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Kenya: The 2021-2030 least cost power development plan, introduction of the 2021 renewable energy auction policy and the 2021 FIT policy

18 May 2021
– 10 Minute Read


Kenya’s Renewable Energy (RE) sector has seen continued growth over the years, with the emergence of various projects capitalizing on different renewable energy technologies in various parts of the country. The country’s generation and transmission system planning is based on a 20 year rolling Least Cost Power Development Plan (LCPDP), last updated in June 2018 (2017 – 2037 LCPDP). The 2017 – 2037 LCPDP recommended inter alia the renegotiation of power purchase agreements for large power plants to introduce operational flexibility and optimize energy costs – which recently led to a Taskforce being appointed by the President, to review power purchase agreements, a move expected to bring significant changes and policy shifts in the energy sector. The 2017 – 2037 LCPD further recommended the phasing out of solar and wind projects under the FiT policy and fast tracking operationalization of the energy auction market for future intermittent capacity plants.

In line with these recommendations and further developments in the energy sector including the enactment of the Energy Act, 2019 and disruptions caused by the COVID-19 pandemic, the Government has released the 2021 – 2030 LCPDP, articulating inter alia Government’s commitment to the recovery of the power sector and alignment with development partners on the necessary recovery strategy and necessary interventions. The guiding principles of the 2021-2030 LCPDP include:

  • enhancement of renewable energy technology integration in line with the worldwide falling costs and ensuring that Variable Renewable Energy resources in the country are optimally utilized for power generation;
  • encouragement of private sector participation in power generation through the FiT, energy auctions and the public private partnerships frameworks;
  • encouragement of Distributed Energy Resources and captive power generation in line with section 167 of the Energy Act, 2019 by bringing these segment of developers into the regulated framework;
  • improvements in and greater deployment of ICT in the energy sector which the Government anticipates will lead to significant changes in the number of service providers netted into the system and will subsequently expand energy customer choices and control;
  • focus on load growth through aggressive connections and application of specialized programmes;
  • integration of environmental concerns such as the Nationally Agreed Targets in Green House Gas (GHG) emissions that require the sector to conserve the environment and limit such emissions; and
  • focus on emerging technologies and investment in primary data such as wind and solar insolation mapping necessary for attracting quality developers.

Keeping with these guiding principles and prior recommendations of the 2017 – 2037 LCPDP, the Ministry of Energy (MoE) has released the much awaited Renewable Energy Auction Policy (REAP) and the Feed-in-Tariffs Policy on Renewable Energy Resource Generated Electricity (Small-Hydro, Biomass and Biogas), January 2021 (2021 FiT Policy).

Key highlights of these new policies in the Kenyan RE sector include the following: 


The REAP stipulates that it will apply to all solar and wind power projects, as well as other RE projects larger than 20MW. The FiT Policy will continue to apply for projects not exceeding 20MW in biomass, biogas and small hydro technologies. Geothermal projects will be procured under the Policy on Licensing of Geothermal Greenfields (to be developed by the MoE).

To this end: (i) no further solar PV and wind projects, as well as other RE projects larger than 20 MW will be eligible under the FiT Policy; (ii) all approved solar and wind Expression of Interests granted under the old FiT Policy that have not signed PPAs shall be transitioned to the REAP framework. It is not clear whether any priority will be afforded to existing solar and wind FIT projects under any subsequent auction carried out under the new REAP.

The auctions will be announced by the MoE upon advice by the LCPDP/INEP Committee on the appropriate timing and targeted capacity. MoE through the Renewable Energy Auctions Committee will be responsible for the implementation of the REAP. MoE will further outline requirements for site selection in order to participate in the auctions.

The auction mechanism will involve a two-stage bidding process:

1. Stage 1 – Preliminary Evaluation

  • This will be the prequalification stage where bidders will be required to demonstrate that:
  1. they and their key project partners have access to the requisite experience to implement the project;
  2. they have sufficient financial capability;
  3. they are able to provide a stage 1 bid bond as specified in the bid documents;
  4. the proposed technology, preliminary design/configuration and annual energy is viable and consistent with the site constraints as outlined in the maximum MW export rating from the site;
  5. confirmation of land rights/access for plant and interconnection infrastructure. It is not clear what form such confirmation should take. For example, will it be sufficient to show that the developer has entered into an agreement to purchase the land, which is conditional on the bid under the REAP being successful, or, would the developer have to incur the cost of finalizing the land acquisition as a condition to being able to participate in the auction;
  6. proposed grid connection route; and
  7. provision of bidders’ constitutional documents.
  • Bidders who pass the prequalification stage in Stage 1 will then be invited to submit a full proposal with the bid bond returned to unsuccessful bidders.
  • There is no timeline provided in respect of how long Stage 1 should take. 

2. Stage 2 – Detailed Technical and Financial Evaluation

Detailed Technical Evaluation

  • In this stage, the bidders will be required to submit a bid/proposal in response to the Request for Proposal and a sealed price bid, which will be kept un-opened until the bidder passes this stage 2 evaluation.
  • A stage 2 bid bond will also be submitted as specified in the bid document, and the stage 1 bid bond returned to the bidders who progress to this stage.

Financial Evaluation

  • Bidders who qualify in the technical evaluation will have their bid prices opened. Bids will be on a USD/kWh basis, stacked in ascending price order until the target volume is achieved. 
  • The successful bidders will be invited for negotiations with the contracting authority.
  • Upon successful negotiations bidders will be required to enter into a project agreement. While not clear under the REAP, we assume that the project agreement will be a separate agreement to the PPA. Failure to sign the project agreement will lead to the stage 2 bid bond being forfeited. It is not clear what “failure” entails for this purpose. 

The REAP is not clear on when copies of all transaction documents will be made available to the investors. As is customary with auction processes undertaken in other jurisdictions, transaction documents should be made available to potential investors at the onset of any auction process. 

Connection obligations 

  • Developers will be required to undertake a grid connection study which shall take into consideration existing and other approved generation projects as well as planned infrastructural projects likely to impact on the grid in the same locality. It is not clear whether this study can be undertaken as a condition precedent under the project agreement or whether undertaking this study will be at the risk and cost of the investor and form part of the technical evaluation of the investor’s bid. 
  • The study will require approval of the Renewable Energy Auctions Committee, with the costs of interconnection – including construction, upgrading of transmission/distribution lines, substations, associated equipment and wayleave acquisition to be borne by the developer.
  • There is no timeline provided in respect of how long Stage 2 should take. 

Interestingly, the REAP states that MoE will outline site selection requirements indicating that MoE will not be responsible for land acquisition. Whilst this would be in line with the current FiT framework and may not raise immediate concerns for projects transitioning from the FiT policy to the REAP, it remains to be seen how this will ultimately affect the bankability of projects and the appeal of the REAP to investors and their financiers. Bidders will require confirmed land rights before participating in the auctions, which in some instances may be impractical given the lengthy process of acquisition of land rights in the country. Further consideration ought to be given to the fact that most land suitable for solar and wind projects may potentially be “agricultural land” within the meaning of the Land Control Act (Cap. 302, Laws of Kenya) potentially locking out foreign investors and financiers until requisite approvals are obtained. This may lead to significant delays for most investors and possibly dissuade them from participation.

Bidders will also still require to comply with the extensive licensing regime for undertaking RE projects in the country. All these considerations raise the question as to whether the REAP will ultimately lead to its desired primary objective of procuring RE capacity at competitive prices which would be weighed against investors and their financiers seeking overall bankability of their projects.

2021 FiT Policy

The 2021 FiT Policy is largely similar to the prior Fit Policy (last reviewed in December 2012). However, in line with the formulation of the REAP, it expressly states that it applies to RE power plants not exceeding 20MW in biomass, biogas and small hydro technologies. All solar and wind projects as well as other RE projects larger than 20MW will be procured under the REAP and geothermal projects will be procured under the Policy on Licensing of Geothermal Greenfields.

RE power plants under the 2021 FiT Policy shall be contracted through a standardized PPA, applying tariffs stipulated therein. The standardized PPA incorporates the following features:

  1. the PPA term shall be a maximum of 20 years;
  2. the plants may not be despatchable;
  3. the PPA is offered to projects that demonstrate technical and economic viability, meet the grid connection requirements and are able to secure all necessary legal and regulatory approvals and financing within the timeframe specified in the Application and Implementation Guidelines

In terms of the purchase obligation, the 2021 FiT Policy provides that capacity payments shall not be applicable, and Deemed Generated Energy payments will only be made if the grid availability falls below the guaranteed levels as specified under the standard PPA at a rate equivalent to 75% of the applicable tariff values provided under the policy. This appears to be a slow build up towards the Government’s push back on the “take-or-pay” approach, consistent with PPAs already entered into. Commercially, project sponsors will need to consider whether this approach is bankable.

In a move that appears consistent with the Government Support Measures Policy, the 2021 FiT Policy expressly stipulates that no projects approved for implementation under the policy shall require any form of security or guarantee from Government including the Government Letter of Support. The Letter of Support is viewed by project sponsors and their financiers as a key tool for limiting political risks arising in Kenya and affecting Projects and is commonly a condition precedent to financing. Investors will need to consider alternative approaches to mitigating political risk events affecting their projects (e.g. through procuring separate political risk insurance) whilst maintaining the economic and financial returns of the Project at a desirable level. 

With regard to the corporate structure of project companies, project sponsors will still require to be legally incorporated entities in Kenya. However, the 2021 FiT Policy further provides that in the event the initially approved developer cedes some shareholding in order to incorporate equity partners, the developer shall retain at least 30% of the shareholding. This is a material deviation from past practice where such a requirement did not exist and an initial developer was able to cede 100% of its rights in the Project.

Overall, it remains to be seen whether the 2021 FiT Policy will achieve the new objective of encouraging local investors to participate in power generation.


The above policy changes in the energy sector, coupled with expected changes in the country’s PPP framework and anticipated deliberations on the findings of the Taskforce, will significantly affect the country’s RE sector. Investors and financiers will require a keen observation on these changes in determining the best commercial decisions for their existing and future projects. Ultimately, the overall impact of these changes on Kenya’s energy sector will be significant, particularly with energy consistently identified as one of the enablers for the country’s sustained economic growth and a key foundation for the country’s national transformation.