Abstract
Affordable and reliable electricity is a development priority, but many people in low-income countries continue to live without it. The main challenge to ensuring universal access to electricity is the energy trilemma: striking a balance between costs, security, and environmental sustainability. Kenya is one of the countries that face energy trilemma as the electricity demand expands. We use modern portfolio theory (MPT) from the finance sector to address this challenge by deriving a theoretical efficient frontier for electricity generation in Kenya. The study finds that although the current portfolio of electricity generation in Kenya is not optimal, it is possible to shift to an efficient portfolio that has lower costs, is diversified, and environmentally sustainable. We conclude that MPT addresses the energy trilemma and therefore, it can help in the planning of electricity generation in countries whose electricity sectors are still developing. Our study adds to the literature about the applicability of MPT in the electricity sector and proposes ways for Kenya to improve the electricity-generating portfolio. We anticipate that the results will encourage electricity sector planners to consider portfolio planning for electricity generation.
Published Version
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