Electricity users in Kenya are facing the burden of inflated power prices due to expensive contracts signed between Kenya Power and Independent Power Producers (IPPs), even though the private producers supply less power compared to the state-owned Kenya Electricity Generating Company (KenGen).
New data has revealed that in the financial year ending June 2024, Kenya Power and Lighting Company (KPLC) spent a total of KSh 73.7 billion purchasing electricity from IPPs, who supplied only 41% of the total electricity delivered to the national grid. In contrast, KenGen supplied 59% of the power but was paid only KSh 49.4 billion, which is just 40% of total electricity payments.
The breakdown shows a glaring pricing imbalance. On average, Kenya Power paid KSh 21.16 per kilowatt-hour (kWh) for electricity from IPPs. This is more than twice the KSh 9.78 per unit it paid KenGen. For specific energy sources, the gap is even wider. In geothermal power, a key renewable energy source for the country, IPPs charged KSh 17.28 per unit, while KenGen offered the same at KSh 8.24. For thermal power generation, IPPs billed as much as KSh 43.76 per unit, while KenGen charged KSh 29.47.
These figures point to deep inefficiencies in Kenya’s electricity procurement system. Experts say the current structure favours private producers at the expense of consumers and taxpayers, who end up paying more through higher electricity bills. In some cases, Kenya Power is required to pay for electricity even when it is not consumed—a model known as “take-or-pay” that puts pressure on the utility’s finances.
This imbalance was also highlighted in Kenya Power’s half-year financial results announced in January 2024. Although the company reported a KSh 9.97 billion profit—its best in recent years—analysts noted that the reduction in power purchase costs by KSh 1.7 billion (to KSh 71.4 billion) was mainly due to favourable exchange rates rather than any changes to the expensive contracts with IPPs. With Kenya’s heavy dependence on foreign currency-denominated contracts, any future fluctuation in the shilling-dollar exchange rate could drive costs higher once again.
In 2021, a presidential taskforce had recommended the review and renegotiation of power purchase agreements (PPAs) signed with IPPs. The aim was to cut costs, promote fair pricing, and make electricity more affordable for both households and businesses. However, a recent report by the Office of the Auditor General revealed that there has been no progress on this front. The report stated that despite repeated calls, there is no evidence that the contracts have been reviewed or renegotiated as promised.
A previous inquiry by the Kenyan Parliament had estimated that the country could save up to KSh 17.3 billion annually if KenGen’s generation capacity was prioritised ahead of private producers. Some IPPs have reportedly shown interest in adjusting their agreements, but have raised concerns about restrictions from international financiers and foreign shareholders who fund their operations.
Energy sector observers argue that without firm political will and regulatory action, the situation will continue to favour IPPs at the cost of economic development. Rising electricity costs affect every sector of the economy—from manufacturing to small businesses—and threaten Kenya’s goal of universal access to affordable electricity.
Many Kenyans have long questioned why power tariffs remain high despite major investments in renewable energy infrastructure. The IPP contracts, which were initially meant to increase capacity and reduce blackouts, are now being blamed for making electricity unaffordable to ordinary citizens. Calls for transparency in contract awards and renegotiation of existing deals have intensified in recent months.
As the country works to improve energy efficiency and affordability, experts insist that the government must take immediate steps to rebalance the energy mix in favour of cheaper, more reliable sources like KenGen. Reducing the dominance of IPPs in the power supply chain could help lower electricity costs, improve economic productivity, and ease the pressure on households already struggling with the high cost of living.
