Kenya stuck with costly electricity pacts with firms

Kenya may have dug itself into a hole, with little wiggle room out of costly power purchase agreements with independent power producers (IPPs), a report has said.

A task force constituted in December 2016 to review the contracts of IPPs with Kenya Power, especially those operating thermal plants, has said they were partly to blame for the high cost of power in the country. 

The task force was expected to give recommendations on modifying or terminating the agreements that were heavily skewed in favour of the firms in an attempt to reduce the cost of power for consumers.

The task force yesterday said it would be too costly to terminate some of the contracts and recommended that the Energy Ministry leave the contracts to lapse.

Some relief

Some of the contracts extend to beyond the year 2030, which would mean that Kenyans will continue paying capacity charges for the thermal plants as well as contend with fuel cost charges on their bills for more than a decade.

The task force, however, recommended termination of power purchase agreements (PPA) whose cost implication would be minimal for taxpayers and power consumers.

“We are proposing termination of only those thermal power plants whose cost of termination is less than maintaining them until the end of their agreements,” said Izael Da Silva, the chairman of the task force, at a briefing in Nairobi. “The PPA of one of the thermal power plants expires in one year and it will not be renewed and it will offer some relief to electricity tariffs. Two other PPAs have a short-term to expiry and will be terminated by mutual agreement between the developer and KPLC as provided for in the PPA.”

The thermal plants — mostly private entities that own and operate facilities that generate electric power for sale to Kenya Power — generate electricity using diesel or heavy fuel oil, with the fuel cost passed on to consumers and have been blamed for the high cost of power.

This reflects as fuel cost charge in the power bill and is one of the largest items that consumers pay for. Last year, Kenya Power paid Sh22.1 billion for fuel costs.

This recently went down to Sh2.50 per unit following a tariff review by the Energy Regulatory Commission.