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Kenya Power has not signed a Power Purchase Agreement (PPA) with electricity producers for more than six years now, which means no new planned power plants have come into the grid since around 2017.
This has authorities worried that should the trend continue, the country might in the coming years get into a situation where now new power plants are coming on board, with demand slowly starting to outstrip supply.
In 2028, the government put a moratorium on the signing of new PPAs in an attempt to tame high costs.
PPAs signed previously without proper oversight had been cited as among the factors that had been responsible for sustained high power bills.
The Cabinet in March last year lifted the moratorium but Parliament shortly after, in April, imposed another ban, which is still in place.
This means nearly all power plants that had obtained PPAs with Kenya Power by 2018 have come on board, with the pipeline of planned power plants now almost empty.
This is even as the electricity demand continues to grow, with the Energy and Petroleum Authority (Epra) now expressing concerns that there are not enough power plants being constructed to meet demand in the coming years.
Data by Epra shows that the latest peak demand – the highest power requirement in the power system at any given time – has grown over the years and a new peak of 2,241 megawatts (MW) was recorded on September 24 this year.
Over the period to June 2024, peak demand rose to 2,177.13MW recorded on February 21, 2024, from 2,149MW in the previous year.
This shows a trend of sustained growth, with a new peak recorded every few months, which has been witnessed since the economy started from the Covid-19-induced drop in demand in 2022.
The demand is against a total installed capacity of 3,199.9MW. The total installed capacity is how much power all the plants connected to the grid can generate if they are all switched on.
While 3,199.9MW might seem adequate, the effective capacity stood at 3,051.7MW. The electricity grid system also needs a reserve margin of about 30 per cent, which would guarantee continued operations if one power plant is out of operation, either for scheduled maintenance or in case of emergencies.
Kenya’s electricity system appears to have breached this margin, with a reserve of about 26 per cent, with concerns now that if a major power plant shuts down, Kenya Power would resort to rationing electricity for consumers.
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“We have a very thin reserve margin, and this has been on account of the moratorium that was put in place in 2018, which has stifled the ability of the utility [Kenya Power] and the ministry to be able to procure new [power production] capacity,” said Epra Director-General Daniel Kiptoo.
“We see this as a big risk, and we need to engage policymakers to be able to raise this matter and be able to increase generation capacity if we are to meet our target of being 100 per cent renewable by 2030.”
Due to the slowdown in the construction of new power plants, the total installed capacity dropped by 75.3MW in the year to June 2024 to 3,199.9MW from 3,275.2MW in the year to June 2023, according to Epra.
This was due to the expiration of the PPA for Kipevu 1, a heavy fuel power plant in Mombasa. The situation could have been worse had it not been some 200MW that Kenya has since 2022 been importing from Ethiopia generated from its hydropower dams.
Due to the push for increased power generation from renewable energy sources as well as attempts to lower the cost of power, with electricity from thermal power plants being more expensive, the government has committed that it would not renew PPAs for thermal power plants.
Epra in a new statistics report on the energy sector noted that no new grid-connected power generation plants were commissioned over the year to June 2024. Mr Kiptoo added that the failure to move with speed and procure new production capacity by signing PPAs and getting power producers to start building plants, the country is facing a bleak future.
He also noted that this could jeopardise Kenya’s ambition to transition its electricity production to 100 per cent from renewable sources.
The amount of power from thermal plants that was fed into the grid last year stood at 8.8 per cent, with the country hoping that it would have adequate renewable energy capacity to bridge the gap when the last PPA for thermal plants expires in 2034.
“But even before we talk about renewables, the big issue is security of supply where we have a thin reserve margin. When you have generation plants go out for maintenance or where they go out unexpectedly, we have a big challenge, and that is (among the reasons that) you see some of the major blackouts in the country,” he said.
“We have been urging policymakers to lift the moratorium so that we can ensure security of supply even as we look to being 100 per cent renewable by 2030. We are engaging Parliament to get them to lift the moratorium so that we do not find ourselves in a situation where we have to load shed customers on account of thin reserve margin.”
The Cabinet in March 2021 issued a moratorium on the signing of new PPAs or renewal of expired PPAs. Earlier in 2018, Kenya Power had frozen the signing of new PPAs pending a review of Kenya’s electricity demand.
At the time, the power retailer had said it was taking a step back to give the sector time to undertake a comprehensive review of the power demand and supply that would then guide the implementation of generation in subsequent years.
The actions by both the Cabinet and Kenya Power were informed by the clamour for lower cost of power in the country and were followed shortly by the formation of the Presidential Taskforce on Review of PPAs.
The task force in its September 2021 report to then President Uhuru Kenyatta would make radical proposals including the renegotiation of PPAs between Kenya Power and Independent Power Producers, which caused jitters in the industry.
These proposals, however, appear to have been too radical for the sector to fully implement.
The cabinet in late February last year lifted the ban on signing new PPAs, but this was extended when Parliament placed its own ban on PPAs in April 2023. During the moratorium period, the only major PPA Kenya signed was with the State-owned Ethiopia Electric Power for delivery of 400MW. The country currently imports 200MW, with plans to scale this up should there be a need to do so.
While the installed capacity stands at 3,199.9MW, output from power plants is unlikely to achieve the installed capacity due to a mix of factors, including the fact that power plants rarely get to produce their maximum installed capacity due to factors such as efficiency or the age of a plant.
Another factor is that many of the power plants commissioned in the recent past are powered by solar and wind which are highly intermittent, only producing optimally over a few hours in a day. Currently, according to Epra, the effective capacity that the different power plants can dispatch to the grid is 3,051.7MW.
A senior official from one of the State power sector agencies explained that due to the factors that weigh on power plants’ capability to produce the installed and even effective capacity, the country has an available capacity of about 2,400MW.
This would mean that with a peak demand of 2,241MW registered in September, the county could easily be plunged into a crisis in case peak demand further goes up or in case of an emergency.
Analysts have in the past noted this failure to sign PPAs over the last several years could in the coming years see supply struggle to keep up with demand.
Law firm Bowmans Kenya in a past analysis noted that a moratorium on new PPAs would result in a slowdown in the investments flowing into the power sector. The government, the law firm noted, will need to move fast and increase the number of projects in the pipeline.
“The moratorium slowed down the development of power projects. Kenya’s demand for power has been on the rise as the economy recovers from the effects of the Covid-19 pandemic while many developers scaled down operations during the moratorium or were forced to abandon their projects,” said the law firm last year following Cabinet’s lifting of the moratorium.
“Developing power projects is a difficult and lengthy task and the balance between demand growth and the time it takes to develop and on-board new projects has been upset.