Why cost of electricity will not come down soon

The average cost of a unit of electricity across all consumer categories including the commercial and industrial will increase to Sh19.04 from Sh16.95. [iStockphoto]

The promise of cheap electricity might never come to pass.

This is evident in the recent developments in the sector, the latest being Kenya Power's application for tariff review, which if approved, will result in high prices across all consumer categories.

The review could also result in a significant reduction in the number of people benefiting from the subsidised lifeline tariff if it goes through in the form that Kenya Power put it.

Cheap power has eluded past governments, particularly the Jubilee administration, which over the last decade made numerous attempts to bring down the cost.

It appeared to have succeeded in January last year when electricity prices came down by 15 per cent. This reduction was, however, momentary and was supported by a Sh14 billion subsidy from the National Treasury.

The price has gone up again in recent months owing to higher fuel and foreign exchange adjustment costs.

The Kenya Kwanza administration came to power on promises of, among others, lowering the cost of power for Kenyans.

Its first few days in power in September coincided with a hike in costs. And now, the tariff review application by Kenya Power is a headache for the current administration.

In the proposal for reviewing the tariff, Domestic Lifeline consumers will see the cost per unit of electricity go up to Sh14 from Sh7.70 in the tariff published in January 2022, which led to a 15 per cent reduction in the cost of power.

This is the cost of energy before taxes, levies and pass-through costs (fuel and forex adjustments) are loaded. Power prices for ordinary domestic consumers will increase to Sh21.68 (also before taxes and levies are loaded) from Sh12.60 per unit.

The average cost of a unit of electricity across all consumer categories including the commercial and industrial will increase to Sh19.04 from Sh16.95.

With the additional taxes, levies and pass-through costs, some of the consumer segments will see their per unit cost of power increase to over Sh30.

Kenya Power also wants to reduce the number of people under the lifeline band - a subsidised consumer category targeted at low-income households. The band covers people consuming 100 units and below per month, but Kenya Power in the application wants this reduced to 30 units.

The proposal has not gone down well with many Kenyans. The Consumers Federation of Kenya (Cofek) noted that there are numerous areas of cost reduction for Kenya Power and it does not necessarily have to resort to high power costs.

Electricity generators take the biggest chunk for every unit of power a customer purchases at 64 per cent. [File, Standard]

In a statement following the publication of the proposals by Epra ahead of public consultation, Cofek said Kenya Power is also not justified to ask for a higher tariff, considering the new power plants that are coming on board are largely renewables and cheaper than the thermal plants that some of them are replacing.

"We wish to remind the Kenya Kwanza government that it was voted in on the promise of lowering the cost of living as well as cutting the cost of manufacturing - where high energy costs continue to make Kenya uncompetitive," said Secretary General Stephen Mutoro. "Kenya Power needs to improve efficiencies and cut commercial and technical losses. The utility's high costs are partly to blame on a dilapidated network, lack of meters and a general state of slothfulness at Kenya Power."

He said it does not make sense that Kenya Power seeks an increase in tariffs every time. "With the increasing use of technology and use of renewables on the grid, the cost of power should be going down...there is no justification for higher tariffs."

Mutoro added that the government should restart the plan to renegotiate power purchase agreements (PPAs) with independent power producers (IPPs), as recommended by the Presidential Taskforce on Review of PPAs, and get the companies to reduce their power prices.

"Cofek wholly rejects the proposed electricity tariffs which will overburden an already limping 'Wanjiku'...Cofek calls for a 20 per cent cut in electricity prices for domestic users. "Furthermore, the lifeline band for poor households should be retained at 100 units per month. We deem the 30kWh cut-off as too low and will out too many poor households."

Unsubsidised cost

He said that for domestic consumers who fall outside the lifeline band, their billing graduated, such that the first 100 units are charged at lifeline cost and only anything above that should be subjected to unsubsidised cost. Kenya Power has come under heavy fire following the publication of the proposal that it made recently.

A Ministry of Energy official, however, explained that the company has made the application on behalf of the industry.

"In the application, Kenya Power is looking for resources not just for the company but the entire sector," the official told the Financial Standard on condition of anonymity since he is not authorised to speak on behalf of the ministry.

"There are many players along the electricity supply chain but Kenya Power is the customer-facing one and with that, it is the one that collects the revenue on behalf of all the other players. In this case, it has made the application also on behalf of the other players."

According to the breakdown that Kenya Power lodged with Epra, the electricity generators take the biggest chunk for every unit of power a customer purchases at 64 per cent. Kenya Power also takes a considerable 29 per cent while seven per cent is shared between Kenya Electricity Transmission Company (Ketraco) and the Rural Electrification and Renewable Energy Corporation (Rerec). "With 29 per cent of the revenue, Kenya Power is tasked with managing a countrywide distribution network as well as managing the over eight million customers," the ministry official said.

"The power producers only have power plants in one area and in the case of KenGen, a few pockets across the country."

Additionally, there are pass-through costs, which are fuel charges, forex adjustments and inflation adjustments that cushion the industry players from the high cost of petroleum products, weak shilling and the rise in the cost of doing business in the country.

There are also levies that Kenya Power collects on behalf of government agencies such as Epra and Water Resources Management Authority as well as a rural electrification levy that is passed on to Rerec.

Power prices for ordinary domestic consumers will increase to Sh21.68 from Sh12.60 per unit. [iStockphoto]

"Again, keep in mind that this is a proposal based on the law and regulations before the regulator can give a determination, they have to look at it, and subject it to public consultation," said the official.

Future demands

He said while Kenyans could make convincing arguments to Epra during the public consultation phase and see the increase blocked, there is always a case for modest increases in pricing to enable the sector to cope with future demands. "We do not want to end where South Africa is at the moment, where while the demand kept growing, the investments were curtailed by suppressing growth in tariffs, which in turn led to under-investment in generation and transmission.

"Eskom (the country's electricity utility) has been left without adequate capacity...the result is that they are doing what we were doing in the late 1990s and early 2000s, rationing power. It is chaos and it is affecting not just South Africa but the entire Southern Africa power pool," he said.

South Africa has been going through a power crisis for a number of years, which got worse recently with consumers experiencing scheduled daily rationing that at times last as long as 10 hours.

"If there are no investments in the sector, we (will) go down. Then we will not be talking about high prices but a crisis of darkness," said the Energy ministry official.

"The cost of darkness is more expensive than expensive power."

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