector.

Kenya has been building its renewable energy sector since 1996, and it has one of the most developed and active renewable energy sectors in the African continent [4]. The Kenyan government has been implementing a series of governmental and institutional reforms to help improve the country’s energy sector and reach its electrification ambitions [4]. The implemented reforms helped the country go from an electrification rate of 8.83% in 1997 to 30.30% in 2008 and 53.10% in 2016 [3,6]. In 2020, Kenya’s electrification rate was recorded to be 71.44% [6]. Regarding Kenya’s energy portfolio, it was estimated that 70% of the country’s electricity was generated from renewable energy sources in 2018, and in 2020 that number rose to 87% [7,8]. The fast and impressive development of Kenya’s renewable energy sector was the result of a well-thought-out plan to ensure Kenya’s energy security and encourage private investment. There were many energy policies implemented in Kenya since 1996, and it was in 2008 that Kenya released the “Kenya Vision 2030”, to further facilitate economic, social, and political development in the country [9,10]. The “Kenya Vision 2030” recognized energy as the essential component for social, economic, and political growth [4]. The implementation of this vision focused on the reduction of energy poverty and the development of the country’s economic and political framework [9,10].

As part of Kenya’s path towards energy security, Kenya restructured their main power company, Kenya Power and Lighting Company (KPLC), in 2008 [4,11]. KPLC was 100% government-owned, and its responsibilities ranged from energy generation and transmission to energy distribution [4,11]. With the implementation of the new reforms, KPLC was divided into three independent companies: (1) Kenya Electricity Generation Company (KenGen) – responsible for power generation; (2) Kenya Electricity Transmission Company (Ketraco) – responsible for transmission and infrastructure development; and (3) KPLC – maintained its distribution responsibilities [4]. Six years after KPLG was reformed (2014), Ketraco had added 1,000 km to the country’s transmission lines, allowing for the effective distribution of power generated in large-scale power plants and the country’s electrification rate went from 30.30% in 2008 to 36.00% in 2014 [4,6].

In 2019, Kenya passed The Energy Act (2019), which encompassed laws regarding the generation, transmission, and distribution of energy as well as energy sale [4]. This act also defined the authority domains of the many governmental bodies and authorities and controlled the exploitation of coal, petroleum, and renewable energy sources [12]. Under the Energy Act (2019), many reforms and policies were put in place to develop the country’s renewable energy sector, all while encouraging private investment and driving the implementation of electrification projects in rural areas [12].

When one looks at the growth of Kenya’s energy sector and analyzes the main strategies used, one can conclude that the success of Kenya’s energy sector can be attributed to two major actions: (1) energy policy development and implementation, and (2) private investment incentives in the energy sector. Kenya’s regulatory framework was a big driver for private investment and, consequently, the development of the country’s energy portfolio. Some of the most successful policies used to achieve Kenya’s vision were:

• Tax relief: this financial policy provides investors with a full or partial tax deduction when investments are made in the renewable energy sector [10]. An example of this policy has been used and be seen through Kenya’s VAT Act (2013) and amended VAT Act (2014) [13] For instants, according to these acts, wind engines and solar cells (without diodes, batteries, or similar equipment) are free from import duty and exempt from value-added tax (VAT), and water wheels and hydraulic turbines are free from import duty but must pay 16% in VAT [13].
• Guarantees: this policy provides assurances that all the electricity generated by renewable energy investors will be purchased [14]. This would decrease the risk of investment and promote foreign and local investment into the country’s energy sector.
• Subsidized investment funds: this financial policy allocates subsidies to companies that invest in the country. This policy aims to reduce the cost and risk of investing in Kenya and possibly increase a company’s returns on investment [4].
• Feed-in-tariff: this financial policy is the most commonly used renewable energy policy in the world and it offers a long-term accord that locks the sale of electricity generated from renewable energy sources at a fixed price above the market price [6, 15]. This policy allows investors to secure a steady return on investment during an agreed-upon time, consequently reducing their risk on investment [4]. Kenya implemented this policy in 2008, and it was a key step in the development of Kenya’s renewable energy sector since it catalyzed domestic and foreign investment in the renewable energy sector [4].
• Net-metering: this regulatory policy grants a two-directional flow of electricity between the national electric grid and the consumer [4]. By adopting this policy, the consumers get power credits that can be deducted from their electric bill at a later date, when the consumer’s renewable energy source feeds into the national electric grid [16].

All the policies mentioned above aim to reduce risk on investment and they were tailored to the country’s context. In addition to investment-friendly policies, Kenya was a member of the Sustainable Energy for All Initiative (SE4All), a program created by the United Nations, and, as such, Kenya’s way of conducting business was perceived to be transparent and reliable [17]. Some of the actions Kenya partook in to inspire private investments were: (1) business and legislation transparency and adequacy, (2) well-established goals, (3) a good understanding of available resources and technology, and (4) higher understanding of climate change and its implication to national development [4].

As it was mentioned before, the Kenyan government made several institutional reforms and implemented numerous policies to attract foreign and local investment and develop the country’s energy sector. These changes were only possible because of Kenya’s strong leadership and strong bipartisan support in the government. Based on Kenya’s successful track record, there were four major reforms that one should pay attention to when trying to develop a country’s energy sector: (1) define a clear goal, (2) implement legislation to reform the power sector, (3) draft and implement a set of policies that will attract private investment and develop the energy sector, and (4) frequently monitor the progress of the plan.

3. Angola: Energy Sector 

Angola is a Southern African nation bounded by the Atlantic Ocean on the west, Zambia to the East, the Republic of Congo and the Democratic Republic of the Congo in the North, and Namibia in the South [18].  Angola has one of the largest economies in sub-Saharan Africa. In 2020, most of Angola’s wealth came from the exports of crude petroleum, petroleum gas, and diamonds, composing about 84.6%, 3.82%, and 7.79% of Angola’s total exports, respectively [19]. The country is regarded as the second largest oil producer in Africa, falling only behind Nigeria, and with proven reserves estimated to reach 8.16 billion barrels in 2020 [20, 21]. In addition to large crude oil reserves and rare earth minerals, Angola has a massive untapped renewable energy potential [22]. In 2014, the Ministry of Energy and Water conducted a study to identify the renewable energy potential of Angola. The results of this study concluded that Angola has the potential to achieve an installed capacity of about 16.3 GW for solar power, 3.9 GW for wind power, and 18 GW for hydropower [22, 23].

In addition to exploring the abundant crude oil reserves in the country, the Angolan government has tried to diversify the country’s energy sector and improve the standers of living of its citizens [23]. A plan has been designed by the Angolan government to tap into the country’s renewable energy resources and achieve a 60% electrification rate and a total installed generation capacity of 9.9 GW by 2025 [23]. This plan involves the construction of several dams, both in the north and the south of the country as well as becoming an active member of the Southern African Power Pool (SAPP) [23]. The SAPP is an agreement signed in 1995 by the governments of the Southern African Development Community (SADC) (excluding Mauritius) to create an electric power pool in the region [24].

Notwithstanding Angola’s efforts to diversify and grow its energy sector, the country’s power sector has been deteriorating over the past few years [25]. The decline of the Angolan energy sector may be attributed to the instability of crude oil prices, the lack of capital investment for energy projects, and the absence of an effective regulatory framework [26]. The issues Angola is experiencing with its energy sector are similar to the challenges many other African countries are facing. Kenya had to deal with similar issues when it was developing its renewable energy sector. For this reason, one can learn from Kenya’s success story in the energy sector and use that knowledge to improve Angola’s energy sector.

3.1 Energy Sector Growth Stagnation

Angola’s plan to develop its energy sector has yielded fruits, however, its growth rate has been decreasing over the years (Table 1). Despite the abundance of natural resources, Angola is struggling to further develop its energy sector and ensure energy stability nationwide. The absence of a public political framework to develop Angola’s energy sector and the lack of diversity in the methods used to generate energy are major issues that prevent Angola from experiencing continuous growth in its energy sector. Many reasons explain why Angola’s energy sector is not striving, however, the lack of published information makes it difficult to compile a comprehensive list of such reasons as well as verify them.

Table 1 – Angola and Kenya’s electrification rate from 1996 to 2019 [6].

Many experts will argue that Angola is dealing with a classic case of the Resource Curse [27]. The Resource Curse is a term used to describe a country’s situation when access to a new source of a given natural resource (in this case, large oil reserves) obstructs the country’s development [28]. Angola ranked 148^th (out of 189 countries) in the UN’s Human Development Index (HDI), and its electrification rate was estimated to be 46.89%, in 2020 [6, 29]. In the literature, many argue that the reason Angola ranks so low in the HDI is because of the mismanagement of its natural resources as well as its long-lasting civil war and unstable democracy [30]. In countries where the governance body is weak and unstable, ordinary citizens have very little control over how their country’s natural resources are utilized and how the country’s wealth is distributed [31]. As a result, the wealth obtained from the exploration of a country’s natural resources is mismanaged and it may hinder the country’s development [31]. In the case of Angola, the richness of crude oil reserves led to the neglect of other sectors in the country’s economy, such as the agricultural and fishing sectors, and the propagation of the gap between economic classes.

The Angolan government has mentioned the pursuit of several small- and large-scale energy projects that would diversify the sources of energy generation in the country as well as provide electricity access to rural areas [23]. However, the available published information does not provide any specifications about the government’s plan to start implementing its vision. There is no information about what political strategy will be implemented to move the country toward energy security. Furthermore, the available public information still portrays Angola’s energy sector as being limited to three main energy sources (Table 2).

Table 2 – Comparison of the energy mix between Angola and Kenya [22, 32].

Despite the lack of public information about the Angolan political strategy to develop its energy sector, there has been news about the commissioning of a large-scale solar energy project in Angola. Sun African and M. Couto Alves planned to inaugurate a 188.8 MW solar plant in Benguela, Angola, in 2022. Additionally, they have been commissioned to build another solar farm (96 MW) in that same region. This information shows that companies are working towards enhancing and diversifying the energy sector in Angola, however, it does not shine a light on the country’s political framework to support the integration of the new energy generated. There is no public information available to inform the public and potential investors on how that energy will be introduced to the country’s electrical infrastructure.

3.2 Learning From Kenya’s Success Story

Based on the policies implemented in Kenya as well as some of the behavioral aspects of the Kenyan government, one can conclude that foreign investment and government legitimacy were crucial factors in the development of Kenya’s renewable energy sector. Therefore, one can argue that to expand the renewable energy sector in Angola, the country needs to adjust its regulatory framework and government reputation to inspire confidence and attract foreign investment. From Kenya’s regulatory infrastructure and keeping in mind Angola’s political context, one could advise the implementation of the following policies in Angola:

• Feed-in-tariff: this policy will reduce the risk of investing in Angola’s energy sector and, therefore, will encourage local and foreign investment in the country’s renewable energy sector. This policy guarantees investors access to the country’s electric grid, which will lower their capital costs and will increase their returns on investment.
• Tax relief: tax exemptions could be applied to investors who are planning on building renewable energy projects. The tax exception could be implemented in the form of import tax reduction, following Kenya’s example with the implementation of Kenya’s VAT Act (2013) and the amended VAT Act (2014). This policy would make Angola’s renewable energy sector appealing to local and foreign investors, as it would decrease the capital cost of related projects.
• Guarantees: this policy will ensure that all electricity generated by the investors is utilized, hence ensuring net positive returns for any investment in energy generation. Moreover, with the implementation of this policy, Angola would have a reliable energy generation sector, which would help increase the country’s electrification rate.
• Net-metering: this policy would incentivize the local production of clean energy, which could lead to the development of local renewable energy businesses as well as the reduction of energy prices, and the increase of electricity consumption, and would ensure reliable power generation in many regions across the country.

When implementing these policies, one must thoroughly study Angola’s political and social atmosphere.

In addition to the implementation of an efficient political framework, the Angolan government must operate with transparency and noble intentions to inspire confidence among its potential investors. Similar to how Kenya conducted business during the development phase of its energy sector, Angola must assure its future investors that they are a reliable and safe investment. To enforce the idea that Angola is a safe investment, the country has to operate with transparency and competency, as well as establish and communicate its main goal and have a good understanding of the available natural resources and technology in the country.

4. Conclusion

The growth of the renewable energy sector in Kenya was the result of their need to find cheap and sustainable sources of electricity. The Kenya Energy Act, 2019 is one of the most recently implemented policies that encourage the investment and development of renewable energy in Kenya. In addition to policy reforms, Kenya also restructured its main power company and built into its reforms a business model that operates with transparency and adequacy. Most of the actions taken by the Kenyan government related to the development of the country’s energy sector were successful in achieving their objectives. Because of Kenya’s success and its similarity to other African countries, one can make the argument that the plan Kenya used to develop its renewable energy sector can be used in other African countries. When making this assumption one has to keep in mind that small adjustments to the referred policies might need to be made to ensure the success of the program.

The analysis of Kenya’s policies and actions would be a good place to start when planning the development of the Angolan renewable energy sector. Although Kenya and Angola have different political environments, one can argue that the implementation of some of Kenya’s energy policies would promote the development of the Angolan renewable energy sector, all while improving the country’s electrification rate. Moreover, the implementation of transparent business behavior would also help attract private investment, while providing room to create new alliances.

Kenya’s energy framework has the potential to be a starting point for many African countries that intend to develop their energy sector. By understanding Kenya’s successes and failures and combining that knowledge with a country’s political and economic contexts one can start to outline a strategy to develop the clean energy sector of any African country.

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ABOUT THE AUTHOR

Yara Alexandra Lima
M.S. Advanced Energy Systems, B.S. Chemical and Process Engineering, Colorado School of Mines

Yara Lima is an Energy Efficiency Engineer currently employed at Resource Innovations. Previously, she attended Colorado School of Mines, where she graduated with a bachelors in Chemical Engineering and a masters in Advanced Energy Systems.

Yara’s passion lies in exploring the relationship between policy and a country’s development, particularly within the energy sector. She strives to understand how policy measures can shape the growth of developing countries. Yara is from Luanda, Angola (a developing country) and she strives to contribute to the advancement of sustainable and practical energy solutions in her home country.

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