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Why electricity keeps getting more expensive

A Kenya Power and Lightning Company engineer works on a electricity line at Tetu in Nyeri on July 3 2015. [File, Standard]

That the electricity prices in the country have become a sore wound for Kenyans is not in question.

In April, electricity prices are were set to go up after the Energy and Petroleum Regulatory Authority (Epra) unveiled a new tariff.

The new tariff has also lowered the threshold for households eligible for the subsidised tariff - referred to as lifeline - to 30 units of electricity per month from 100 units, essentially locking millions of households from benefitting from the lower rates that the tariff offers.

On social media, Kenyans have turned the heat on government and power sector players amid a biting cost of living crisis.

Kenya Power, the country's electricity retailer, has been on the receiving end of most of this backlash. And rightly so. The power utility firm owns and operates most of the country's electricity transmission and distribution system.

Kenya Power Acting Managing Director Geoffrey Muli notes that the company is tasked with the collection of revenue on behalf of all sector players.

"This sector players start from exploration which is done by the Geothermal Development Company (GDC) and generation which is done by KenGen and the Independent Power Producers (IPPs) and transmission which is done by Kenya Electricity Transmission Company Limited KETRACO. Then, distribution is done by Kenya Power and the Rural Electrification and Renewable Energy Corporation (REREC )," says Muli.

He further explains that when power tariffs are formulated, they are formulated in a manner that meets the needs of the sector.

Case study

To evaluate the direness of the current electricity situation we took a sample bill from a household living in a three-bedroom unit. The house has about 10 light bulbs, a television set, a refrigerator and freezer, a washing machine, and two instant showers.

The household spent Sh3,000 at the start of the month on prepaid power tokens. For this amount, they got 113.67 units of power.

The token amount which is the actual amount that went into the purchase of units was Sh1432.28. Value Added Tax (VAT) was charged at Sh359.74, the fuel energy charge was Sh816.1, the forex charge was Sh219, the Epra charge was Sh3.14, Water Resources Authority (WRA) charge was Sh1.21, Rural Electrification Programme (REP) levy was Sh71.61, while the inflation adjustment cost was Sh96.61.

In fact, Kenya has opted to eliminate the long list of levies on your token receipt by simply referring to them as other charges.

Going by the Token amount, only 48 per cent went to the actual cost of power while 52 per cent of the Sh3,000 went to meet the cost of various levies.

This place the actual cost of paid for power at about Sh26 per token with only Sh12.60 going toward the actual power purchase.

The Sh12.60 goes towards paying power generating companies for the production of electricity. These include KenGen and IPPs.

The same amount will also be channelled towards meeting the cost of transmission with the KETRACO receiving the payment alongside Kenya Power which distributes the power to your home. Clearly, the bulk of the payment goes towards levies.

Levies

Kenya Renewable Energy Association chief executive Andy Amad explains that the levies are a pass-through cost.

For electricity, KRA charges a statutory levy of 16 per cent. VAT is applied on the total cost of power, in this case, the Sh3,000

The forex charge which is related to the fluctuation of hard currencies against the Kenyan shilling caters to expenditures related to the power sector such as project loan repayments.

The EPRA charge guarantees the independence of the agency which is the energy sector regulator.

The WRA charge is a fee passed on to the water resources agency for energy purchased from hydropower plants.

The REP charge is remitted to REREC for the implementation of the rural electrification projects.

The fuel energy charge is the highest of these levies. It is the cost of the fuel that was used to generate electricity.

It compensates generators that use fossil fuels such as natural gas to generate thermal power.

Thermal Power is essential because it helps to fill in the deficit that comes when renewable energy cannot meet the demand. This often happens at peak demand times such as 7pm to 9pm, or during prolonged drought seasons that affect geothermal power. This power is usually on standby and steps in to cover the deficit.

Muli explains that plans are underway to ensure that the cost of power comes down. The Least Cost Power Development Plan (LCPDP) is a 20-year rolling plan that seeks the most affordable way to tap and circulate electricity countrywide.

Kenyans will fund the project to the tune of more than Sh353.6 billion.

"We have hydropower which we are getting from Ethiopia, 200 Megawatts. We expect this power to increase our baseload and reduce reliance on thermal energy which is petroleum based and therefore we will be able to contain that fuel cost component, and with other renewable projects which are lined up in our LCPDP. We expect the cost of the fuel passes through to be contained," said the Kenya Power acting boss.

Losses

Systemic and commercial losses further increase the cost of power for Kenyans. Systemic losses occur during the transmission of power due to old infrastructure.

Commercial losses emanate from billing systems and theft by both KPLC employees and customers.

KPLC is allowed by the energy regulator to recoup up to 19.9 per cent of these losses, by passing this cost to the consumer. For context, for the last financial year, KPLC incurred system losses of 22.43 per cent.

For each one per cent loss, KPLC incurs a loss of approximately Sh800 million. This means that of the Sh17.9 billion loss, Sh15.92 billion was passed on to power consumers with KPLC only reporting a loss of about Sh2 billion on its end.

"We identified revenue collection as one of our key recovery strategies. In the last financial year, out of the increased presence on the ground to collect our revenue, we were able to reduce our overdue debt by Sh1.6 billion," said Muli.

Bound to worsen

The cost of electricity is already extremely high. Worryingly, KPLC is seeking to increase these power prices by up to 78 per cent if the energy sector regulator, approves the new tariffs that seek to withdraw the monthly subsidy that cushions poor households.

Epra Director General Daniel Kiptoo recently explained that the regulator is mandated by law to review the tariffs every three years.

"That is why we are now embarking on this comprehensive tariff review," he said.

Solution

With the worsening energy situation in the country, there is a raft of measures that you can take to bring down your energy consumption.

According to Andrew Lomosi, the managing director at Chevron Africa limited, using LED light bulbs and substituting electricity with solar power can help lower your bill.

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