Kenya: Tax Cut on Solar Panels to Light Up More Homes

Players in the solar energy market last week won a reprieve when the government removed tax on imported raw materials for the manufacture of solar panels.

The move is also expected to reduce the cost of acquiring the units for consumers, eliminating one of the stumbling blocks against adoption of green energy.  It will also reduce demand on the national electricity grid which is currently under pressure from increased investments especially by the manufacturing sector.

“To encourage local manufacturing, I propose to grant duty remission on inputs for the production of solar panels,” said Finance minister Uhuru Kenyatta in last week’s Budget statement.

Solar panels are duty free while the imported raw materials for the manufacture of the same attract duty at 25 per cent and 10 per cent which in effect makes local manufacture unattractive. This comes as a boost to solar equipment dealers who are gearing up to boost supplies in anticipation of high demand thanks to policy changes that require property developers to install the systems on housing units.

Growing demand

Builders had shed away from the expensive installation costs that range from Sh 100,000 for low energy consuming homes to Sh 500,000 per unit for high consumers, especially units fitted with water heating systems.  Market players said demand will grow as prices of raw materials go down, inclining producers to expand operations.

“This will boost production as capacity to produce still remains,” said Guy Jack, the managing director of Chloride Exide, a solar solutions vendor.  The tax remission is also expected to impact positively on institutions such as schools, hospitals and other institutions, greatly reducing the burden on the national grid.

However, local companies involved in the trade will have to raise their production capacities to match the new opportunities.  Total Electricity consumption grew 6.0 per cent with the number of connections under the Rural Electrification Programme rising by 22.3 per cent to stand at 251,056 nearly a year ago as at June, last year.

Among the players in the solar energy sector are Kenital Solar Energy, All Solar, Solargen Power, and Think Solar Technics.  The measure is aimed at managing the rising demand for electricity whose least cost option, hydro power, requires heavy capital investment while renewable alternatives like wind and geothermal are too expensive to set up.  Water heating systems take up to a quarter of power in homes, while solar provides a cheaper alternative in the first three to five years after investment, depending on the technology used.

Last year, water heating used 1,254 Ghw of electricity or 24 per cent of Kenya’s total power consumption of 5,155 Ghw.  The tax incentives are also expected to spur employment as manufacturers buffer labour to make solar equipment.  Read full story at