Large power consumers yet to warm up to off peak power tariff

Large consumers of electricity are still grappling with the usage of the discounted night power tariff, with just a fraction enlisting to take advantage of the incentive.

Kenya Power said by the end of January, only 850 firms out of 3,700 large and industrial power consumers on its client list had benefited from the Time of Use (ToU) tariff, whereby large power consumers get a 50 per cent discount on power used in the off-peak hours of between 10pm and 6am.

Under the tariff that came into effect on December 1, large and industrial power users metered at between 450 volts and 11 kilovolts (kV) pay as low as Sh3.55 per unit of electricity consumed.

Ordinarily, this cadre of customers pay between Sh9.20 and Sh7.10 per unit, with the heavier users paying lower charges.

The power consumers are also subjected to other costs such as the fixed charge, demand charge, fuel cost charge and foreign exchange fluctuation adjustment.

Kenya Power Chief Executive Officer Ken Tarus attributed the slow uptake to longer period taken by businesses to pick up, following disruptions experienced last year following a long electioneering period and a dry spell.

“The country is coming from a tough period where we had prolonged elections and a drought. We also have business cycles and there is usually a slow down at the beginning of the year. These issues may have affected companies that would want to take advantage of the tariff,” he said.

“Businesses are slowly going back to production levels where they were before and we expect that the number of companies on the tariff picks up from this month going forward.”

Dr Tarus said the tariff has been designed to stimulate demand by providing an incentive to increase production as opposed to having power consumers shift their production to off-peak hours.

He expects the tariff to help Kenya Power grow revenues. “Power consumption at night has increased, thereby improving our overall sales. For instance, in December, an additional 21.8 GWh was consumed. With more firms expected to increase their night operations by taking advantage of the lower night tariff, we are looking forward at a robust growth of our top line,” he said.

“This will be net sales that we were not realising before implementation of the ToU.”

Despite the bargain that the tariff gives power consumers, many firms have not taken up the offer as they are yet to meet the conditions set to start benefiting from the off-peak tariff.

According to the power utility firm, electricity consumers are required to meet their monthly energy consumption threshold.

Power consumed above this threshold during the off-peak hours is billed at the discounted rate of 50 per cent. Kenya Association of Manufacturers (KAM) Chairperson Flora Mutahi said some firms have already reported savings on their power bills with more expected to join the group.

“We have initial outputs that indicate savings in the range of one to three per cent of individual participating industries,” she said.

“Some companies have not yet benefited because they have not crossed their respective baseline threshold. Once we increase consumption and demand for locally produced goods by making the industry competitive, many companies will cross the baseline threshold and move to the benefit zone.”

“This is a pilot stage and there is room for improvement once the industry performance is evaluated at the end of the pilot,” Ms Mutahi explained.

By requiring the consumers to meet the thresholds, the conditions appear to guard Kenya Power against revenue losses by preventing the customers from abandoning the normal and cross over to the cheap tariff, which has happened in the past and resulted in disbanding a similar tariff two decades ago.

Ms Mutahi said the requirements are not unique to Kenya and other jurisdictions also require consumers to meet certain conditions to benefit from the cheaper tariffs.

“Time of Use tariff structure is not unique to Kenya. It is applied in other economies around the world. It should result in a win-win scenario for both Utility provider as well as the consumer. This is the driving motto behind our ToU tariff,” she said.

James Ngomeli, an energy consultant noted that while the tariff was good and with the potential to transform electricity intensive sectors such as manufacturing, it needed fine tuning and further customising it to fit specific industries.

“The tariff is a good place to start but it can be enhanced and perhaps Kenya Power needs to adopt flexible billing. There is also need to look at specific sectors that have potential to grow employment as well as increase the country’s competitiveness such as value addition in agriculture and firms that are looking at export markets,” he said.

Dr Tarus said the tariff is also expected to increase demand for electricity, giving a strong market to power projects that are currently in the pipeline.

“Whereas large power consumers will benefit from decreased production costs, the 50 per cent reduction of tariffs during off-peak hours will also help in efficient utilisation of power generated during low energy demand periods,” said Tarus.

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