Kenya has one of the cleanest electricity systems in Africa. As at the latest tally, renewables accounted for about 93% of generation, led by geothermal, hydro, wind and solar. The government wants to go further, with plans to raise generation capacity from about 1,500 Megawatts (MW) to 5,500MW in a few years.
More power should be good news for East Africa’s largest economy. Reliable and affordable electricity is essential for businesses to expand and for industry to remain competitive. Yet electricity bills remain a persistent challenge for Kenyan households and businesses. Regional comparisons show that firms can pay up to six times more for electricity than their counterparts elsewhere on the continent.
So why has Kenya’s renewable-energy boom not translated into cheaper power? The answer has less to do with how the country generates electricity than with the cost of getting it to consumers.
How Kenya’s clean power mix comes together
Long before going green became mainstream, Kenya had set its sights on clean energy. Hydropower was the backbone of the grid for decades, supplying as much as 72% of electricity generation in 2000. Thermal energy was the other dominant supply source. But unreliable rainfall and the global oil price shocks often left the country starved for power, making diversification unavoidable.
Kenya’s geography offered an obvious alternative. Sitting on the East African Rift, the country has abundant geothermal resources, allowing it to tap heat from beneath the ground for a steady source of power. It became Africa’s first commercial geothermal producer when Olkaria began generating power in 1981. However, growth stalled for a very long time largely due to capital and investment risks.
This began to change in 2008, when Kenya created the Geothermal Development Company (GDC) to take on exploration and steam-field development. By shifting that risk away from private developers, GDC allowed them to enter projects once the resource had been proven, making it easier to finance and build generating plants.
Kenya also introduced feed-in tariffs, guaranteeing renewable-energy producers a set price for electricity.
The policy gave developers greater certainty over future revenues, further improving the bankability of projects. As private investments grew, so did wind and solar capacity .
One of the clearest examples is the Lake Turkana Wind Project, now Africa’s largest wind farm. The project cost an estimated $680 million, making it the largest private investment in the country’s history.
By 2023, geothermal accounted for 47% of generation, followed by hydro at 21%, wind at 16% and solar at 4%, according to the International Energy Agency.
The transition also reduced Kenya’s reliance on thermal power. A 2019 World Bank report found that the 280MW Olkaria expansion in 2015 cut consumers’ fuel costs by as much as KSh4 per kWh. The government’s new 5,500MW target includes plans to add 2,000MW of nuclear power as the East African nation expands its clean-energy mix.
Less about generation
A recent World Bank assessment put the cost of geothermal generation at about 8.5 US cents per kWh. Existing hydropower was cheaper, at roughly 3-5 cents, while competitively auctioned solar and wind projects were expected to come in around 5-7 cents. Electricity imported from Ethiopia cost about 6 cents.
Those figures do not match the prices facing many businesses. Kenya’s industrial consumers can pay as much as 18-23 cents per kWh., reflecting a sizeable gap between the cost of producing electricity and the price paid by the end user.
Part of the problem lies in the grid.
Kenya lost an average 23.36% of electricity in 2024/25, according to the Energy and Petroleum Regulatory Authority (EPRA). The regulator’s allowable threshold was 17.5% while the global average is between 8-10%. Losses have also proved stubborn, falling from 24.8% in 2020/21 to 22.84% the following year, but remaining above 23% in each of the past three financial years.
These losses come in two forms. Technical losses occur as electricity moves through the transmission and distribution network. Commercial losses stem from illegal connections, meter tampering and unmetered or fraudulent consumption.
Either way, they carry a financial cost. Electricity that is generated but lost cannot be billed to a customer, yet much of the cost of producing and moving it has already been incurred. The utility then has to recover those costs elsewhere.
“Kenya’s renewable resource base is a major advantage, but electricity prices are determined by the whole system, not only by the cost of power generation,” Albert Nganga, senior regulatory manager at CrossBoundary Energy told AP news in a recent interview . “They also reflect how power is contracted, transmitted, distributed and recovered.”
Kenya Power says it is working to fix the problem. During the year to June 2025, it connected 401,848 new customers and said system losses had fallen from 23.16% to 21.21%. It also rolled out smart meters, replaced faulty meters and upgraded feeders.
But the gap is still large enough to worry consumers.
The problem with guaranteed payment contracts
Moreover, Kenya liberalised electricity generation in the late 1990s, opening the door to independent power producers (IPPs). They now account for roughly 40% of installed generation capacity and many operate under long-term power-purchase agreements.
This helped the country attract private capital into a sector that needed expensive new generation. But the contracts also created obligations that can persist long after the original investment decision.
Some agreements contain take-or-pay clauses. These require Kenya to make agreed payments even when it does not use all the electricity it has contracted to buy. That can be useful when financing a power plant. A developer is more willing to lend billions to a project if it knows the buyer is committed to paying for the electricity.
But the arrangement becomes expensive when demand is weaker than expected or when the system has more contracted capacity than it needs at a particular moment.
Data from the Auditor-General’s office shows that Kenya paid about KSh15.9 billion ($122.9 million) for idle power between 2021 and 2022. In 2022 alone, payments averaged KSh56.3 billion ($435.1 million) against electricity supplied worth KSh49.2 billion ($380.2 million), leaving roughly KSh7.1 billion ($54.9 million) for unused capacity.
This is one reason Kenya’s debate over electricity prices has moved beyond simply building more plants. Lawmakers are now pushing the government to develop a framework for renegotiating electricity-supply agreements, arguing that lower wholesale prices could give Kenya Power more room to reduce consumer tariffs.
Authorities are also moving towards fostering greater competition. Proposed open-access reforms would allow large electricity users to buy power more directly from generators, potentially putting pressure on suppliers to offer better prices.
Industry bears the brunt
For manufacturers and small businesses, this is not an abstract debate about tariff design.
Kenya’s 2025 Economic Survey puts industrial electricity prices at roughly $0.10-0.20 per kWh, compared with about $0.07-0.12 in South Africa and just $0.003-0.009 in Ethiopia. It notes that high electricity costs raise production expenses and can make Kenyan goods less competitive.
There are already signs that businesses are responding rather than simply absorbing the cost. Large industrial and commercial users, including cement, sugar and tea factories and flower farms, have increasingly turned to captive power — generating electricity themselves — because it can be cheaper and more reliable than grid supply.
That creates an awkward outcome for Kenya’s power system. The country wants electricity demand to rise as industry expands, transport becomes more electric and households switch to electric cooking. But high tariffs give some of the biggest potential consumers an incentive to produce their own power or limit their reliance on the grid.
And demand is rising. Kenya’s peak electricity demand reached 2,439MW in December 2025, up from 2,316MW in February and 2,362MW in July. Industrial customers accounted for more than half of Kenya Power’s unit sales in the year to June 2025.
The challenge of cheaper electricity
Meanwhile, energy experts warn that making electricity cheaper will not be easy. Kenya still needs billions of dollars to expand the grid, replace ageing equipment and improve the reliability of supply. At the same time, tariffs have to remain high enough for utilities to recover their costs and keep investing.
Getting that balance wrong can create a vicious cycle. Low revenues leave less money for maintenance and new infrastructure. Under-investment then worsens losses and reliability, pushing costs back up.
Kenya has tried direct intervention before. In 2022, the government cut electricity tariffs by 15% to ease the burden on consumers. But the subsidy became a significant fiscal burden for a government already struggling with high debt and was reversed in April 2023. Official data show that electricity prices subsequently rose by 77%.
The episode illustrates the limits of keeping electricity prices down without reducing the cost of supplying power. Someone still has to absorb the difference.
Kenya’s investment needs show why that distinction matters. Its 2025–30 National Energy Compact estimates that the country needs $19.1 billion for energy projects and plans to mobilise $5.1 billion from the private sector. The government is counting on guarantees and other de-risking measures to attract the capital.
But more generation alone will not make electricity cheaper. “The real test will be whether that additional clean generation is matched by reforms that lower electricity costs for consumers,” says Cynthia Angweya-Muhati, CEO Kenya Renewable Energy Association.
East Africa’s largest economy is betting that more electricity will support more investment and growth. Whether that happens will depend not only on how much power it adds, but on whether businesses and households can afford to use it.
