Power Purchase Agreements: Understanding Complex Energy Contracts from a Kenyan Lens

Electricity powers more than just lights, it drives economic growth, has a direct effect on the prices of goods and services, and weighs on every household and business budget. Any change in electricity prices immediately impacts people’s purchasing power, making power pricing a matter of public interest. Power Purchase Agreements (PPAs) are a crucial tool in this regard, designed to lower electricity costs by encouraging competitive energy procurement. Through its main electricity utility company, Kenya Power, Kenya has signed at least 42 PPAs with private developers to address high electricity tariffs. Yet, electricity prices in Kenya continued to rise. On 29th March 2021, President Kenyatta appointed a Taskforce for the Review of Power Purchase Agreements (the Taskforce). The Taskforce was tasked to review existing PPAs, investigate why electricity prices were rising despite these agreements, and possibly terminate or renegotiate unfavorable ones. All ongoing PPA negotiations were also halted during the Taskforce’s tenure. A year later, in 2023, a proposal for legislative reforms followed, with Senator Edwin Sifuna sponsoring the Energy (Amendment) Bill, 2023 a senator proposing new measures meant to enhance the management of PPAs. These efforts reveal that PPAs are far more complex than they appear and do not automatically result in electricity price reductions. This article explores the nature of PPAs, their implementation challenges in Kenya, and their impact on electricity prices. It examines, for example, why some of these agreements have paradoxically led to price increases and what possible measures can be used to address this issue.

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