A rise in renewable energy demand among Kenya’s rural population, coupled with growing international pressures on oil-producing countries to curb their carbon dioxide emissions, means that rather than being eclipsed by recent oil discoveries, Kenya’s renewable energy sector will continue experience steady growth, according to Andy Mead, the managing director of Firefly Solar, a designer and manufacturer of off-grid, solar-powered generators.
Oil discoveries in the north of Kenya in 2012 led to a sharp rise in FDI in 2013, and the unearthing of further oil deposits in mid-January 2014, by Tullow Oil – a UK-based oil and gas firm – means that FDI into Kenya’s coal, oil and gas sector will likely increase in the short-term. Over the longer term, however, FDI into the renewable energy sector is expected to gradually increase, driven by a large demand among Kenya’s rural population for alternative electricity solutions.
According to Mr Mead, Kenya’s large rural population, which the United Nations Children's Fund estimates accounts for 80% of the country’s population, remains off-grid, and while oil exploration projects in Kenya are expected to benefit a narrow tranche of the country's urban society, there remains a large opportunity for renewable energy companies to provide electricity access to the rest of the population.
“The [electricity] grid in Kenya is not able to support many of the rural communities who live in dispersed, small numbers, thus the financial incentive for the national grid to expand into those areas is not there,” said Mr Mead. “Kenya has a huge abundance of sun and the more appropriate energy solution for those rural communities is renewable energy grids. These are not going to be provided by oil. Also, it is important to note that countries across the globe are signing up to carbon dioxide emission reduction targets, and this will affect demand for non-renewable energy. These reasons give me a lot of confidence that renewable energy is here to stay and it will continue to grow throughout the world, and I don’t see Kenya as any exception.”
Greenfield investment monitor fDi Markets shows that, between 2003 and 2013, the coal, oil and natural gas sector attracted $1.9bn in FDI, making it the second most popular sector behind communications. In the same period, the alternative and renewable energy sector attracted $1.6bn, making it the third most popular sector. Rather than being in direct competition, however, it is thought that the renewable and non-renewable energy sectors will mutually reinforce Kenya’s growth.
Jonathan Berman, author of 'Success in Africa: CEO insights from a continent on the rise', and a senior adviser at consultancy firm Dalberg, maintains that FDI into both sectors will fulfil separate objectives for the Kenyan government.
“Renewable energy investments are not really in zero-sum competition with hydrocarbons investments,” said Mr Berman. “The vast majority of FDI into hydrocarbons will lead to fuel exports overseas, whereas renewables will be primarily for domestic and regional consumption. Further, the hydrocarbon sector will generate significant revenues for the Kenyan government. A portion of these proceeds will likely go towards building up basic government capacities, and building out the economy’s infrastructure. So long as the currency risk is managed, this will strengthen the case for investment in other sectors in the Kenyan economy."