The Kenyan electricity industry has entered a phase of rapid expansion. Massive infrastructure development is being conducted in the power generation, transmission and distribution sectors. Strong economic growth, coupled with government-backed plans to achieve 100 percent electricity connectivity by 2030, is underpinning exciting times for the industry.

New analysis from Frost & Sullivan, 2010 Updated Overview of the Kenyan Electricity Industry, finds that the total generation capacity of Kenya stood at approximately 1,724 MW by the end of 2009. Hydroelectric power accounted for approximately 44 percent of the country's total installed capacity in 2009, with thermal and geothermal power accounting for 41 and 9 percent, respectively. In this research, Frost & Sullivan's analysts thoroughly examine the following sectors: power generation, power transmission and power distribution.

"There are two important growth drivers in the Kenyan electricity industry," said Frost & Sullivan Research Analyst Salima Zyambo. "The first is the high economic growth underway in Kenya and second, the government's goal of achieving 100% electricity connectivity in the country by 2030."

The government of Kenya is focusing on harnessing the country's geothermal and wind electric energy potential estimated to be 7,000 MW and 4,400 MW, respectively. Geothermal energy is expected to replace hydro energy as the major source of electricity.

Since the inception of Vision 2030 in 2008 (Kenya's economic development strategy for achieving and maintaining an economic growth rate of 10 percent per annum until 2030), the government has introduced several reforms to revive the country's key industries like telecommunications, tourism and agriculture. This, in turn, has led to the growth of these industries.

"It is imperative that key economic sectors such as these receive FDI in order to experience continued growth," advises Zyambo. "Furthermore, the Kenyan government realizes that one of the key success factors to achieving this objective is a constant and reliable electricity supply."

However, high electricity tariffs are emerging as a major challenge for the industry. Although Kenya remains the economic hub of East Africa and is experiencing rapid economic growth, many multinational companies in the manufacturing sector have closed down their operations in the country. They have cited surging production costs as the main reason, with high electricity tariffs being a major contributor to these costs.

"Tariffs are an important source of funds for ongoing Government projects," remarks Zyambo. "But with companies from one of the industry's major end user sectors exiting the country, this is proving to be a key challenge in the industry."

Government-supported incentives to companies that generate their own power and/or implement energy-saving measures in their daily operations could go a long way toward reducing the energy costs incurred by companies.

"The Kenyan government needs to proactively encourage companies to implement energy saving measures in their daily operations," said Zyambo. "Moreover, it needs to encourage companies that have the resources to generate their own electricity."