Tax Relief

Off-grid power suppliers are planning a tax break of 50 %

Market news

Off-grid energy providers are planning a tax break of 50 percent

Friday, May 21, 2021

MPs during a session in the Houses of Parliament. PHOTO | FILE

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BY BRIAN NGUGI
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Summary

  • Off-grid utilities are expected to receive a 50 percent tax break on their initial investment in buildings and machinery used to generate, convert and distribute electricity if Parliament approves the proposed legislative changes.
  • The Finance Act 2021 proposes to amend the Income Tax Act to include the generation, conversion and distribution of electricity on both the national and off-grid networks in order to encourage investment.
  • Currently this is limited to the generation, conversion and distribution of electricity in the national grid.

Off-grid utilities are expected to receive a 50 percent tax break on their initial investment in buildings and machinery used to generate, convert and distribute electricity if Parliament approves the proposed legislative changes.

The Finance Act 2021 proposes to amend the Income Tax Act to include the generation, conversion and distribution of electricity on both the national and off-grid networks in order to encourage investment. Currently this is limited to the generation, conversion and distribution of electricity in the national grid.

“By changing the definition of ‘manufacturing’ … people who make investments … are entitled to an accelerated investment allowance of 50 percent of the cost in the first year of use,” the consultancy firm Deloitte said in an analysis.

Power generation is capital intensive and such tax breaks would encourage additional investment and increase electricity coverage.

Kenya is currently running a number of off-grid electricity projects, including the Kenyan off-grid solar access project, backed by the Department of Energy and the World Bank, which aims to provide electricity to parts of the country that are not served by the national grid.

The project aims to restore equilibrium in access to electricity in the country.

Data from the Ministry of Energy show that while national electrification has increased from 23 percent in 2009 to around 70 percent today, much of it was reached along the country’s central corridor – Mombasa – Nairobi – Lake Victoria, excluding the north, and east and east Northern Kenya not electrified.

The project aims to fill the gap by adding an estimated 1.3 million households in West Pokot, Turkana, Marsabit, Samburu, Isiolo, Mandera, Wajir, Garrisa, the River Tana, Lamu, Kilifi, Kwale, Taita Taveta and Narok be connected to each other.

Apart from the state-sponsored initiative, more and more off-grid solar power start-ups are pouring into rural areas of Kenya and are offering allocation kits in the race for customers.

Households and high-consumption industrialists in Kenya have also turned to the solar industry in the past five years for reliable and cheaper supplies – a move that has angered power distributor Kenya Power as a result of reported lower sales and losses.

Across the world, switching to solar batteries has also become popular with grid companies who viewed stored energy as a means of saving a lot of money.

Venture capital funds recently increased their investments in clean and renewable energy in Kenya.

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