Kenya’s guidelines on green hydrogen and its derivatives

The Guidelines do not specifically prohibit the production of hydrogen through other carbon free sources of energy including the application of nuclear, which remains legal in Kenya as regulated under the Nuclear Regulatory Act^[2​].  The mere exclusion of nuclear energy from the applicable list of ​renewable energies may be construed to mean that hydrogen derived from the application of nuclear energy is undesirable. However, it is noteworthy that if the Nuclear Power & Energy Agency (NuPEA) Strategic Plan 2023 – 2027^[3] is to be implemented, nuclear power may be connected to the grid and may in the end be used to produce green hydrogen. In view of the various kinds of hydrogen that are capable of being produced, it would be wise for Kenya to consider a more elaborate description of hydrogen production processes that are allowed in the substantive law in order to create a variety of suitable opportunities that accommodate available carbon free sources of energy and sustainable technologies. 

The Guidelines highlight water, land and local communities as key areas that require careful consideration by developers of hydrogen. 

Clause 2.2 sets out the li​censing and approval procedure to be followed by a developer of green hydrogen in Kenya, this is summarized in the diagram below: 

^[4]

The licensing or approval process commences with the submission of an Expression of Interest (EoI) to the Ministry of Energy and Petroleum in a prescribed form. The EoI is accompanied by a pre-feasibility study report that in summary describes the project including the identification of suitable location for the project, source of water, source of financing, partners to the project and the presentation of proposed off-takers. Once the EoI is approved, a developer is expected to deliver a detailed feasibility study within a period of 24 months. 

Subsequent to the approval of the detailed feasibility study the developer is required to apply for various permits/approvals necessary for land acquisition, sources of raw materials, construction and distribution of product. These permits or approvals include the Environmental and Social Impact Assessment, the Water permit, Land Registration, Change of User, Physical Planning approval, Construction Permit, Motor Vehicle Inspection Certificate, Valid Certificate of Registration of Workplace, Civil Aviation and Power Undertaking License, Product Conformity, Licensing of Fertilizer Manufacturing as are relevant to the specific project. 

The Ministry of Energy and Petroleum is required to communicate with developers of hydrogen within a period of 60 days regarding any approvals or rejection. All approved projects are expected to be registered and published on the Ministry of Energy and Petroleum website.

Clause 3 of the Guidelines requires developers to comply with applicable standards and laws on Health, Environmental and Safety Obligations without indicating the applicable laws involved. This clause by extension requires a developer to comply with a number of laws as are guided by the nature of project to be set up. These laws include the following: 

The Guidelines emphasize the need for local content in the hydrogen projects in the form of partnership with Kenyans, use of local skill, investment in capacity building and use of locally available materials and manufactured goods. As currently published, the Guidelines do not mention any specific thresholds relating to ownership of hydrogen projects in Kenya. 

As the technologies used for the production of hydrogen are costly^[5​]. High cost of investment and production has the potential to cause investors to shun this industry. Applicable commercial incentives are key for the growth of the industry. Clause 6 of the Guidelines make reference to the existing Export Processing Zones (EPZ) and Special Economic Zones (SEZ) as bearing the incentives necessary for the hydrogen industry. 

The applicable incentives are summarized in the table below:

​No.	​Commercial Incentives	​EPZ (for export market)	​SEZ (for local and export market)
​​1 ​​ ​	​​Corporate Tax ​ ​	​a. First 10 year tax holiday	​a. First 10 year – 10 percent corporate tax
		​   ​b. Post (a) above – 25                       percent corporate tax ​	​b. Post (a) above – 15 percent corporate tax for 10 years
			​c. Post (b) above – 30                       percent corporate tax
​2	​Import, Excise Duty & VAT on inputs	​Perpetual exemption	​Perpetual exemption
​3	​Local Supplies	​N/A	​Zero rated
​4	​Stamp Duty	​Perpetual exemption	​Perpetual exemption
​5	​Withholding Tax	​10 year holiday  ​	​Dividends – exempt Royalties, interest and service fees to non-resident – exempt for first 10 years, 5 percent thereafter
​6	​ Investment Deduction	​100 percent investment deduction over 20 years	​100 percent investment deduction over 20 years
​7	​Exchange Controls	​None	​None