The ministry of Energy and Petroleum is seeking tax exemptions for drilling equipment and Power Purchase Agreements (PPAs) of more than 30 years to lower the price of geothermal power and ensure cheap electricity to millions of Kenya Power customers.
The proposals, the Ministry notes, are key to ensuring that the wholesale prices of geothermal power are not higher than $0.07 (Sh9) per kilowatt-hour (kWh), ultimately transferring the benefits to consumers.
Exempting drilling equipment from tax would make kits such as drilling rigs cheaper thus lowering cost of production. Longer PPAs would allow investors to recoup their investment over a longer period and at lower rates ensuring lower wholesale prices of geothermal power.
‘Reforming the steam tariff framework offers an opportunity to improve transparency, ensure cost reflective pricing and enhance project bankability,’ the Ministry notes in the draft plan for geothermal power development for 2026-2036.
‘Possible interventions include implementing tariff reduction measures towards meeting the target tariff of not more than 7 US Cents by; providing tax exemptions on geothermal development (drilling, equipment, and associated services and Having longer Power Purchase Agreement of 30 years and above.’
Parliament is key to these plans and must approve the tax breaks and longer PPAs before they take effect. Most of the existing PPAs are for between 20-25 years.
Geothermal power was the third cheapest two years ago at an average of Sh8.9 per kWh, according to official data, behind locally produced hydro and imported hydro at Sh8.39 and Sh3.83 per kWh respectively last year.
The proposals, contained in the draft plan for geothermal energy production, come at a time that the country has intensified efforts to tap a bigger chunk of the geothermal reserves estimated at more than 10,000 megawatts (MW).
The efforts have prioristised the geothermal fields of Menengai, Silali, Paka and Suswa areas as Kenya targets to increase the installed capacity of geothermal power by 1,413.5MW by 2025.
Kenya is set to get an additional 133 megawatts (MW) of geothermal by the end of this year courtesy of two independent power producers in Menengai and the Olkaria I plant (Units 1-3), which is owned by Kenya Electricity Generating Company.
Geothermal is the baseload (main source of power) to the national grid, accounting for 40 percent or 5,421.17Gigawatt-hours (GWh) of the 13,739.17GWh supplied to Kenya Power in the 11 months to November 2025, ahead of locally generated hydro at 23 percent (3,163.53GWh).
Increased supply of cheaper geothermal power is key to lowering the cost of electricity, thus making it more affordable to homes and businesses.
The cost of electricity in Kenya remains a sticky issue, largely due to the continued use of the expensive thermal power.
Kenya has 15 geothermal power plants currently operational with an installed capacity of 940MW. Ten of these are owned by KenGen while the rest by private investors.