Government told to adopt new funding models to close Kenya’s electricity access gap

Kenya’s ambition to achieve universal electricity access by 2030 is being held back by a deep financing gap.

According to a new policy brief by Kenya Institute for Public Policy Research and Analysis (KIPPRA), unlocking fresh funding models will be critical to closing the remaining access deficit.

The state-owned think tank argues that inadequate financing across the electricity value chain remains one of the biggest obstacles slowing progress towards universal access, despite ongoing government initiatives to expand connectivity.

It reveals that Kenya required about $14.8 billion (Sh1.9 trillion) in investment to implement planned energy projects between 2018 and 2022, but faced a financing shortfall of $8 billion (Sh1 trillion).

This is across key areas including generation, transmission, distribution and off-grid electrification.

The financing challenge comes as Kenya targets full electricity access under the United Nations Sustainable Development Goal 7 and the country’s Energy Transition and Investment Plan (2023-2050).

Current electricity access stands at 75 per cent nationally, with rural areas recording lower connectivity levels compared with urban regions.

To address the shortfall, KIPPRA reiterates that Kenya must move beyond traditional funding approaches and adopt innovative financing models that can attract more private capital and reduce exposure to foreign exchange risks.

One of the proposed solutions is increased use of long-term Power Purchase Agreements (PPAs) denominated in local currency to finance electricity generation projects.

KIPPRA notes that foreign currency-denominated projects have contributed to higher electricity costs due to exchange rate fluctuations and inflation pressures.

The institute also recommends expanding private sector participation in transmission and distribution through models such as Build Own Operate Transfer (BOOT), long-term concessions and merchant line arrangements, which have been adopted in countries including India, Brazil and Australia.

For electricity consumers, KIPPRA highlights Corporate Power Purchase Agreements (CPPAs) as a tool that can boost investment by providing long-term income certainty for power producers while giving businesses access to reliable electricity supply.

However, the policy brief cautions that financing reforms must be accompanied by stronger regulatory frameworks, improved accountability and institutional restructuring to ensure effective implementation.

“Further development of policies and regulations for these options is needed to enable efficient implementation and attract more financing,” the brief reads.

The report also identifies land acquisition challenges, including wayleave compensation delays, as a major barrier affecting infrastructure development and investor confidence.