Energy for the Nation
Writer: Phoebe Calver
Project Manager: Donovan Smith
Kenya Electricity Generating Company (KenGen) is leading the power generator sector in Kenya, boasting an immense market share of 70 percent of the electricity capacity installed in the country.
The Company was incorporated in 1954 under the Company Act of the Laws of Kenya – known then as Kenya Power Company (KPC) – and following on from this the shareholders of the Company contracted East Africa Power & Lighting Company (EAP&L) to manage and subsequently incorporate the creation of Kenya Power & Lighting Company (KPLC) in 1983.
Governmental reforms hit the energy sector again and in 1996, major alterations were initiated, the generation of electricity was unbundled and the management of KPC was officially separated and renamed KenGen in January 1997.
“At this point KenGen took charge of all the public generating assets, while KPLC maintained the transmission and distribution functions,” explains Albert Mugo, Managing Director at KenGen. “As the leading power generator in the country, the Company currently produces 80 percent of the electric energy in the country, owning 32 power plants with a combined capacity of 1,632MW.”
In 2006, the Government sold 30 percent of its stake in the Company, leading to KenGen being listed on the Nairobi Securities Exchange (NSE) through a successful initial Public Offer (IPO), leading it to procure its current status in the market today.
“Our business is to deliver both affordable and clean energy, while making the investments needed to ensure a sustainable future in the market,” continues Mugo. “Over the years our Company has made massive investments and grown its renewable energy portfolio to 88 percent – further reducing Kenya’s carbon footprint – which enabled the country to attain a clean energy generation.”
It is through continued strategies and developments that KenGen has reached the level of success it has today. In 2007, the Company developed a 10-year transformation strategy plan known as Good-to-Great (G2G), building on the idea of taking the country through the creation of sustainable value from one generation to the next of Kenyans. This strategy has since been revamped in preparation for the next 10 years with a medium-term focus on commissioning 720MW of mainly renewable energy by 2020.
Fully renewable company
As part of the Company’s renewable strategy, its next pipeline project is 100 percent renewable, with the target aspiration of 2,500MW by 2025; comprised of 1,400MW from the current pipeline projects and 1,100 from new projects.
“In order to deliver the new capacity, we will need to raise US$9.5 billion,” adds Mugo. “In order to achieve this, we will draw on a mixture of financial approaches – mainly loans from the Government including concessionary financing – while in the future we will explore options including public private partnerships and asset-backed securities to fund our capital expenditure needs.
“The main basis for our growth which has allowed us to be so ambitious is our G2G transformation strategy. It has been the guiding philosophy which we intend to continue employing to retain our status as a market leader in the provision of renewable energy in the East Africa region.”
It is very important for both KenGen as a Company and Kenya as a whole that these targets and innovations are continuously being achieved and opening up the market to encourage competitors.
Separation of assets
Planning is pivotal to the success of a company when it comes to managing its supply chain and general procurement, particularly for the sourcing of goods both nationally and internationally while complying with the laws of procurement and other directives from the regulatory bodies.
“This division of the Company ensures equitability in bidding and contracting and also monitors expenditures versus our targets, ensuring that prices are within market values,” Mugo describes. “The inventory is well managed to ensure accountability through codifications, separation of assets and compliance with the environmental laws of disposal of scrap to ensure minimal risks to the environment.”
Perfectly matched with the spirit of the Company, the supply chain division is focusing on utilising local materials that have been produced in Kenya, in the spirit of ‘Buy Kenya Build Kenya’. It is hoped that this will encourage many entrepreneurs in Kenya to start up manufacturing enterprises that will have a positive effect on the economy.
Maintaining market leadership
Constant monitoring of both the economy and the industry has been pivotal for KenGen to retain its market leadership position, paying particular attention to the growing demand curve currently.
“At present we have 70 percent of the installed capacity, while supplying up to 80 percent of the national requirements,” notes Mugo. “Our vision is to remain the market leader in the provision of reliable energy in the East African region. It is fair to say that the backbone of our successful business model is a committed, competent and skilled workforce that is able to both deliver new power projects on time and within budget, while operating and maintaining existing assets to ensure sustained generation for the Company.”
In order to achieve the predicted growth aspirations, the Company will need to operate in three distinct structures, separate from its present arrangement.
Mugo explains: “We would need to alter our operations to work under a structure of KenGen A, KenGen B and KenGen C, and with these business model modifications and organisational changes; we will be able to adapt our G2G Horizon strategy to make our target attainable.”
These changes will inevitably allow for improved returns of current plants, profitability of future assets, improved tariff regulation, pursuance of new financing approaches and established new structures to expand upon; all of which make for a very exciting few years for the Company.
Backbone of success
Supporting KenGen’s success is a workforce it has strived for years to build, following a culture informed by the values of team spirit, integrity, professionalism and, of course, a safety culture.
“We are renowned for our on-time project delivery, focus on our renewable energy expansion drive, innovative nature, efficiency, and prudent management of our resources,” continues Mugo. “We are the largest geothermal producer in Africa and the eighth largest in the world, with green energy accounting for 88 percent of both ours and the national generation portfolio.
KenGen is the first Company to pioneer the geothermal wellhead condensing technology, which entails the use of small power units fitted to the wells in use. Generation can then take place in as little as nine months from the well being tested.
This technology has aided the recovery in investment in the drilling of wells, which would perhaps now be lying dormant pending the construction of a main power plant. Innovative technologies such as these are the backbone of what is setting KenGen apart in the industry.
Preferred supplier of power
Moving forward, KenGen will need to continuously position itself as the market leader in the industry and a preferred supplier of choice for Kenya.
“Our strategic intent is to increase our capacity by 720MW by 2020 in order to remain relevant in the market,” Mugo continues. “We will continue renewable energy-backed expansion strategies while we look to consolidate our diversification strategy in consultancy services, geothermal steam sales, commercial drilling and the development of carbon assets.”
The Company’s 10-year transformation strategy of evolving from good to great through purely sustainable usage will remain KenGen’s guiding philosophy. With the goal to stabilise and create sustainable power supply for Kenya, this will constantly be monitored and revamped as the Company grows and projects open up.
Mugo concludes: “We developed the G2G strategy in 2008 as a response to changes in our environment; it sets out a clear vision to remain the market leader in the provision of reliable, safe, high quality, sustainable and competitively priced energy in the region.”
G2G symbolises everything the Company is built upon; the dual objective of combining its strategy and philosophy while also incorporating corporate social responsibility. Not only will G2G continue to move KenGen from a good to great Company, but also create value in the Company for its stakeholders and future generations in the country.