Consumers in Kenya should brace themselves for even more challenging economic conditions in 2026 as the government intends to implement new taxes on fuel and electricity to finance energy infrastructure.
This action is expected to impose extra charges on consumers, further increasing the prices of goods and services.
Named the Consolidated Energy Fund (CEF), this initiative aims to gather $18.7 billion over five years to enhance energy-related infrastructure, such as dams, geothermal power plants, and solar projects, while the country aims to add 5,000 megawatts to its power grid by 2030.
This indicates that the government will collect at least Sh478 billion from taxpayers annually until 2030, raising the costs of power and fuel.
Energy Cabinet Secretary Opiyo Wandayi stated that the fund will source money from various channels, including allocations from Parliament and contributions from energy sector stakeholders, which may involve new fees charged to consumers for fuel or electricity.
“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 mentioned in the Energy and Petroleum Policy for 2025–29.
Kenyan consumers are already subject to several levies that support energy-related initiatives.
These include the Roads Maintenance Levy, which is charged at Sh25 per litre of petrol and diesel, and the Petroleum Development Levy (PDL), which is set at Sh5.40 per litre of petrol and diesel and Sh0.40 per litre of kerosene.
In the electricity sector, the Rural Electrification Authority (REA) Levy, which is five percent of the cost of electricity units consumed, helps finance electrification projects in rural areas.
Overall, Kenya imposes the highest taxes and levies on petroleum products per litre for the period from August 15 to September 14, 2025.
Super petrol in Kenya faces a tax of Sh82.33 per litre, which is considerably higher than Tanzania’s 50.64, Uganda’s 52.30, and Rwanda’s 30.69.
In Kenya, diesel taxes are set at Sh69.67, while Tanzania, Uganda, and Rwanda charge 44.59, 40.76, and 36.79, respectively.
Electricity costs in Kenya are also among the highest in the area, with residential users paying about Sh28.72 per unit and businesses paying Sh22.44 per unit. These rates cover power, transmission, distribution, and taxes, but can change based on how much is used and are affected by the varying Fuel Cost Charge (FCC) and Foreign Exchange (Forex) adjustments.
Experts in taxation, economics, and energy who spoke to the Business Standard have estimated an extra Sh3 per litre of fuel and Sh1 for each unit of electricity if the country aims to reach an annual goal of Sh480 billion.
Jacob Luyegu, a tax policy expert from the UK, warns that even a small additional tax on fuel and electricity could harm the economy.
“Production costs are expected to rise by at least Sh5. Producers will not hesitate to pass these costs onto consumers, who are already struggling to afford food. This is complete madness,” he stated.
Terry Musau, a retired energy engineer, questions where Kenya plans to source an extra 5,000 megawatts of power when consumers are already paying for excess capacity.
“While Kenya has an ambitious goal to increase power supply, the reasoning in the Energy and Petroleum Policy for 2025–29 contradicts basic demand and supply principles,” Musau remarked.
“The manufacturing sector contributes less than 10 percent to Kenya’s GDP. Why doesn’t the government focus on developing more industries before pushing for additional power? This is absurd,” he added.
Every year, Kenya spends billions on Independent Power Producers (IPPs) for power that goes unused, with data from the energy regulator showing that Kenya Power paid Sh151.7 billion to Kenya Electricity Generating Company PLC (KenGen) and other IPPs in the 2023/24 financial year.
During his appearance before the Senate Energy Committee, Wandayi stated that the payments covered the Kenya Electricity Generating Company (KenGen) and several independent power producers (IPPs) for the electricity used, as well as for the idle capacity that was not utilized throughout the year.
Wandayi mentioned, “The payment method for public and independent power producers guarantees that if a plant is not used due to lower demand, the generators can fulfill their capital recovery responsibilities and fixed operation and maintenance expenses, ensuring that the plant is ready for use whenever demand increases.”
The IPPs that received the highest payments from July 2022 to June 2024 included: Triumph Power at Sh6.2 billion ($48.2 million), Rabai Power at Sh6.1 billion ($47.7 million), Thika Power at Sh4.8 billion ($37.3 million), Gulf Power at Sh4.4 billion ($34.1 million), and (EA) Power at Sh4.21 billion ($32.6 million).
