Finance Bill 2024 threatens Kenyans’ access to affordable solar energy systems

OPINION
Finance Bill 2024 threatens Kenyans’ access to affordable solar energy systems

The proposed Finance Bill set to be presented before Parliament this week poses a significant threat to Kenya’s remarkable progress in expanding electricity access to rural areas using solar energy systems, with millions of Kenyans potentially being left in the dark.

With new looming taxes set to hinder the extraordinary growth of this vital technology, concerns are mounting about the fallout for low-income families and businesses living without electricity access, who, despite having the most to gain from solar solutions, will feel the squeeze hardest due to their shallow pockets.

Today, Kenya is a world leader in deploying solar energy, which has helped transform the nation’s economy and Kenyan citizens’ lives for the better. 

Growth has been spurred by support from the Government of Kenya, leading to the existence of a robust industry of solar companies and installers who deliver solar across the country, including in remote and underserved off-grid locations. 

In the past four years alone, off-grid solar companies have distributed over 6 million products, reaching more than 15 million Kenyan citizens across 3 million households. 

This commendable achievement has played a pivotal role in elevating Kenya’s electrification rate, with over 30% attributed to off-grid solar lanterns and solar home systems (KEREA, 2024).

However, the proposed reintroduction of Value Added Tax (VAT) threatens to increase the retail price of basic solar energy products by 15% or more. 

Taken in conjunction with other suggested taxes in the proposed Finance Bill, including an “eco-levy” on rechargeable batteries, some products could increase in price by up to 40%. 

Such measures jeopardize Kenya’s burgeoning solar industry and render solar products unaffordable for many low-income and off-grid families and businesses.

If the bill passes, the price of a basic solar home system for lighting and phone charging, now a ubiquitous fixture across Kenyan villages and farms, would increase by 15% or more, typically adding 2,300 shillings to the cost of essential energy systems that many families already struggle to afford. 

Based on data from a similar tax increase in 2020, these price increases would mean that roughly a quarter of families who today can afford solar energy would lose access to the technology, meaning millions of families left in the dark. 

There would be significant negative knock-on impacts on education, livelihood, health, and well-being for those forced to go without electricity.

Until now, the off-grid solar sector has been a major driver of green jobs in Kenya, creating thousands of office-based jobs and tens of thousands of indirect roles for agents who install, sell, and service solar kits, according to KEREA. 

However, solar companies anticipate having to lay off full-time staff in Kenya and cancel hiring plans if the Finance Bill applies VAT to solar products. 

Moreover, many indirect roles, including solar installers, are at risk, threatening the livelihoods of many in the industry. 

All told, over 10,000 green jobs are at risk nationwide, many in rural areas with limited employment opportunities.

GOGLA, a global solar energy association, calculated that adding VAT to solar products would undermine Kenya’s intended tax revenue generation. 

Companies in this sector today contribute significantly to government revenue, paying over Ksh4.5 billion in taxes and levies in 2023 alone.

GOGLA highlighted that reduced supply of solar kits would result in losses of corporate income taxes, employment taxes, and import duties currently generated by the solar industry.

Kenya’s leadership in off-grid solar hangs in the balance. These proposed changes would destabilize solar companies, leading to contractions and potential closures. 

Rural families would suffer.  Further, the unintended environmental consequences of these policies could drive a resurgence in the use of harmful and polluting energy sources, such as kerosene lamps and diesel generators, counteracting progress towards a cleaner, sustainable future.

This week’s decision by policymakers carries profound implications for Kenya’s transition to green energy, the accessibility of reliable electricity for families, and the nation’s economic trajectory.

Written by: Patrick Tonui, Head of Policy and Regional Strategy, GOGLA

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