The energy industry regulator is grappling with the conflict between reduction in the cost of solar power equipment and a policy framework that does not provide for the lower capital investments.
The result is that cost of electricity from privately-owned solar power plants that are expected to start feeding into the national electricity grid in the coming months does not correspond with the steep decline in the cost of solar equipment in the last decade.
Parliament’s Departmental Committee on Energy has noted that power purchase agreements (PPAs) signed between the producers and Kenya Power are still pegged on the policy put in place when capital expenditure for solar plants was high.
Though still capital-intensive, the price of equipment has come down by about 90 per cent in the last ten years.
Solar electricity is priced at a relatively high rate of Sh12 per kilowatt hour, with the exception of the Government-owned Garissa Solar Plant that will sell its energy at Sh5 per unit.
The MPs say the cost could be lower considering the steep decline in equipment cost.
Elisha Odhiambo, a member of the Energy Committee said PPAs that Kenya Power has signed with independent power producers were based on a policy developed at a time when the cost of solar equipment was high.
The feed-in policy, which governs pricing of electricity generated from solar and wind, indicates that a unit of power from the two sources should be sold to consumers at Sh12.
While reasonably lower compared to thermal plants, it is almost twice that of geothermal at Sh7 and four times more than hydroelectricity which is pegged at Sh3 per unit.
Out of about five solar power plants that are in the pipeline, only the Garissa Solar Power Plant, owned by the Rural Electrification Authority has been priced at a competitive rate while the others are in line with the feed-in-tariff at Sh12.
Mr Odhiambo is of the view that the other PPAs should be revised to reflect the lower cost of putting up a solar power plant.
“Comparative analysis on the tariff shows that the change has not trickled down to ordinary Kenyans. It appears to me that the pricing model that you are giving solar power producers is high and these are prices that will be transferred to Kenyan consumers,” he said when the committee met with the Energy Regulatory Commission (ERC) officials.
“I think that if we collapse IPPs, the country will enjoy cheap electricity.”
According to research by different institutions, including the United States Energy Information Administration, the cost of producing a megawatt of electricity using solar had come down to $50 (Sh5,000) by last year, a substantial decline compared to Sh10,000 in 2012.
It is also about 90 per cent cheaper than Sh35,000 it would have taken to produce a megawatt of electricity in 2009. This is expected to fall further by 40 per cent in the next two years.
ERC said the costs are high because the projects were conceptualised at a time when the costs were high.
The PPAs with the solar power producers were also signed then, with Kenya Power committing to buy electricity from the companies once they had the plants up and running.
“The cost of solar has come down considerably but there were those projects approved earlier before the decline. Once a power producer signs a PPA, it is a very tight document unless the parties agree to review it,” said ERC Director General Pavel Oimeke.
He however said they will not to issue licences to planned solar plants that propose to sell power at over Sh7 per unit.
“Going forward, we are targeting less than Sh7 per kilowatt hour. We have communicated this to the developers and we have impressed on them that we need competitive prices,” said Oimeke.