Why the cost of power has gone up and why it could go higher

You are likely to pay more for power despite lofty promises.

The State’s inability to explain the surge in electricity bills continues to raise queries on why the government is unable to stick to its key 2013 campaign pledge to bring down the cost of power.

Despite massive investments in geothermal power over the last five years, which essentially should have significantly brought down the cost of power, an analysis of government data shows this has not happened.

Angry Kenyans have trolled electricity distribution company, Kenya Power, on social media for the last few weeks, seeking answers which have not been forthcoming. Instead, Kenyans have been treated to blame games between policy makers, the regulator and the electricity distributor.

In 2016, President Uhuru Kenyatta was hard pressed to explain the inability to bring down the cost of power and he ordered for a review of Power Production Agreements (PPAs) with thermal Independent Power Producers (IPPs).

The stumbling block

Failed to explain

“I believe there has been a lot of cloud around signing agreements with IPPs that has cost the country heavily,” said the President during one of the State House summits in July 2016.

Friday, during a press conference at Stima Plaza in Nairobi attended by high ranking officials, the Energy Ministry failed to explain why the cost of power has gone up.

Instead, officials passed the buck at each other, concentrating on explaining the billing systems and even admitted to estimating customer bills, a factor they attributed to sudden jump in the cost of power in January.

“What caused the jump in bills was as a result of estimations carried over three months before July last year. When we read them it automatically necessitated a jump,” said Kenya Power Managing Director Kenneth Tarus.

Energy Cabinet Secretary Charles Keter said, “As you have heard we were reading just 64 per cent of our meters. Now the number has gone up to 95 per cent. We introduced a new billing system in July and it has nothing to do with the election.”

To rectify the situation, Keter ordered Kenya Power to come up with uniform charges for all third party vendors within a month. He also gave the Energy Regulatory Commission (ERC) three months to simplify its billing system so that consumers are not charged expensively for purchasing tokens for the second or third time within the same month.

“If you have cut down the cost of billing through mobile payments then it means you are saving. I think this calls for rationalisation and we are not giving you time for this,” ordered Keter.

There is a possibility the power bill is too high; it could go higher beginning next month when the government starts recovering Sh5.7 billion in fines owed to the Lake Turkana Wind Power project for an incomplete evacuation line.

The wind farm, the largest in Africa with a capacity of 310 megawatts, was supposed to inject its first 50MW to the national grid in October 2016. However, construction of the transmission line from Loyangalani to Suswa has been hampered by challenges, forcing the company to invoke a Sh700 million fine for every month its power lies idle as contained in the contract signed by the government in 2013.

The government and the company reached a deal in September last year after months of negotiations and asked for more time until the end of April, which is tomorrow. Friday, Keter came up with a new promise, saying the wind farm will be connected to the grid in September.

Consumers will also pay another Sh4.6 billion to a special fund created by the National Treasury to cushion the wind farm’s investors from losses should Kenya Power fail to pay its obligations. This will bring the total consumer costs on top of their normal bills to Sh10.3 billion. When costed, this comes to Sh0.1 per kilowatt hour (KWh) if spread across six years as per the agreement.

More people to the grid

Elected partly on a promise to connect more people to the grid and also to bring down the cost of power, the Jubilee government in 2013 embarked on a geothermal development project. At that time, the promise was geothermal would reduce the reliance on fossil fuels in the production of electricity, thus lowering the prices.

Although the current high electricity prices have been linked to the lack of enough rains last year, data from the just released Economic Survey shows that average electricity tariffs have risen by nine per cent since 2012 with an annual increase of about two per cent.

“The average tariff yield increased by 6.6 per cent from Sh14.68 per unit sold in 2015/16 to Sh15.65 per unit sold in 2016/17,” says the survey.

Interestingly, during the five-year period in question, the production of power from steam increased by a staggering 167 per cent from 1,780 GWh in 2013 to 4,756 GWh last year. Currently geothermal power is the largest component in Kenya’s energy mix (46 per cent), followed by hydro (26 per cent), then thermal (24 per cent). Other sources like wind and the sun make up 2.8 per cent.

Diesel generation costs about Sh30 per KWh while the cost of geothermal power ranges between Sh7.12 and Sh8.01 per KWh and hydro at about Sh4. So with such a mix, which is highly dependent on renewable energy, the cost of electricity is supposed to have significantly come down.

And it did briefly in 2013 before it started going up again. The Saturday Standard understands that part of the reason for this increase is the inability to reduce spiraling system losses, which have increased in tandem with the number of people connected to the grid.

From 1,507 GWh in 2013, electricity lost during transmission has increased by 28 per cent to 1,933 GWh. This lost electricity is charged to consumers, therefore contributing to the bloated charges.

Parliament has written to Keter demanding to know the ownership of two vending companies accused by the public of overcharging them whenever they buy tokens.

A case filed by lawyer Apollo Mboya over higher bills amounting to Sh8.1 billion charged to consumers in the months of November and December last year is also set to come up in court next week.

Auditor General Edward Ouko, who is enjoined in Mboya’s suit together with the Electricity Consumer Society of Kenya, told a parliamentary committee that he is willing to carry out a forensic audit on the Sh8 billion Kenya Power wants to recover from Kenyans.

Ready for audit

“We are ready for an audit even if it is tomorrow. There is nothing to hide. Even if you want records about those companies (vendors) they are available. Kenya Power does not just wake up and decide to increase tariffs,” declared Keter.

Energy Principal Secretary Joseph Njoroge said, “The cost of power has not changed in the last seven years. The only variable that has changed is the Fuel Cost Charge (FCC).”

The FCC is passed to consumers as a cost of purchasing power from thermal producers. It is a major contributor to what the customer will pay as it is also tied to the strength of the shilling as Kenya is an oil importer.

The current fuel levy of Sh5.35 per unit has returned the country to levels last seen in 2013 before it added 280 megawatts of cheap geothermal power to the grid. The order given by President Kenyatta in July 2016 for a review of contracts between Kenya Power and thermal Independent Power Producers (IPPs) is yet to yield any results.

During the unveiling of the committee, led by Strathmore University Lecturer Prof Izael Pereira in November of that year, Keter said the task force was to hand over its findings within a month. It is now 17 months later and the task force is yet to submit its findings. Last week, Keter extended the committee’s tenure by another two months.

“The task force shall also make recommendations on the stoppage of projects without approval of feasibility study reports,” said the CS in a gazzette notice issued last Friday.

Currently, Kenya Power has contracts with 27 thermal power plants with a total capacity of 712MW.

All of them are eligible for pay even when not producing electricity, courtesy of a ‘Take or Pay’ tariff. The earliest such costly contracts will expire is 2023.

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