Renewable energy value chain dynamics and productive sector growth in Kenya

Abstract

Despite Kenya's substantial progress in renewable energy development, productive-sector growth remains constrained, raising concerns about whether the country's renewable energy transition is translating into improved performance across agriculture, manufacturing and services. Between 2015 and 2023, agriculture contributed about 20.9% and manufacturing about 8.3% of Kenya’s GDP, while services accounted for 55%. As of 2023, Kenya had an installed capacity of about 2,453MW, with 80–90% from renewable sources. However, persistent load-shedding, low grid-penetration and capacity utilization below 30% have created a structural energy gap, with net imports accounting for 22.3% of total energy use. Existing studies treat renewable energy stages in isolation and largely ignore transmission–distribution losses, despite their importance in determining usable electricity, costs, reliability and sectoral outcomes. The purpose of this study was to investigate the influence of renewable energy value chain dynamics on growth in Kenya's productive sector. Specifically, this study has examined the effects of renewable energy value chain dynamics on the manufacturing, services and agriculture sectors in Kenya. This study is anchored in an augmented Cobb–Douglas framework derived from the Solow–Swan growth model and adopts a correlational design. Time series data from 1980 to 2024 were sourced from WDI and EIA and analyzed using ARDL-ECM frameworks. Findings show that renewable energy consumption and installation significantly influence manufacturing, with β = 6.517 (p = 0.001) and β = 44.405 (p = 0.037) three years earlier, supporting the energy-led growth and endogenous growth theories that link reliable energy access to productivity expansion. Generation exhibits mixed effects, with β = 24.554 (p = 0.010) two years earlier, reflecting value chain dynamics and structural inefficiencies in energy systems, while transmission-distribution losses reduce output with β = -48.318 (p = 0.011) four years earlier, underscoring infrastructure constraints and efficiency losses. Service performance is positively influenced by consumption, with β = 60.264 (p = 0.000), consistent with demand-led growth theory, while generation shows persistent negative effects, with β = -236.864 (p = 0.009) two years earlier, indicating supply unreliability and inefficiencies. Transmission-distribution losses exert marginal negative effects. Agriculture responds to installation with mixed effects, with β = 261.390 (p = 0.003) one year earlier, reflecting structural adjustment, while consumption supports performance with β = 10.899 (p = 0.049) one year earlier. Transmission-distribution losses show marginal positive effects. These findings imply that strengthening energy efficiency, reducing losses and aligning renewable energy deployment with sector-specific needs are critical for lowering costs, enhancing productivity and advancing climate-resilient growth in line with Africa’s Agenda 2063.