Kenya dims prospects for independent power producers

By JAMES ANYANZWA

NAIROBI, KENYA: The Government has outlined elaborate plans to kick out producers of expensive diesel-generated power.

The move is part of efforts to lower the costs of production and living, which have rendered Kenya an expensive investment destination.

Technocrats in the energy sub-sector are working out the modalities of producing an additional 5,000MW of clean, renewable and cheaper power to the national grid by 2017. This will require halting the purchase of high-cost electricity from independent power producers (IPPs) during the dry season.

HIGHER POWER TARIFFS

Energy and Petroleum Cabinet Secretary Davis Chirchir said the Government is ready to terminate long-term power purchase agreements (PPAs) with these IPPs.

“Diesel is very expensive. We have defined a power-generation matrix that is cheaper and will include geothermal, coal and liquefied natural gas,” he told Business Beat last week.

“We want to produce very cheap power for the economy.”

However, Mr Chirchir said IPPs would be entitled to a fixed-capacity charge of $0.04 (Sh3.47) per kilowatt-hour throughout their remaining contract period — long-term PPAs normally run for 20 to 25 years.

Analysts, however, warn that the country could still face higher power tariffs in the medium-term as electricity-distributing firm Kenya Power passes the fixed capacity costs to consumers.

“The actual cost of power will go down as the country minimises the use of diesel-generated power, but the consumers will still pay for the capacity that is not being utilised,” said Mr Eric Musau, an analyst at Standard Investment Bank.

The fuel cost component in monthly electricity bills has been a major cause for concern for power consumers, accounting for as much as 40 per cent of what they pay for electricity.

IPPs — which are private entities that own and/or operate facilities that generate electric power for sale to a public utility, central government or end users — mostly generate electricity using diesel, an expensive fuel that has largely been to blame for the high cost of power in the country.

The Government has moved to open up investment in the energy sub-sector to private investors in the hope of transferring the benefits of bulk power production to consumers through reduced electricity tariffs.

Already, private sector investors are involved in generating 900-1,000MW of coal power at Lamu, 700-800MW of liquefied natural gas power at Dongo Kundu in Mombasa, and 900-1,000MW of coal power at Mui Basin in Kitui.

The Government hopes these projects will help lower the cost of power in the country from $0.18 (Sh15.61) to $0.19 (Sh16.47) per KWh to between $0.09 (Sh7.80) and $0.10 (Sh8.67).

The Government is planning to generate the additional 5,000MW of power to the national grid in 40 months using the cheaper geothermal, coal and liquefied natural gas sources.

The ambitious plan will increase the effective generation capacity by about 300 per cent from the current 1,652MW.

The move is part of the country’s Least Cost Power Development Plan (LCPDP) for the period 2013-2033.

“We are on course. We already have a timeline on how we intend to deliver that power. What we are doing at the moment is synchronising the delivery of that power with demand because we don’t want to generate power that has no demand,” said Chirchir.

The LCPDP also seeks to ensure development of a diversified portfolio of power-generation assets, which is expected to shift the country from a high dependence on increasingly unpredictable hydropower and price-sensitive thermal options to greener, cheaper, more dependable and sustainable sources.

NEW CAPACITY

The new capacity will be developed by the Kenya Electricity Generating Company (KenGen), the Geothermal Development Company (GDC) and the private sector.

Plans to source for investors and funding for the various electricity generation, transmission, and distribution projects that will deliver the additional energy are at an advanced stage, Chirchir said.

The demand for the additional capacity is expected to be driven by mining and processing industries, irrigation projects, operation of expanded petroleum pipelines, modern transport systems and new resort cities and economic zones.

The country’s projected power demand is expected to reach 17,000MW by 2030, with plans to increase generation to 21,000MW by then.

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