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Up in smoke: How Uhuru's cheap power pledge became a mirage

BUSINESS NEWS
By Moses Michira | August 2nd 2018

Kenya Power personnels working on a electricity line in Nyeri on September 20 2015, the company has initiated a programme of lighting up the streets so that majority especially in urban areas can performs some of their daytime activities even late at night. [PHOTO KIBATA KIHU/STANDARD].

The upward review of electricity prices on Monday flew in the face of a promise by President Uhuru Kenyatta for cheaper energy for consumers, who are now paying through the roof.

Billions of shillings worth of new investments in power generation would only exert more pressure going forward, amplifying the impact of transmission inefficiencies where a fifth of the electricity is lost – but absorbed by the consumer.

In the latest review, pricing for the base bundle shot up nearly five-fold in the changes announced by the Energy Regulatory Commission (ERC), nearly doubling the monthly bills for the ordinary household.

Power bills for ordinary households nearly doubled in the gazette notice where the monthly fixed charges were scrapped but replaced with higher unit prices.

Kenya Power, the electricity distributor, was granted most of its wishes to raise prices for all bands. This is a clear indication of its determination to grow revenue despite continued cries from consumers.

The President had pledged to slash the cost of electricity during his tenure but that promise could be impossible to keep, economists have warned, saying supply is running ahead of demand.

Cheaper electricity, the President argued, would spur the manufacturing sector and reduce the cost of living for ordinary folk.

He had hoped to have the unit cost lowered to Sh9 per unit, about half of the price paid by the ordinary household, which typically consumes more than 100kwh a month.

The ERC announced the price for 51-1500kwh at Sh15.80.

The steep rise defies recent deliberate steps to ditch expensive power sources after emergency diesel generators were decommissioned with the rise of geothermal energy.

Hindpal Jabbal, an energy economist and former chairman of the Energy Regulatory Board, cites the excess generation capacity for increased electricity prices.

Idle capacity

“We have too much idle capacity, which we are paying for, and it will get worse,” Mr Jabbal said in a recent interview.

Kenya has been too aggressive in forecasting its energy needs, he added, possibly misinforming prospective investors about the supposed demand growth.

Official data indicates that the effective capacity is about 600MW above the peak demand of 1,770MW.

Consumers pay for all the electricity generated, utilised or not, as long as the plant has been installed as part of the power purchase agreements entered with Kenya Power.

In the end, investors in the energy sector are emerging as the only winners in the complex agreements that are structured to cushion their investments from losses.  

Mega projects in the pipeline include the now-completed Turkana Wind Power that will introduce 310MW and the region’s biggest solar farm in Garissa County that will generate 55MW.

The two projects are among others that international investors are lining up across the country to exploit solar and wind to harness 4,000MW.

That figure does not include the projected yield from the Lamu coal plant, which expects to produce over 1,000MW.

Even the ERC has cautioned that the project could result in too much capacity that would be a burden for consumers, in an advisory that investors are yet to make a decision on.

American conglomerate General Electric is among the biggest backers of the project that has been met with strong resistance from conservationists.

Completion of the Sh200 billion coal plant would significantly raise the amounts payable by consumers in their monthly bills.

As a result of the new investments alone, there is little hope that prices will drop any time soon as Kenyans continue to bear the costs for energy they probably do not need.

Then there is the matter of transmission losses, which are also shouldered by consumers. Kenya Power’s network loses about 20 per cent of the energy bought from generation firms such as KenGen.

Hefty investments intended to slash the losses are yet to bear fruit, as indicated in official Government records. The firm lost 1,937 gigawatts in 2017 alone - worth more than Sh30 billion.

Pilot project

In 2016, now retired CEO Ben Chumo contracted Toshiba Transmission and Distribution Systems to pilot a project that would ensure the losses were minimised.

But Energy Cabinet Secretary Charles Keter told The Standard yesterday that the projected energy matric was “perfect”, citing that there would be no idle capacity.

He said wind and solar were not stable sources, informing the need to have more predictable generation plants to handle the base load.

“I can assure you we will not have any idle capacity from our projections so no one should be worried,” he said.

A spokesman for Kenya Power said the requests for approval of higher electricity prices were sent to the ERC in 2015 but most of the concerns had since been addressed.

“A lot has happened in the three years so we are satisfied with the approved prices,” said Corporate Communications Manager Johnstone Turana.

He termed the transmission losses “lost revenue” for the firm that were not factored in the pricing of electricity. Ideally, the transmission losses should be part of operating costs.

 

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