Earnings from the sale of electricity in Kenya and Tanzania will rise by $320 million in the next five years, the international market consultancy Frost & Sullivan has predicted.

In Kenya, revenues are expected to rise from the $365 million made in 2006 to $512 million by 2013. In Tanzania, revenues have been projected to shoot up to $440 million from $264 million in 2007 in the same period.

Growth in revenues in both countries could, however, be affected by inadequate investments, as well as reliance on rain-fed dams for electricity generation at a time when rainfall in East Africa has become unreliable and erratic, the consultancy says.

"While Kenya's robust economic growth is fuelling the demand for power, existing supplies are unable to meet demand, leading to acute power shortages and blackouts," noted Frost & Sullivan research analyst Moses Duma.

"Furthermore, approximately 62 per cent of Kenya's power plants use water as their major feedstock, leaving them prone to fluctuating water levels as a result of climate and weather variations."

Kenya currently has an installed capacity of about 1,160MW.

According to the Frost & Sullivan report, the dominance of one state utility - the Kenya Power & Lighting Company - in power transmission and distribution remains a major constraint for the Kenyan electricity industry, especially in attaining the required standards of service.

"Lack of project finance is an additional barrier for prospective companies, and even the Kenyan government lacks adequate financial resources to actualise the planned power projects," said Mr Duma. "Even though energy resources are plentiful in Kenya, the infrastructure to transport, distribute, transform and efficiently utilise them is lacking."

The report concludes that the Kenyan power industry is still in the developing stage, but has considerable potential for growth in the short to medium term. The government's immediate focus, the firm says, should be on improving tariff levels to attract investment from both local and international companies.

In Tanzania, according to the country assessment by the firm, rising demand from both local and export power markets has created opportunities for more investments, with the country turning to both gas and coal for power generation to reduce the supply-demand gap.

"Tanzania has a population of 39.4 million, of which only 10 per cent have access to electricity," noted Mr Duma. "With economic development fuelling residential and commercial demand for power, the Tanzanian government is channelling substantial resources towards upgrading existing power plants, building new ones and exploring alternative sources of power."

Tanzania has an identified potential to generate 4,000MW, which can be used to meet both local demand and for export markets, including sales to the Southern African Power Pool.

The country operates both hydropower and thermal power systems, with hydropower constituting about 62.8 per cent of the country's power generation capacity.

Thermal power in Tanzania comes from natural gas from Songo Songo, as well as from burning other fossil fuels such as diesel. Efforts are currently underway to convert some diesel power plants to gas.

Overall, Frost & Sullivan say in their country report, the Tanzania power industry presents significant investment opportunities for independent power producers (IPPs).

Three major IPPs are already contributing power to the national grid through the Tanzania Electric Supply Company (Tanesco) but, according to the consultancy, the government still needs a clear strategy for the involvement of IPPs

Like in Kenya, a major hurdle for companies wishing to enter the market is the lack of project finance," says Mr Duma.

"The Tanzanian government lacks adequate finance to fund power sector projects, and due to this, many ambitious projects that were identified remain undeveloped."

The dominance of the government electricity utility, Tanesco, has also strifed the development of the power sector, says the consultancy firm.