State hoped to enable consumers access relatively low priced power

Expensive energy and power consumption concept

When the Jubilee administration came to power in 2013, one of its key promises was bringing down the cost of electricity.

Through investments in power infrastructure, the Government hoped to enable consumers and industry access relatively low priced power and at the same time get more people connected to the electricity as well as stabilise power supply.

Five years later and President Uhuru Kenyatta into his second term, the power bills are still on the rise and with no signs of coming down. This has come with a devastating impact on households as well as companies, especially those that rely heavily on electricity for their operations. Just like his first swearing in, the President promised affordable power when he was sworn in November 2017.

The Government has pumped in billions of shillings into the energy sector, which would have cut power bills by about half. The investments, the President then said would “lower electricity prices by at least 50 per cent” by 2016.

The reverse has, however, happened and today, power is a third more expensive than it was at the start of 2013.

A household consuming 200 units of electricity per month paid Sh3,058 in January of 2013, compared to Sh4,000 in December 2017. This is according to data from the Kenya National Bureau of Statistics, which represents a 30 per cent increase in the cost of electricity over the five years.

A unit of electricity – factoring all components including consumption, fuel cost charge, inflation and forex adjustment – cost Sh22 in December 2017, compared to Sh17 in January of 2013. It had reached a peak of Sh25.57 in July 2014.

There has been a rise in the cost of electricity despite massive investments in power infrastructure across different areas including generation. More capacity from cheap geothermal source has been commissioned as well as transmission and distribution.

Attempts to get a word from the Ministry of Energy on the reneged promises of cheap power and whether the over six million power consumers will in the coming months get any reprieve were unfruitful, with calls to senior ministry officials including the Cabinet Secretary going unanswered.

Kenya’s challenge of high cost of electricity can be tied to many factors key among them being over-reliance on hydroelectricity. There is also reliance on diesel power generators to bridge the gap created when hydroelectricity is not available. The drought that persisted last year resulted in the country turning to the thermal power producers, with decline in generation capacity from the hydropower dams.

Other factors attributed to sustained high bills include growth in demand, which has not matched the investments in renewable and cheap power production, which see the country fall back on the expensive diesel fired power producers.

“Demand has grown. It means we are almost exhausting power from the cheap sources of geothermal and hydro and now have to use the next level which is expensive. It is better to give expensive power than no power at all,” Energy Regulatory Commission Director General Pavel Oimeke told Weekend Business in a recent interview.

Peak demand grew substantially towards the end of 2017, reaching 1,727 megawatts in October, which is in comparison to 1,656 MW in August last year and 1609MW in June 2016. Kenya has an installed electricity generating capacity of about 2,300MW, but this also includes the costly thermal producers.

Oimeke said growing demand could be due to a stable network that has resulted in fewer downtimes as well as growing number of electricity users. Another factor that pushed up electricity may be industries resuming work after a lull period owing to the long campaign and electioneering in 2017.

Also driving demand could be the higher number of consumers, who have increased and Kenya Power reported that it had 6.2 million customers by June 2017, up from 4.8 million an year earlier and 2.3 million in 2013.

It would thus appear that Kenya’s high cost of power is intricately tied to the Independent Power Producers, particularly those that generate electricity using diesel. Kenya Power paid Sh25 billion in the year to June 2017 as fuel costs to companies using heavy fuel to generate electricity, including KenGen, which operates two thermal plants in Kipevu, Mombasa. This was about 80 per cent more than Kenya Power paid to these firms in 2016.

The Ministry has in the past made attempts to cushion Kenyans from the costly IPPs and towards end of 2016 appointed a committee to review their contracts with Kenya Power. The committee was gazetted in late January of last year, giving it legality, and had a month to hand in the report with recommendations on how to go about terminating or revising the PPAs by early March 2017.

The Ministry has however failed to act on the recommendations by the committee. The committee had in July last year handed the report to the Ministry but was sent back to the drawing board with the Ministry officials saying they were unsatisfied with the recommendations.

A year later, there is no word on the report by the committee, with the Ministry having moved on from the issue of IPPs, which have been a critical factor in pushing up power bills. Their contracts are also long term, some going for as many as 25 years, which means a failure to review their terms will keep up prices of power not just now but also in the long term.

The earliest some of the contracts for thermal electricity expire is 2023 when Tsavo Power’s 23-year-old and Rabai Power’s 15-year-old agreement lapses. Gulf Power, Triumph Power and Ibera Africa’s contracts expire after 2031.

OFF PEAK POWER TARIFF

A downward review could have come in handy at the moment, when water levels at Kenya’s main hydroelectric dams have substantially gone down following the drought over 2016 that spilled over to 2017.

Power produced using thermal plants cost Sh20 per unit and are three times more expensive compared to sources such as geothermal where a unit goes for Sh7 per unit. It is also in comparison to Sh3 for hydroelectricity.

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

In December, the Ministry started implementing an off peak power tariff for large power consumers. The tariff offers a 50 per cent discount to manufacturers and other big electricity consumers operating in the off peak hours of between 10pm and 6am on weekdays, and extended to 18 hours on Saturday and the day on Sundays.

The move, according to the President Kenyatta who directed the energy industry players to implement the cheap tariff during his second swearing, will play part in creating a 24 hour economy.

This will also increase contribution to the GDP by manufacturing from nine to 15 per cent. This is expected to be achieved by getting manufacturers who have been operating below capacity to increase production as well as contribute to attracting new investments by local and foreign players.

The large power users will however be eligible to the tariff if they can exceed their monthly average power consumption over the last six months.