How thermal power firm firms are getting more for less

 

Energy Cabinet Secretary Davis Chirchir opens a master valve of a well at the Paka Hills thermal plant. [Courtesy] 

Three thermal power plants accounted for two-thirds of the power units that all the thermal power producers generated and sold to Kenya Power last year. 

The three power plants – Rabai Power and KenGen’s Kipevu I and Kipevu III — accounted for 65 per cent of the thermal subsector output.

Analysts say this could be taken to mean that the country might not need many of the power plants operated by independent power producers (IPPs) but will have to continue contending with the steep payments until the contracts with Kenya Power expire.

The Electricity Consumers Society of Kenya (Elcos) says that if some of the independent power producers were put to task to justify their existence, most of them would struggle to explain their relevance in Kenya’s electricity sector currently.

Combined, the power plants by the six thermal IPPs as well as three thermal plants owned by KenGen supplied 1,580GWh (or 1.58 billion kilowatt hours – kWh) to Kenya Power.

This was 12 per cent of the total amount of electricity Kenya Power bought from all power producers which stood at 12,653GWh (12.65 billion kWh)

Thermal power

But of the 1,580GWh from the thermal producers, nearly two-thirds (65.9 per cent) were supplied by the three power plants, all of them based at the coast.

Rabai Power supplied the largest amount at 502GWh, followed by two of KenGen’s thermal plants Kipevu I (141GWh) and Kipevu III (399GWh) — together, feeding 1,042GWh to the grid.

The power purchase agreement (PPA) for Kipevu I will lapse this year and it is unlikely to be renewed as the government pushes for renewable energy.

Rabai and Kipevu supply power to the Coast region. The area relies heavily on thermal power due to inadequate electricity transmission capacity that can take cheap power from geothermal fields at Olkaria to the Kenyan coast.

“Rabai Power and Kipevu III at the Coast contribute 6.1 per cent of the 12 per cent of thermal plants contribution in the country. Those may have been deemed necessary even as another option is sought to get rid of their expensive operation,” said Elcos Executive Director Isaac Ndereva.

“The other thermal plants struggle to justify their existence by scrumbling to provide the remaining six per cent.

“It is therefore clear that the very necessary thermal plants for the time being are the ones in the Coast region.”

He added that the thermal power plants that would struggle to justify their role in the country’s power sector are ones whose PPAs with Kenya Power have been signed recently and therefore do not lapse until well after 2030.

“They are only engaged for less than 25 per cent of their capacity. It therefore means, 75 percent of the time they are idle and are paid to be on standby through capacity charge,” said Ndereva.

“From the monthly generation analysis, the contribution of the other IPPs is negligible as compared with the ones in the coastal region yet they have to be paid for the total contracted units despite not being required by the consumers.”

During a parliamentary inquiry into the high cost of power that was concluded recently, Elcos had proposed that the National Assembly’s Committee on Energy in its report propose an exit package of the thermal IPPs supplying power upcountry

Cheaper technologies

“No negotiations should be entertained with any independent thermal plants retiring beyond 2025 apart from those that supply the Coast region,” said the lobby in submissions to Parliament, adding while those supplying power to the coast are necessary, the government should start considering the possibility of evacuating cheaper power to the region.

“Negotiations should be made with Rabai Power in the coast region on how their contract will be shortened and pave the way for power from other cheaper and cleaner technologies.”

“The ministry should give a concrete plan on how to connect the coast region using cheaper technologies. The wind resource in the Vipingo region is too huge and can be harnessed.”

Other stakeholders have made similar arguments. Central Organisation of Trade Unions (Cotu) Secretary General Francis Atwoli, also giving submission in Parliament during the inquiry into the high cost of electricity in July, said the government needs to tame independent power producers whose electricity is sold to Kenya Power at exorbitant prices.

If need be, Atwoli said, the government should kick out some of the IPPs while heavily relying on state agencies such as KenGen for the production of power in the country.

“For the cost of electricity to be reduced, the government must seek to have more control over costs and could potentially offer electricity at more competitive prices,” he said.

“This can be done by revoking all PPAs that have been signed with various IPPs and instead engage KenGen or establish other state parastatals to handle electricity generation and supply.”

“Having full control over the energy mix by prioritising the use of cheaper sources of energy, such as hydroelectric or geothermal power, to reduce overall costs.”

“Affordable electricity will not only improve workers’ livelihoods but also boost industrial competitiveness, foster job creation and attract investments,” said Atwoli.

The nature of the PPAs that Kenya Power has signed with the electricity producers have in the past been cited as among the causes of high cost of power in the country.

Some of the clauses in the contracts guarantee payments to the power producers even in instances where they do not supply electricity to Kenya Power.

Power sector players have in the past defended such clauses, noting that to put billions of shillings in building power plants, the investors need guarantees that their heavy investments will give a return. They also note the unique nature of the electricity sector in Kenya, whereby they only have one client – Kenya Power.

The Law Society of Kenya noted contracts that have a heavy toll on the livelihoods of Kenyans can be challenged in court.

“There is no contract that is permanent. Life itself is not permanent. We should not be given the excuse that this is a permanent contract and there is nothing we can do about it,” said Collins Odhiambo, deputy secretary in charge of public interest and director for parliamentary affairs and legislation at LSK.

“If it is difficult we can make constitutional references in court. If something is anti-citizens… the courts can pronounce themselves over it. We have an opportunity to leverage even through litigation on how we can protect the consumers.”

Thermal power plants were introduced in the late 1990s to enable the country to cope with higher demand and gaps occasioned by prolonged dry spells, with the country at the time heavily dependent on hydroelectricity.

In 1991, Kengen set up the 60MW Kipevu I and later in 2001, Tsavo Power commissioned the 74MW Kipevu II.

A few more would be commissioned over the next decade during President Mwai Kibaki’s reign, including Iberafrica to cater for the increased demand in Nairobi and its environs which had led to power rationing due to the economic growth.

The rapid growth in the coastal region also led to higher power demand in that region. This increased demand could not be availed from the Nairobi side.

During the time, in anticipation of the high demand by growth in industries such as cement, sugar and mining with the entry of companies such as Mombasa Cement, Kwale Sugar and Base Titanium.

Grow production

To help boost the power supply at the coast, there was the entry of the 90MW Rabai power plant in 2009 while KenGen added the 115MW Kipevu III in 2011.

Over the last decade, the amount of thermal power installed capacity grew significantly.

The Jubilee administration had at its onset set an ambitious plan to grow both power production and consumption.

It planned to grow installed capacity by 5,000MW over a 36 month period to 2015. It however soon became clear that it could not create demand to correspond with the planned production capacity and shelved the plans to increase installed capacity.

However, a number of thermal PPAs had already been signed and construction of plants and their commissioning went ahead as planned.

“The shocker was when the government was quick to commission three thermal plants unnecessarily and in a region (Nairobi) that did not have any strain. These are, 87MW Thika Power (2013), 80MW Gulf Power (2014) and 83MW Triumph Power (2015),” said Ndereva.

The three plants will be retired at around 2033.

“To add to the pain, they were signed without the knowledge of the Attorney General and therefore the citizen’s interests were not factored in. Exit clauses were not provided in the contract which means that the plants cannot be decommissioned before 2033 leaving consumers with the burden for too long,” said Ndereva.

“In addition, the payments were to be paid in foreign currency every month since the loans were taken from foreign banks and they had to be paid in full even when they did not generate any power claiming that they were on standby.”