Kenya’s attractiveness to investments in large-scale green hydrogen production is largely influenced by its ample renewable energy resources, a critical resource in the production of green hydrogen. Hydrogen is produced by splitting water into hydrogen and oxygen through electrolysis, and it is labelled “green” when renewable energy sources, thereby ensuring minimal greenhouse gas emission. As Kenya embarks on this journey, understanding the legal framework and factors affecting investment is crucial for potential investors.
Legal and Policy Framework
The Public-Private Partnerships Act
While there is no industry-specific regulation on green hydrogen production, the existing legal framework favours the implementation of the green hydrogen projects, particularly regarding the private sector’s involvement. The Private Partnerships Act 2021 (PP Act) provides a comprehensive legal framework for the participation of the private sector in the financing, construction, development, operation or maintenance of infrastructure or projects in collaboration with the government. Private investors can express interest to the government through privately initiated proposals.
2. The Green Hydrogen Strategy Roadmap for Kenya (the Strategy Roadmap)
This policy buttresses the Government’s commitment to the green hydrogen revolution and elaborates on its phased implementation plan for green hydrogen production.
Per the Strategy Roadmap, the government recognizes the initial challenge of developing a market for green hydrogen and tackling the uncertainties related to market demand and pricing. Consequently, in the strategy’s initial implementation phase spanning five years from 2023 to 2027, the Government intends to kick-start the hydrogen industry by prioritizing what it terms as “no-regret” options, such as domestic fertilizer production reliant on green hydrogen and ammonia, which is aimed at cultivating domestic demand for green hydrogen and its derivatives. Additionally, the Government aims to achieve 150MW dedicated renewable capacity for green hydrogen and reach 100MW of electrolyser capacity.
Following the initial phase, the Government will embark on the second phase spanning from 2028 to 2032. In this phase, it intends to develop pilot projects in other sectors such as transport, produce green shipping fuels, phase out at least 50% of nitrogen fertilizer imports and explore regional export opportunities for green hydrogen. Additionally, it intends to reach 350-450 MW additional renewable capacity for green hydrogen and reach 150-250 MW electrolyser capacity.
3. Kenya’s Guidelines on Green Hydrogen and Its Derivatives
In addition to the Strategy Roadmap, the Energy and Petroleum Regulatory Authority (EPRA) recently published the Guidelines on Green Hydrogen and Its Derivatives (the Guidelines) to provide a stepwise guide on “the sustainability criteria for green hydrogen and its derivatives in Kenya, relevant statutory requirements, standards and a monitoring mechanism for projects under development”. The key highlights of the Guidelines are:
a) Establishment of Regulatory Bodies
Some of the stated objectives of the Guidelines are to streamline the approval process as well as to promote compliance with the relevant international standards, regulations and other industry practices. Consequently, the Guidelines establish the Green Hydrogen Program Coordination Committee and the Green Hydrogen Secretariat.
The Committee’s primary role is to provide strategic oversight and monitor the implementation of the Green Hydrogen Strategy and Roadmap for Kenya. The Secretariat, on the other hand, is described as a “one-stop-shop” meant to “streamline project approval, fast-track implementation of flagship projects, and provide market research and value chain analysis”.
b) Guidelines on land and water
The project proponents are required to identify suitable land in consultation with the government. Where a developer identifies land that is not designated for industrial use, the developer may apply for and obtain a change of user. Developers are also required to comply with the Water Act 2016 and must obtain a water permit from the Water Resources Authority to extract or use a water resource.
c) Establishment of Regulatory Steps for the Establishment of Operations
The Guidelines require a project proponent to apply to the Ministry of Energy through an Expression of Interest (EoI). The applications should be accompanied by a feasibility study providing, inter alia, the project’s intended location, the size of the land required, the source of water and the partners involved in the project. Following EoI submission, the Secretariat shall examine it and make recommendations to the Committee, which shall then proceed to approve or reject the application with reasons and communicate its decision within 60 days of receipt of the EoI.
Following approval, the project proponent is required to conduct and submit a detailed feasibility study within 24 months. The feasibility study should provide certain prescribed information on resource assessment, the project’s technical feasibility, environmental and social impact assessment, financing and proposed off-takers, the risk management plan and the implementation plan. The Secretariat should then review the feasibility study and make recommendations to the Committee, which shall again proceed to approve or reject the application with reasons and communicate its decision within 60 days of receipt of the feasibility study.
Once the feasibility study is approved, the developer shall proceed to obtain the further approvals required under Appendix III of the Guidelines. These approvals include construction permits, power undertaking licences, physical planning approvals, and water permits, amongst others.
d) Incentives for Project Proponents
Under the Guidelines, investors in green hydrogen projects will also benefit from incentives based on the project’s designation as either an export processing zone (EPZ) or a special economic zone (SEZ). The incentives associated with EPZs include a ten-year tax holiday, exemption on duty and value-added tax on machinery and raw materials, a ten-year withholding tax holiday and 25% corporate tax on expiry of the ten-year tax holiday. The incentives associated with SEZs include exemption of imported goods from VAT, excise duty, import duty and declaration fees, zero-rated VAT for local supplies, a ten-year tax holiday, perpetual exemption from stamp duty and access to special electricity tariffs.
Investment Considerations for Project Developers
Investors looking to tap into Kenya's green hydrogen potential should consider several key factors:
a) Infrastructure
The production of green hydrogen requires infrastructure and high capital expenditure to manage the high production costs stemming from the need for electrolysers, constant water and electricity supply and storage facilities.
The Kenyan government has recognized this challenge and is taking steps to mitigate the same. In 2023, the government entered a financing agreement with the European Investment Bank aimed at financing the development of green hydrogen plants in Kenya. The agreement will see the EIB mobilise up to EUR 1.8 million in grants and provide loans to finance viable green hydrogen projects. Additionally, per the country’s Draft National Green Fiscal Incentives Policy Framework of 2022, the government plans to develop a green investment bank (GIB) to provide funding instruments and incentives for green investments. Once established, the GIB will provide a range of financial instruments, including credit guarantees, risk-reduction facilities, and debt and equity.
b) Accessible market
The Kenyan government has begun taking steps towards creating this market in line with the Strategy Roadmap.
c) Collaboration
Collaboration amongst institutions and governments at a regional and international level can provide additional opportunities and support for green hydrogen projects. Accordingly, the government entered into collaboration agreements with the European Union and should continue to pursue such partnerships to broaden the country’s opportunities in the production of green hydrogen.
Please note that this is not legal advice and is intended primarily for information purposes. If you require tailored advice or further information, please contact us at sarinke@mckayadvocates.com.
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