Determinants of Energy Consumption in Kenya: A Macroeconomic Perspective

Abstract

To achieve reliable and sustainable energy access in Kenya, it is crucial to explore alternatives to traditional biomass and fossil fuels to address the challenges of limited electricity, affordable and clean cooking energy. Using the Autoregressive Distributed Lag (ARDL) technique, this study assessed macroeconomic factors affecting energy consumption in Kenya from 1980 to 2024. The results indicate that interest rates (β = –0.034, p = 0.038) and trade openness (β = –0.015, p = 0.006) negatively impact energy consumption, while foreign direct investment (FDI) has a positive effect (β = 0.020, p = 0.029). Economic growth and inflation were found to be statistically insignificant. Short-term energy consumption is characterised by inertia, driven by the immediate effects of interest rate fluctuations and trade liberalisation. Initially, FDI seems to reduce energy use due to project delays. The study concludes that structural and external factors— specifically FDI, interest rates, and trade openness—play a more significant role in energy consumption than economic growth or inflation. Recommendations include promoting energy-efficient investments through green FDI and aligning monetary policy with energy objectives.