Kenyans to wait longer for verdict on power agreements

 

Kenyans will continue to pay higher charges for electricity produced by diesel fired power plants, after a committee appointed to review terms of Independent Power Producers (IPPs) failed to give recommendations.

The committee was supposed to give verdict on whether the Government should review and terminate the contracts with thermal power producers.

The Ministry of Energy and Petroleum in March appointed a committee that was to evaluate Power Purchase Agreements signed between Kenya Power and IPPs operating thermal power plants.

This was aimed at reviewing the amounts paid to the power producers. A downward review could have come in handy at the moment, when water levels at Kenya’s main hydro-electric dams have substantially gone down following the ravaging 2016 drought.

Masinga Dam

The dry spell has spilled into this year, with the March–May long rains falling short of the expectations.

This has seen  a further dip in water levels at Masinga Dam. The dam is the main reservoir for the Seven Forks power dams in Embu.

The drop in water levels has compelled the country to use more of the costly thermal generated power. Power produced using thermal plants cost Sh20 per unit and are three times more expensive compared to such sources as geothermal where a unit goes for Sh7 per unit.

It is also in comparison to Sh3 for hydroelectricity. Energy Principal Secretary Joseph Njoroge said the ministry could not review the power purchase agreements since the committee is yet to finalise its report and make recommendations on the way forward. “The report is not fully finished. There is still final fine-tuning that needs to be done,” he said.

The committee had been gazetted late January this year and given a month to hand in the report with recommendations on how to go about terminating or revising the PPAs by early March.

The taskforce led by Strathmore University lecturer Prof Izael Pereira Da Silva was tasked with reviewing the legislation relating to PPAs so as to accommodate its proposals in the 2006 Energy Act and the 2016 Energy Bill.

It was also tasked to come up with the annual revenue requirements for each PPA and for the remaining PPA period. The committee was put in place following an order by President Uhuru Kenyatta in June last year, where he directed that all contracts be reviewed.

According to the Energy Ministry, the review is not confined to the existing PPAs, but also includes review of tariffs for on-going negotiations between Kenya Power and IPPs including Feed-in Tariffs projects.

Eng Njoroge said the ministry would give the committee additional time and would extend its committee in the coming weeks through a gazette notice. “We are giving them an extra period to put in more information, which means it will have to be gazetted again,” he said.

This might mean that the committee will not officially start the work of reviewing the report until the next Government is firmly in place, which might be anything after September.

The delay in the sitting of the committee will also mean that the existing tariffs will stay in place and consumers will continue paying more for power. This is more so considering the increased use of thermal power producers following decline in the water levels at Masinga Dam.

Currently, the water level is at 1041.83 metres above sea level, which is close to the minimum operating level of 1,037 metres — below which it would be shut down.

This is in comparison to 1,048 metres in January this year and before the long-rain season that turned out to be dismal and a high of 1,056 last year. While the power station at Masinga produces 40 megawatts, it is critical as it holds water used by the other stations downstream to generate more power.

Surge in prices

Njoroge noted that while the country has resorted to thermal power producers to fill the gap created by the decline in hydroelectricity, the impact has not been big due to increased capacity from geothermal.

“There is a bit more electricity from thermal sources but not too bad but because of geothermal, we have been able to manage the situation,” he said.

The Ministry of Energy has previously downplayed fears that the termination or review of the contracts could lead to litigations between Government and IPPs.

Contracts with Kenya Power are usually long-term and the earliest some of the contracts for thermal electricity will expire is 2023 when Tsavo Power’s 23-year-old and Rabai Power’s 15-year-old agreement lapses. Others go up to 2039.

Gulf and Triumph Powers contracts will follow in 2031 while Triumph will work under the current arrangement until 2032. Ibera Africa’s contract also expires in 2032.