Households and firms cut fuel, power use as prices soar

Hit by the high cost of petroleum products last year, Kenyans reduced their consumption of different fuels, new data shows.

Consumption of commonly used petroleum products, including diesel, super petrol and cooking gas, dropped by eight per cent on average in 2022, according to new data by the Kenyan National Bureau of Statistics (KNBS).

Diesel, a fuel largely used by industries such as transport and manufacturing, dropped 0.78 per cent.

The country consumed 2.27 million metric tonnes of diesel in 2022, which is slightly lower than the 2.29 million tonnes consumed in 2021.

Though marginal, consumption of diesel is considered among the key indicators of the health of an economy.

Consumption of super petrol, a fuel mostly used by private motorists, declined 2.38 per cent to 1.51 million metric tonnes from 1.54 tonnes in 2021.

The most affected was Kerosene, whose consumption decline 20 per cent to 89,360 metric tonnes in 2022 from 112,850 tonnes a year earlier.

Cooking gas usage also declined 10 per cent to 333,820 metric tonnes from 371,390 tonnes in 2021.

Reduction in the use of cooking gas could mean Kenyans resorted to using such fuels as charcoal and wood.

This could be seen as a reversal of gains that have been made in moving people away from these fuels, which are harmful to both human health and the environment.

Kenyans had over the last decade taken up liquified petroleum gas (LPG), which is considered a cleaner fuel.

The high cost was on account of a weak shilling, which means that oil firms had to use more of the local currency to import petroleum products.

The result is that the upward trend in the pump prices has defied the drop in crude oil prices since June last year.

The government tried to cushion Kenyans from the high cost of fuel through the pump price stabilisation programme that subsidised retail prices.

This, however, was too costly for the Exchequer and the new Kenya Kwanza administration did away with subsidies on super petrol immediately after assuming office in September last year.

At the moment, users of super petrol are subsidising diesel users, with the effect being that diesel costs less at the pump while in reality, super petrol should be cheaper.

This is going by the landed prices of fuel, where diesel and kerosene are costlier than super petrol.

The cost of super petrol has this month risen to Sh179.3 per litre Nairobi. Diesel is retailing at Sh162 a litre, while kerosene - which still enjoys the government subsidy - retails at Sh145.

Refilling a 13-kilogramme cylinder last year cost Sh3,500, a record high. This has, however, eased slightly, with the price now hovering at around Sh3,000.

"The decreased consumption could be attributed to suppressed demand occasioned by high fuel prices in the local and international market," said the Energy and Petroleum Regulatory Authority (Epra) in a report tracking developments in the petroleum and electricity sectors over the half between July and December.

The reduced consumption of fuel and cooking gas could be an indicator that private motorists ditched their cars, while Kenyan households that had taken up LPG went back to using charcoal during the review period.

XN Iraki, an associate professor at the University of Nairobi and a columnist for The Standard, explained that with price shocks, a shift in ways of life was expected among those who cannot withstand sudden increases in prices of basic commodities.

"Kenyans with low levels of income are very price sensitive. It was expected they should shift to charcoal or wood once the price of LPG went up. The same applies to petrol. Private motorists can take matatus, with some preferring to walk," Prof Iraki told Financial Standard.

"This shift is not unusual. We must learn to adjust to hard economic times. We are taking less hotel food, taking less meat, postponing holidays and taking kids to public schools. That is stressful to men and women who dream of moving up the socioeconomic ladder. But that is the reality until Covid-19 and the Ukraine-Russia war run their course and no other crisis erupts."

Electricity consumption, on the other hand, went up, defying the higher cost of power. Electricity prices started going up in September after holding steady between January and August, aided by the 15 per cent reduction that was implemented in January following a directive by former President Uhuru Kenyatta.

In 2022, Kenyans bought slightly over 10 billion tokens or units of power (also referred to as kilowatt hours - kWh), according to the KNBS numbers. This is in comparison to 9.57 billion units in 2021.

According to Epra, peak demand reached 2,149 megawatts (MW) in December. Peak demand - a measure of the highest load demand in the interconnected network for a specified period - was consistently on the rise last year, only slightly dipping in the months leading up to the August General Election.

The cost of electricity started going up in September, with a unit of power for domestic households going up from Sh21.87 per unit in August to Sh25.20 in September, for families whose consumption is over 100 units per month.

The cost has been on an upward trend since then and reached Sh26.50 in December before moving to almost Sh28 per unit in March.

The cost has further gone up in April as the new tariff that Epra published in late March became effective. Under the new tariff, households that consume upwards of 100 units per month will pay Sh31.75 per unit.

Electricity prices had also been affected by the prolonged dry weather that saw the country rely on expensive thermal plants to meet demand.

The use of costly electricity produced by thermal power producers rose to a five-year high last year due to the prolonged dry spell in the country, resulting in hydropower dipping to a record low.

The amount of thermal electricity that Kenyans consumed last year grew 25 per cent to 1.59 billion units of power (or Kilowatt hours - kWh), up from 1.26 billion in 2021, according to KNBS data.

Power production from thermal power plants, which burn heavy fuel oil to generate electricity, has been growing over the last three years due to declining production from hydroelectric dams.

Water levels have dropped to record lows following a three-year drought that has hit the country, devastating not just power production and prices but also food production.

The declining water levels have, in turn, seen power production from the country's hydroelectric power plants, mostly along the Tana River cascade, drop 25 per cent. Last year, the plants on these dams produced 2.75 billion units of power compared to 3.67 billion units in 2021.

High utilisation of thermal power plants is expected to persist over the coming months and with it a higher cost of electricity.

The Meteorological Department recently noted that the low water levels at the power dams will persist as the rains currently being experienced might not be adequate to significantly increase power production from at the hydroelectric plants.

"The low water levels in the hydropower-generating dams over the Seven Forks dams are expected to persist, and this may reduce hydropower production," said the weather agency in an update on the March-May long rains season.

"Careful reservoir management and continuous monitoring of water levels should be enhanced to stabilise power production."

The weak shilling has also pushed up power costs. This is because entities such as Kenya Power use more of the local currency to meet such obligations as repayment of dollar and euro-denominated loans as well as pay power producers, with most of the Power Purchase Agreements (PPAs) also requiring the utility firm to pay in dollars and euros.