KenGen spent three times more on fuel for power generation

KenGen building in Parklands, Nairobi. [Edward Kiplimo, Standard]

The money that electricity producer KenGen spent on the purchase of fuel for its fleet of thermal power generators grew almost threefold last year.

This was as the company intensified power production from the costly plants to make up for shortfall in generation by geothermal and hydropower plants.

The firm has reported 163 per cent increase in fuel charge revenues to Sh9.67 billion in the year to June 2022 compared to Sh3.67 billion over a similar period in 2021.

It said this was on account of reduced power production by hydro plants, which were hit by the drought, and a number of geothermal plants, which KenGen said experienced a technical hitch.

The money that the company spends on heavy fuel oil to power its thermal plants is compensated by consumers, through the fuel cost charge (FCC) that is paid to Kenya Power and passed on to KenGen.

It is also the case for Independent Power Producers (IPPs) that operate thermal plants.

KenGen's thermal power plants increased power production by 137 per cent, feeding the national electricity grid with 580 million kilowatt hours in the year to June 2022 compared to 245 million kilowatt hours in 2021.

Total amount of power that the company fed to the grid fell to 7.9 billion kilowatt hours (kWh) in the year to June last year compared to 8.4 billion kWh in 2021.

"Our fleet of hydro, geothermal, wind and thermal... delivered 7,918-gigawatt hours (GWh) during the year compared to the 8,443 GWh in the prior year," said the company in its just-published annual report for the year to June 2022.

Technical challenges

"The decline in units generated was attributable to technical challenges experienced in some of our geothermal power plant units and low hydrology in our water reservoirs brought about by the prolonged drought."

Electricity generation by hydropower plants dropped 19 per cent due to low hydrology at the dams due to the drought that has ravaged the country for the last three years.

KenGen's geothermal power plants, which account for more than 90 per cent of power produced by all geothermal power plants in the country, dropped two per cent. The firm said this was due to technical hitches.

KenGen thermal power plant at Olkaria. [Wilberforce Okwiri, Standard]

Production from geothermal power plants started dropping towards the end of 2021, dropping to 348 million kilowatt hours in December and further to 304 million units in February 2022, the lowest output from the geothermal power plants in nearly a decade.

It is in comparison to the 521 million units that geothermal power plants, operated by both KenGen and its rivals, fed the grid in May last year. Output by thermal plants peaked in February 2022 when they produced 224 million kilowatt hours, the highest since February 2018 when production by thermal segment of the industry stood at 249 million units, according to data by the Kenya National Bureau of Statistics (KNBS).

Powerline collapse

Sources say the drop in production by geothermal was caused by the collapse of the Loiyangilani-Suswa power line which caused a major power outage in December 2021, which affected some of the power plants in the Olkaria geothermal fields.

Following the disruption, it took some time before the plants could be restored and resume to feeding the grid at an optimal capacity resulting in lower output in the subsequent months of January and February.

The higher power from thermal plants was not unique to KenGen but an industry trend as the sector tried to fill the void created with lower production from geothermal and hydro, the two key baseload electricity sources.

Other than KenGen, which operates two thermal plants on the Kenyan coast, a number of IPPs operate thermal plants that are usually a fallback plan in case key power plants are unavailable or are not generating adequate power to meet demand.

Reliance on thermal plants

The higher reliance on thermal plants, coupled with increase in fuel prices over the better part of 2022, are the reasons for the spike in retail power prices over the recent months.

A unit of electricity has gone up from Sh21.9 in August 2022 to Sh26.3 in December for users in the Ordinary Consumers band. The increase is largely been on account of higher fuel cost charge that has risen to Sh7.12 per unit in December from Sh4.63 per unit in August as well as the foreign exchange adjustment that has gone up to Sh2.07 per unit in December from 73 cents per unit in August.

For Kengen, higher fuel charge revenue cushioned the firm from reporting a decline in total revenues. The firm reported total revenue of Sh49.23 billion over the year to June 2022 compared to Sh45.79 billion in 2021.

This was due to the fuel charge revenue going up 137 per cent to Sh9.67 billion and in turn, driving up revenue from thermal power plants (which combine the fuel charge as well as payment for energy generated by thermal plants) 100 per cent to Sh13.2 billion over the year from Sh7.1 billion in 2021.

This is even as revenues from electricity fell to Sh32.7 billion in 2022 from Sh34.9 billion in 2021. The lower revenues from the sale of electricity was due to a decline in money generated by geothermal and hydropower plants.

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