Economics of Renewable Energy

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The Economics of
Renewable Energy in Kenya

1.0 BACKGROUND
1.1 Introduction

The Kenyan economy will increasingly feel the impact of the Government’s commitment to reducing carbon emissions, including targets for greater use of energy from renewable sources. The Government describes its targets for renewable as challenging; others have suggested they are unachievable. In any event, the effort to meet them will come at a cost and, if not properly managed, risks distracting attention from other means of reducing emissions. It seems timely, therefore, to examine the economics of renewable energy. We take as a given the Government’s wish to reduce carbon emissions; we do not address how far such reductions are justified as a contribution to a world-wide effort. Targets have focused the spotlight on renewable rather than other means of reducing emissions such as energy efficiency or greater use of nuclear power. The EU is committed to a binding target that 20% of its energy consumption should be from renewable sources by 2020. Individual states’ contributions to the overall target are still only proposals and some remain a matter of dispute. Kenya's Investment Plan (IP) for the Scaling-Up Renewable Energy Program (SREP) funding is showing how far Kenya has reached at the moment. The IP is in line with the national renewable energy development strategy as set in the Least Cost Power Development Plan (LCPDP), Rural Electrification Master Plan, Sessional Paper No. 4 of 2004 (The energy policy document), the Energy Act of 2006, the Feed-in Tariff (FiT) Policy, the Kenya National Climate Change Response Strategy and Kenya Vision 2030 (the National economic development blueprint). Kenya is one of the six pilot countries selected to benefit from SREP. The SREP program will support Kenya's initiatives towards achieving a transformational change that will lead the country towards low greenhouse gas (GHG) emission development pathway by harnessing the abundant renewable energy resources in country.

Energy is not considered as a basic need, but it is a basic ingredient in the successful satisfaction of most basic human needs. The level and intensity of commercial energy use is a key indicator of economic growth in a country. In Kenya for example, the consumption of commercial energy has seen a decline over the last three decades due to a weak and sluggish economic performance. Conversely, the cost and accessibility of energy has significant impacts on all economic activities. Lack of reliable energy supply discourages business activities, while high energy costs result in expensive goods, frustrating endeavors to export. 1.2 Status of Energy Sector

Figures released by the Ministry of Energy (2002) indicate that the energy sector in Kenya is dominated by biomass based fuel: fuel-wood and charcoal are the primary cooking fuel of the poor, accounting for over 68% of national consumption. Petroleum based fuels used in the transport and industrial sector account for another 22%, while electricity contributes 9%. The balance is shared between renewables such as wind power, solar amongst others. In terms of commercial energy, fossil fuels lead the league, with some 2.5 million tonnes of petroleum fuel consumed in 2002, and projected annual growth rate of 2%. Practically all this quantity is imported and constitutes almost one quarter of the total national import bill. The contribution from electricity amounted to some 4700 GWH of electricity energy in 2002. Of this, roughly 20% was generated from thermal plants burning petroleum products. The rest came from renewable sources, mainly hydro and geothermal. A sizeable amount of energy is also generated and consumed in-house by sugar factories burning bagasse and fuel-wood to produce process steam and electricity for own use. 1.3 Status of Electrical Power Sector

The commercial generation of power in Kenya is dominated by hydro-based supplies. Of the 1235 MW installed capacity in...
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