Kenya’s Fuel Subsidy Could Have Bought 28,000 Electric Buses!

Petroleum products contribute a significant portion of Kenya’s annual import bill. Petroleum products imported by Kenya increased by 12.0% to 6.4 million tonnes in 2021, costing the country a whopping US$3 billion!

Kenya’s fuel subsidy program that was rolled out to cushion consumers from skyrocketing petrol, diesel, and kerosene prices has been a hot topic in the country. In February of 2021, the BusinessDaily gave a good summary of the policy interventions  in Kenya’s petroleum sector. The government started collecting an additional Sh5 per liter of fuel in 2020 as part of a development levy. This was about 5 USD cents per liter at the time. The money would go into a “petroleum development levy fund” which would be used to cushion consumers when crude prices went above $50 per barrel. Well, as we know, things became a little hectic in the global energy sector over the past year, with oil going well above $50 per barrel. The government had to dip into this fund to subsidize retail fuel prices to help cushion consumers from the price shocks. The price of oil even went up to well over $100 a barrel this year and this caused some headaches as the subsidy would be unsustainable in the long term.

In his inaugural address last week after being sworn in as President, President William Ruto said “Our people are confronted daily with increasingly unaffordable prices, especially food and transport. In our economic forums across the country during the campaign, citizens consistently shared their anxiety, pain and fury on this matter. It calls for an urgent and decisive resolution. The interventions in place have not borne any fruit. On fuel subsidy alone, the taxpayers have spent a total of Ksh144 billion ($USD1,2 billion), a whopping Ksh 60 billion ($USD500 million) in the last 4 months.”

A Twitter user ephraimnjegafans had an interesting analysis of this subsidy. He says that the money could have been used for more long term solutions such as purchasing electric buses. “This money could have bought 28,000 electric buses at a cost of KShs 5 million each.” Here, he was referring to the BYD K6 electric buses that are available to purchase in Kenya for KShs 5 million each, excluding the battery. Bus operators can then lease the batteries for KSh20 ($0.18) per km on the pay-as-you-drive model for battery and associated services. The user goes on to add that the move would help reduce electricity costs in the long term as part of an accelerated adoption of electric mobility which will take up “idle” power.

Kenya’s total installed capacity of electricity increased to 2,991 MW in 2021 from 2,836.7 MW in 2020. Peak demand is close to 2,200 MW. However, in the off-peak night time, demand drops to around 1,200 MW. This means that the power company has some excess capacity at night leading to the venting of geothermal steam. Kenya has done really well to grow the share of renewables in its electricity generation mix. Renewables provided 89% of Kenya’s electricity generation in 2021, thanks to contributions from geothermal, wind, hydro, and some utility-scale solar. Kenya is one of the major players in the geothermal space and is in the top 10 in the world when it comes to geothermal generation installed capacity. Kenya’s installed geothermal capacity is now close to 1,000 MW. It would be a shame to keep putting all this clean geothermal to waste during the off-peak periods.

Minibus operators in Nairobi say their daily operations are generally around 200 km per day. The BYD K6, with a range of about 250 miles in city driving, could potentially meet their needs throughout the day and then be charged overnight at the depot. The 28,000 buses charging overnight could then help boost the power utility’s revenues by soaking up kWhs at night while also displacing some diesel imports, saving foreign currency.

A study by Madara, et al. in 2018, with data up to the end of 2017, states that a total of 55,435 minibuses (matatus) have been registered in Kenya since 1968. Their paper also suggested that the number of in-service matatus is estimated to be between 11,056 and 14,789. Since 2017, KNBS data shows that 459, 812, 1932, 1084, and 822 new matatus were registered from 2017 to 2021, respectively. That means a total of 4,297 matatus have been added since that study. Using the higher figure, and assuming none of the 4,297 new matutus are out of service, it would mean that a total of 19,086 matatus are active in the whole of Kenya. That gets you thinking — 28,000 brand new electric BYD K6s would have been transformational in Kenya’s public transport sector.

In March this year, Kenya Power acting CEO Rosemary Oduor said “Kenya Power can supply electricity to charge 50,000 buses and two million motorcycles during off-peak hours.” Therefore, KPLC can quite comfortably charge 28,000 electric  minibuses.

In his address soon after being sworn in as president, President William Ruto reaffirmed Kenya’s commitment to transition to 100% clean energy by 2030. During his campaign, President Ruto’s Kenya Kwanza Coalition put together quite an impressive manifesto that included strong support for electric mobility.

Kenya has a lot of locally generated clean, renewable electricity that can help enhance Kenya’s energy security, as well as reduce costs in the transport sector as well. Kenya stands to benefit quite a lot from substituting a significant portion of imported petroleum products with this locally generated clean electricity by accelerating the adoption of electric vehicles. Imports of petroleum products contribute a huge chunk of Kenya’s import bill. With Kenya’s trade deficit continuously widening, this import substitution will need to be looked at ASAP. According to the latest Economic Survey from the Kenya National Bureau of Statistics (KNBS), there was a 30.9% growth in imports in 2021. The increase in imports widened the trade deficit from KSh 999.9 billion in 2020 to KSh 1.4 trillion in 2021. That’s a trade deficit of about US$11.8 billion! Imports rose from KSh 1.6 trillion in 2020 to KSh 2.1 trillion, mainly driven by an increase in imports of petroleum products.

Kenya’s Trade Deficit Over The Past 5 Years

Source: KNBS 2022 Economic Survey

Kenya’s Petroleum Fuel Imports Over The Past 5 Years

Source: KNBS 2022 Economic Survey

The fuel subsidy has now been removed for petrol for now, sending petrol prices to an all-time high. Subsidies remain in place for diesel and kerosene.

We hope the new government moves fast to accelerate electric mobility adoption.

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