Kenya’s electricity sector on Monday defended the latest bid to hike power costs, arguing that this is necessary to enable the industry to continue investing in infrastructure to enable them to meet growing demand from an increasing customer base.
Senior executives from nearly all the state-owned power sector entities showed up at a briefing to support the proposed higher electricity rates.
Kenya Power acting managing director, Geoffrey Muli, who did the heavy lifting on Monday in pitching for higher rates was accompanied by senior officials from the Kenya Electricity Transmission Company (Ketraco), KenGen and the Rural Electrification and Renewable Energy Corporation (Rerec).
The briefing had been convened by the industry regulator - the Energy and Petroleum Regulatory Authority (Epra), which is also expected to referee the tariff review process, in which all indication care will result in higher cost of electricity.
The proposals, if passed as they are, will see the basic cost of power will go up to Sh21.68 per unit from Sh12.6 per unit for domestic consumers.
This is before loading taxes, levies and other costs such as fuel and foreign adjustments. The increase will affect consumers across all categories including businesses.
The tariff was last reviewed in 2018 but in January last year, Epra published another tariff following a directive by former President Uhuru Kenyatta that saw power prices dip 15 per cent.
Kenya Power proposals could also see more than 1.5 million households locked out of the subsidised electricity tariff.
In the application for tariff review lodged with the Energy and Petroleum Regulatory Authority (Epra), Kenya Power wants the subsidised tariff – referred to as the lifeline tariff – to cater for households consuming below 30 units for the current 100 units.
The tariff, which is meant to enable low-income households to access electricity, has 8.2 million customers or more than 90 per cent of Kenya Power’s nine million customers. The firm contends that not all of the beneficiaries are low-income households.
In the application, Kenya Power has proposed increasing the power costs for consumers in the subsidised band to Sh14 per unit (also before the inclusion of taxes, levies and pass-through costs) from Sh7.7 under the tariff that Epra published in January 2022 that resulted in a 15 per cent drop in power costs.
The proposed tariff is also higher than the Sh10 the category of consumers had been paying under the 2018 tariff.
A simulation of the impact that the proposals will have on the cost of power shows that if the proposals go through as they are, a unit of power will increase to Sh31.6 for ordinary domestic customers from Sh26.4.
Lifeline customers, according to the same simulation by Kenya Power, will see their power costs go up to Sh23.1 per unit. Muli said the hike in power costs would ensure the sustainability of the sector.
“This tariff application is based on the required resources for the sector sustainability. You have witnessed what is happening around us, where we have some of our neighbouring countries doing a lot of rationing simply because of the challenge of how much is being ploughed back to the sector to support growing demand.
“We need to invest in grid expansion and maintenance. We also need to enhance power quality and reliability,” said Muli.
“The proposal has factored in all sector aspects, from generation to distribution and retail. It aims at supporting the anticipated growth…it is for all players in the sector and not just Kenya Power.”
In the proposal, Kenya Power wants households consuming more than 30 units of electricity moved from the subsidised lifeline category to that of ordinary domestic consumers. This will mean that more than 1.5 million consumers will be locked out of the subsidised tariff, which could mean more hardships for many who are already grappling with high-cost essential items including food.
Kenya Power said out of the 9.01 million customers that it had as of December 2022, about 8.2 million were in the lifeline category, but not all of them are necessarily low-income households and have unfairly been befitting from the subsidy.
Muli explained that by lowering the threshold to 30 units, lifeline customers would reduce to 6.7 million customers.
He also added that about 3.5 million of the firm’s customers use 10 units of electricity per month on average.
“More than 8.2 million customers are in the lifeline tariff, which is heavily subsidised and charged far below cost. It is an area we felt needed to be looked into so that we have at least more customers paying the full cost of power,” he said.
Epra, which is subjecting the proposal to public participation over the next 10 days, said it would consider all factors and make a balanced determination.
Epra Director General Daniel Kiptoo said following the receipt of the proposal by Kenya Power, it would embark on a process to determine the industry’s requirements and get views from Kenyans on the proposed hike in electricity costs, with the aim of balancing the industry’s and consumer needs.
“This process aims at allowing investors to be compensated for their investments while consumers only pay for prudently incurred costs. We will check across the chain and see whether the proposed costs are prudently incurred. We expect to get to a sweet spot, balancing all interests,” he said, adding that Epra would between today and February 10 hold forums with Kenyans in major towns across the country.
He further disclosed that the Water Resources Management Authority (Warma) had separately lodged a review of its levy from the current five cents to Sh2 per unit of electricity.
Kiptoo noted this would have another impact of increasing the cost of power but added that the regulator is in talks with the authority as well as the Energy Ministry to ensure the increase in electricity costs are manageable.
“Warma has come up with a proposal to increase its charge to Sh2 per unit. It will have an impact of further increasing the cost of power (if passed as is). We are having a conversation with Warma and the other players involved to ensure that the increase is at the bare minimum,” he said.