The Energy and Petroleum Regulatory Authority (EPRA) has revoked critical investment and tariff-setting guidelines governing Kenya’s power sector, fundamentally reshaping the regulatory architecture just months after Parliament approved the lifting of a nearly three-year moratorium on new Power Purchase Agreements (PPAs). The regulatory overhaul, formalized through gazette notices dated January 5, 2026, signals Kenya’s decisive pivot toward competitive procurement and market-driven pricing mechanisms for electricity generation.
In a series of official notices, EPRA Director-General Daniel Kiptoo Bargoria withdrew three fundamental regulatory instruments that had governed how returns and tariffs were calculated for power projects: the Guidelines for the Computation of Allowed Return on Equity, the Guidelines for the Computation of Allowed Return on Investment, and the benchmark generation tariff for geothermal power. All three had been issued under Section 163(3) of the Energy Act, 2019, and their revocation takes immediate effect, removing these frameworks from legal force.
“Pursuant to section 163 (3) of the Energy Act, 2019, the Energy and Petroleum Regulatory Authority revokes the Guidelines for the Computation of Allowed Return on Equity for generation, transmission and distribution projects in the country,” Bargoria stated in the official gazette notice. A separate notice similarly revoked the return on investment guidelines, while yet another withdrew benchmark tariffs for geothermal power generation.
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The End of the PPA Moratorium
The regulatory changes arrive against the backdrop of Parliament’s historic decision in November 2025 to lift the moratorium on signing new PPAs, ending a freeze that had been in place for 2 years and 8 months. The National Assembly’s Departmental Committee on Energy tabled an Addendum Report on the Inquiry into the Matter of the Reduction of Electricity Costs in the Country on November 13, 2025, which lawmakers voted to adopt by acclamation.
The moratorium had been imposed amid mounting public anger over soaring electricity costs, opaque ownership structures among Independent Power Producers (IPPs), and expensive foreign-currency-denominated contracts that exposed consumers to exchange rate volatility. During the freeze, private investment in generation stalled while Kenya Power’s procurement options became increasingly constrained, even as demand continued climbing.
The decision to end the moratorium came as Kenya’s peak electricity demand reached 2,362 MW in July 2025—an increase of 250 MW over three years driven by industrial growth, urbanization, and expanding household consumption. Energy Principal Secretary Alex Wachira noted that the motion to lift the freeze was intended to support urgently needed new generation capacity, including additional geothermal projects and ongoing imports of approximately 200 MW from Ethiopia to bridge supply gaps.
Cabinet Secretary for Investments, Trade and Industry Lee Kinyanjui welcomed the lifting of the moratorium, describing it as “a significant shift in Kenya’s energy landscape” and predicting that new investments would lead to increased capacity, reduced outages, and stabilized tariffs. Current wholesale electricity prices stand at Sh9.04 ($0.07) per kilowatt-hour.
Transparency and Ownership Disclosure Mandates
As a condition for lifting the moratorium, lawmakers imposed sweeping transparency requirements aimed at addressing persistent public distrust in the power sector. Parliament ordered the Business Registration Service (BRS) to publish a comprehensive register of owners, beneficial owners, shareholders, and directors of all Independent Power Producers operating in Kenya within six months.
The disclosure mandate directly targets concerns about complex offshore shareholding structures and politically exposed partners that have fueled speculation about hidden beneficiaries profiting from inflated electricity tariffs. The sector has long faced suspicion that opaque ownership arrangements have enabled influential individuals to capture excessive rents through advantageous PPA terms negotiated outside public scrutiny.
The transparency measures represent the most consequential reforms in Kenya’s power sector in years, with lawmakers seeking to restore public confidence by exposing who ultimately controls and profits from private power generation. According to reports, the Ministry of Energy is currently engaging 54 developers on potential new PPAs that would add 1,112 MW of generation capacity across geothermal, hydro, wind, solar, and biomass technologies.
Additionally, Parliament ratified that all future amendments or variations to PPAs will require review and involvement from the Attorney General, including advisory and negotiation roles. This closes loopholes that previously allowed escalation of contract terms after initial signing without adequate legal oversight or public accountability.
The Cost Crisis Driving Reform
The push for reform has been driven by mounting evidence that privately generated electricity costs Kenyan consumers substantially more than power from the state-owned generator KenGen. In the year ending June 2024, Kenya Power paid KSh 73.7 billion to Independent Power Producers—approximately 60% of all power purchase costs despite IPPs supplying just 41% of the electricity consumed.
State generator KenGen provided the remaining 59% of electricity but collected only 40% of total payouts, according to parliamentary disclosures. On average, IPP electricity cost more than double KenGen’s rates, with some private geothermal units charging as much as KSh 17.28 per kilowatt-hour compared to KenGen’s KSh 8.24 per kWh for the same technology.
“We have agreed as a committee that any agreement must not go beyond 7 cents per kWh. We find that some of these IPPs are exploiting Kenyans by charging almost KSh 23 per kWh,” Nakuru East Member of Parliament David Gikaria stated during parliamentary debates on the reforms.
The cost differential has been attributed to several factors, including the structure of PPAs that guarantee fixed capacity payments to private generators regardless of whether their electricity is dispatched to the grid. Critics argue that bilateral negotiations between Kenya Power and IPPs, conducted without competitive pressure, have resulted in terms heavily tilted toward investors at the expense of consumers.
Kenya Power has been legally obligated to pay for contracted capacity even when it doesn’t need the power, leading to situations where the utility curtails cheaper renewable generation while continuing to pay expensive IPPs under take-or-pay contract provisions. This has contributed to the financial distress of Kenya Power, which has struggled with mounting debt and operational losses while consumers face some of the highest electricity tariffs in the region.
Currency Denomination Framework
Recognizing that foreign-currency-denominated PPAs have exposed Kenya to substantial exchange rate risk, lawmakers approved a new currency framework that allows future agreements to be denominated in Kenya shillings, foreign currency, or a hybrid combination of both.
The hybrid approach represents a compromise from earlier proposals that would have mandated shilling-only contracts—a stance that concerned investors who finance projects in dollars or euros and face currency mismatch risks if revenues are entirely in local currency. Under the new framework, local operating costs and tax payments will be priced in shillings, while financing costs and debt service obligations can remain in hard currency, better aligning revenue streams with actual cost structures.
This currency flexibility aims to match local costs to local currency while accommodating the reality that most project financing for large infrastructure comes from international lenders and development finance institutions that require hard-currency revenue streams to mitigate their own risk exposure. The balance seeks to reduce consumer exposure to exchange rate volatility while maintaining Kenya’s attractiveness as an investment destination for capital-intensive power projects.
Transition to Competitive Auctions
Perhaps the most significant reform mandated by Parliament is the directive that the Ministry of Energy and EPRA transition future energy procurement to a competitive auction model, explicitly modeled on South Africa’s Independent Power Producer Procurement Programme (REIPPPP). The auction system must be operationalized within twelve months of the November 2025 adoption of the parliamentary report.
The competitive auction approach represents a fundamental departure from Kenya’s historical reliance on bilateral negotiations, which critics have characterized as opaque deal-making that enabled inflated costs and favorable terms for well-connected developers. Under an auction framework, multiple developers bid competitively for the right to sell electricity to Kenya Power, with contracts awarded to the lowest-cost bidders that meet technical and financial requirements.
The Ministry of Energy and EPRA have been directed to draft and finalize an approved Renewable Energy Auctions Policy that outlines the transition from the Feed-in-Tariff (FiT) regime for advanced projects. The policy must align with gazetted indicative tariffs and the Least Cost Power Development Plan (LCPDP) 2024-2043, Kenya’s twenty-year rolling generation and transmission system planning document.
Legal and energy sector experts note that a 2021 Renewable Energy Auction Policy already exists, and strengthening that existing framework rather than developing an entirely new policy would provide greater efficiency and support timelier implementation of the auction scheme. However, the existing policy will require updates to reflect the specific conditions and safeguards mandated by Parliament’s 2025 reforms.
The Twelve-Month Implementation Challenge
The twelve-month timeline to design and operationalize a competitive auction system is widely viewed as highly ambitious given the institutional and technical requirements for effective implementation. An auction scheme requires a clear institutional framework supported by multi-disciplinary technical teams and transaction advisors to ensure rigorous project screening, bid evaluation, risk allocation, and contract negotiation.
Bowman’s law firm, which has tracked Kenya’s PPA policy evolution, notes that early engagement with developers and lenders will be essential to test assumptions, refine auction parameters, and ensure that bid conditions do not suppress participation or undermine project bankability. A credible and transparent auction system depends fundamentally on the clarity and predictability of its governing rules.
Parliament has also recommended the formation and operationalization of an independent IPP office by the Ministry of Energy in conjunction with the National Treasury, modeled on South Africa’s IPP Procurement Programme offices. This centralized entity would streamline the review, negotiation, and formalization of PPAs, with establishment required within twenty-four months of the parliamentary report’s adoption.
Setting up an independent IPP office will require substantial resources including staffing with multi-disciplinary expertise, dedicated funding, detailed operating procedures, governance frameworks, and procurement manuals. For the office to function as intended, it must be established as a standalone entity rather than merely an internal department within a ministry, providing credibility, insulation from political interference, and the capacity to apply consistent technical and commercial standards across all energy procurement transactions.
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Alignment with the Least Cost Power Development Plan
The requirement that competitive auctions align with the Least Cost Power Development Plan (LCPDP) 2024-2043 is intended to ensure that new generation capacity additions serve genuine system needs at optimal cost rather than reflecting political considerations or developer lobbying efforts disconnected from technical planning.
The LCPDP, prepared through collaboration between the Ministry of Energy, EPRA, Kenya Power, and other sector agencies, provides a detailed roadmap for generation and transmission expansion based on demand forecasts, resource availability, technology costs, and system reliability requirements. The plan projects that energy purchases will grow at varying rates depending on economic growth scenarios, with universal electricity access potentially achievable by 2028-2031 depending on the pace of new connections.
According to the 2024-2043 LCPDP, overall system costs are projected to increase from KSh 234.9 billion in 2024 to KSh 488 billion in 2033 in the reference expansion case. However, the plan projects that end-user retail tariffs in real terms could actually decrease from KSh 24.61 per kWh in 2024 to KSh 26.76 per kWh in 2033 in nominal terms, representing a reduction when adjusted for inflation.
The LCPDP identifies transmission network constraints as a critical challenge that must be addressed to enable the integration of new generation capacity. The document notes that several transmission lines require upgrades to prevent congestion and enable evacuation of additional supply from pending projects, particularly for renewable energy resources located in remote areas with high wind or geothermal potential.
Aggressive Implementation Timelines
Beyond the auction framework, Parliament has imposed stringent timelines for project development that will challenge both developers and regulators. The 2025 Committee Report recommends that EPRA ensure financial close and signing of power purchase contracts is achieved within 9-12 months, with Commercial Operations Date (COD) required within 24-30 months of financial close. EPRA may sanction delays to these timelines only in exceptional circumstances.
Achieving financial close within 9-12 months will be particularly challenging because lenders for utility-scale projects typically require a Letter of Support (LoS) from the Government of Kenya prior to financing. Based on industry experience, obtaining an LoS can be a protracted process involving inter-agency negotiations and review by multiple government entities including the National Treasury, Attorney General’s office, and sectoral ministries.
The aggressive timelines reflect Parliament’s determination to accelerate capacity additions and address the growing risk of load shedding. In recent months, both Kenya Power and President William Ruto have acknowledged that without additional capacity, rolling blackouts will become necessary to balance supply and demand. These warnings provide critical context for lawmakers’ decision to lift the moratorium while imposing stringent conditions aimed at preventing a return to costly, opaque procurement practices.
Battery Energy Storage Integration
The Ministry of Energy, in conjunction with EPRA, has been directed to incorporate competitive sourcing of Battery Energy Storage Systems (BESS) capacity into the Renewable Energy Auctions Policy. This reflects recognition that as Kenya integrates increasing shares of variable renewable energy from wind and solar, the grid will require substantial energy storage capacity to maintain stability and reliability.
BESS can provide multiple services including load shifting (storing excess renewable generation during low-demand periods for discharge during peak hours), frequency regulation, voltage support, and black-start capability. Competitive procurement of storage through auctions alongside generation capacity could deliver lower costs than negotiated contracts while ensuring that storage deployment aligns with system needs identified in planning processes.
The integration of BESS into Kenya’s power system is particularly important given the country’s high renewable energy penetration. As of December 2024, Kenya’s installed generation capacity exceeded 90% renewable energy, composed of 940 MW geothermal, 838 MW hydro, 435 MW wind, and 212.5 MW solar, alongside 605.8 MW fossil fuels, 200 MW imports, and 2 MW cogeneration. Managing this predominantly renewable mix requires sophisticated grid management and adequate flexibility resources.
Regulatory Uncertainty in Transition
While EPRA’s revocation of the return on equity, return on investment, and benchmark tariff guidelines creates space for new market-driven approaches, it also introduces regulatory uncertainty during the transition period. The gazette notices do not specify what frameworks will replace the revoked guidelines or how tariffs will be determined for projects in the pipeline that were developed under the previous regulatory regime.
The Kenya Gazette notices of January 2026 also revoked indicative feed-in tariffs for small hydro, biomass, and biogas technologies, as well as benchmark tariffs for solar, wind, small hydro, biomass, and biogas under the Renewable Energy Auction Policy. This wholesale elimination of existing tariff frameworks suggests EPRA intends to establish new benchmarks aligned with the competitive auction approach, but the specifics remain to be developed.
Industry participants have raised concerns about projects that obtained Expressions of Interest approvals or signed PPAs under previous frameworks but have seen their long-stop dates expire or approach expiration during the moratorium. The sector requires clear guidance on the transition from existing procurement frameworks to the auction system, including how stranded projects will be treated and whether any grandfathering provisions will apply.
Ongoing Tariff Approval Challenges
Even as new frameworks are being developed, EPRA faces pressure to approve renegotiated tariffs from existing PPAs. According to Auditor-General Nancy Gathungu’s recent reports, Kenya Power has successfully negotiated with several IPPs to denominate their contracts in Kenya shillings rather than US dollars, which would significantly reduce forex adjustment charges that have inflated electricity bills.
However, EPRA has yet to formally approve these renegotiated agreements, leaving Kenya Power legally required to continue charging consumers at the old, more expensive rates. Industry sources indicate that the regulatory approval process has created a bottleneck preventing consumers from realizing the benefits of successfully renegotiated contracts.
“We have done the heavy lifting. We have convinced the IPPs to take a haircut for the sake of the economy,” a Kenya Power insider revealed. “But until EPRA gazettes the new tariffs, we are legally bound to charge the old, expensive rates.”
Critics have accused EPRA of bureaucratic inertia, prioritizing procedural formalities over the immediate economic relief needed by struggling households and businesses. The ongoing delays raise questions about the regulator’s capacity to manage the complex transition to new procurement and tariff frameworks while simultaneously processing a backlog of pending approvals.
Broader Energy Sector Reforms
The regulatory overhaul occurs within a broader context of energy sector transformation in Kenya. The Energy (Electricity Market, Bulk Supply and Open Access) Regulations, 2024, which came into force in March 2024, have opened Kenya’s electricity market to greater competition by introducing wholesale and retail sectors, enabling cross-border electricity trade, and most significantly, allowing open access that lets eligible consumers and large commercial users choose their electricity suppliers.
These regulations ended decades of monopoly by Kenya Power in distribution, creating new opportunities for private sector investment in transmission and distribution infrastructure. Large businesses can now negotiate directly with generators for power supply, potentially obtaining better rates than the universal tariff while reducing demand on Kenya Power’s constrained grid.
The Energy (Net Metering) Regulations, 2024, introduced in June 2024, allow businesses and individuals generating renewable energy to send excess electricity back to the grid and earn credits, further decentralizing the power sector and encouraging distributed generation. These regulatory changes collectively represent the most comprehensive restructuring of Kenya’s electricity sector since liberalization efforts began in the early 2000s.
Path Forward and Implementation Risks
The success of Kenya’s power sector transformation hinges on effective implementation of the reforms amid significant institutional and technical challenges. The twelve-month timeline to operationalize competitive auctions is aggressive, the need to establish an independent IPP office is resource-intensive, and the requirement to align all procurement with the LCPDP demands rigorous technical capacity and planning discipline.
Moreover, the political economy of Kenya’s power sector—characterized by powerful vested interests, rent-seeking behavior, and the politicization of energy decisions—poses substantial risks to reform implementation. Previous attempts at sector restructuring have faltered when political will waned or influential stakeholders mobilized to protect existing arrangements.
The mandatory ownership disclosure requirements could prove transformative if rigorously enforced, potentially exposing politically connected beneficiaries who have profited from opaque procurement. However, the effectiveness of transparency measures depends on genuine political commitment to follow through on revelations and take action against improper arrangements, rather than merely publishing information without consequences.
The transition from negotiated to competitive procurement will require Kenya to develop institutional capacity comparable to what South Africa built through its REIPPPP, widely regarded as the continent’s most successful renewable energy procurement program. South Africa’s model featured dedicated teams, sophisticated evaluation methodologies, standardized contracts, robust monitoring, and political backing at the highest levels—ingredients that Kenya must now assemble under tight deadlines while managing a complex transition.
Conclusion
EPRA’s revocation of legacy power sector guidelines marks a decisive break with Kenya’s historical approach to electricity procurement and tariff setting. Combined with Parliament’s lifting of the PPA moratorium subject to stringent transparency and competition requirements, the reforms create potential for a more cost-effective, accountable power sector better aligned with consumer interests.
However, the regulatory reset also creates substantial implementation challenges and transition risks. The twelve-month timeline for auction operationalization, the need for new institutional structures, the requirement to process pending approvals while building new frameworks, and the political economy obstacles to genuine reform all represent formidable hurdles.
Whether Kenya’s power sector transformation delivers on its promise of lower costs, greater transparency, and improved service will depend on sustained political will, institutional capacity building, rigorous enforcement of new rules, and the sector’s ability to navigate the complex transition from old to new procurement regimes without compromising grid reliability or deterring essential investment. The regulatory changes of January 2026 set the direction, but the journey toward a transformed power sector has only just begun.
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By: Montel Kamau
Serrari Financial Analyst
29th January, 2026
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