The government has announced plans to introduce new taxes on fuel and electricity starting in 2026 to finance a major energy development programme.
The move is part of efforts to raise funds for the Consolidated Energy Fund (CEF), a new initiative expected to support the construction of dams, geothermal power plants, and solar projects across the country.
Through the fund, the state hopes to mobilise about $18.7 billion (Ksh 2.9 trillion) over the next five years to expand energy infrastructure and add 5,000 megawatts to the national grid by 2030. This means taxpayers could contribute an estimated Ksh 478 billion each year, with part of the money expected to come from new levies on fuel and electricity.
Energy Cabinet Secretary Opiyo Wandayi stated that the fund will draw resources from multiple sources, including Parliament and industry stakeholders.
“The sources of the Fund shall be pursuant to Section 216(2) of the Energy Act and include appropriations from Parliament, contributions from energy sector players,” Wandayi said in the Energy and Petroleum Policy for 2025–29.
Electricity costs in Kenya are already among the highest in the region. Residential consumers currently pay about Ksh 28.72 per unit, while businesses pay around Ksh 22.44 per unit, depending on monthly fuel cost and foreign exchange adjustments.
Kenyans also pay several existing levies tied to energy infrastructure. These include the Roads Maintenance Levy charged at Ksh 25 per litre of petrol and diesel, and the Petroleum Development Levy (PDL) charged at Ksh 5.40 per litre of petrol and diesel, and Ksh 0.40 per litre of kerosene.
Additionally, the Rural Electrification Authority (REA) Levy, which is 5 per cent of electricity costs, is used to fund rural power connections.
Compared to its East African neighbours, Kenya’s fuel taxes remain the highest. Super petrol attracts Ksh 82.33 in taxes per litre, compared to Ksh 50.64 in Tanzania, Ksh 52.30 in Uganda, and ksh 30.69 in Rwanda. Diesel is taxed at Ksh 69.67 per litre, while Tanzania, Uganda, and Rwanda charge between Sh36 and Sh45. Kerosene costs Ksh 55.14 per litre, significantly higher than Ksh 37.26 in Tanzania.
Tax experts warn that the new charges could worsen the cost-of-living crisis. They project an increase of Ksh 3 per litre of fuel and Sh1 per unit of power if the government is to meet its annual target of Ksh 480 billion.
According to Jacob Luyegu, a UK-based tax policy expert, the move could have devastating effects on the economy.
“The cost of production is likely to go up by at least Ksh 5. Producers will not blink at passing the cost to consumers, already struggling to put food on the table. This is total madness,” he said.
Retired energy engineer Terry Musau questioned the government’s plan to expand power production while the country continues to pay for unused electricity.
“Although Kenya has an ambitious plan to add more power to its grid, the reasoning in the Energy and Petroleum Policy for 2025–29 defies core principles of demand and supply,” Musau said.
“The manufacturing sector barely contributes less than 10 per cent to Kenya’s GDP. Why can’t the government push for more industries before advocating for more power? This is insane,” he added.
Kenya Power continues to pay billions to Independent Power Producers (IPPs) for unused capacity. Data from the Energy and Petroleum Regulatory Authority shows that in the 2023/24 financial year, Ksh 151.7 billion was paid to the Kenya Electricity Generating Company (KenGen) and other IPPs.
Appearing before the Senate Energy Committee, CS Wandayi defended the payments.
“The methodology for paying the public and independent power producers ensures that where a plant is not dispatched due to reduced demand, the generators can meet their capital recovery obligations and fixed operations and maintenance costs to ensure that the plant is available for dispatch at any given time when demand arises,” he said.
Between July 2022 and June 2024, the highest-paid independent producers included Triumph Power (Sh6.2 billion), Rabai Power (Ksh 6.1 billion), Thika Power (Ksh 4.8 billion), Gulf Power (Ksh 4.4 billion), and EA Power (Ksh 4.21 billion).
While the Energy Ministry argues that the Consolidated Energy Fund will help reduce dependence on borrowing and improve infrastructure, economists warn that it could further strain households already struggling with inflation.
Many fear that the proposed levies could make essentials such as food and transport even more expensive, deepening financial pressure on millions of Kenyans.
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