Questions on state push to produce more power

Last month the Cabinet approved an eight-point plan to fast-track economic growth in the country.

One of the points was a road map for accelerating power generation in the next five years, the end result being the reduction of current power tariffs by a quarter.

One of the key components of this strategy is to generate an additional 5,000 megawatts over the next 40 months.

However, even as the Ministry of Energy and Petroleum strives to meet the Cabinet-imposed deadline, industry experts are raising concerns over Kenya’s ability to absorb this electricity, warning that it may be counterproductive.

“The big question we should ask is will we have enough demand to take up the additional power? If not, what will happen to the excess and who will pay for it?” said Mr Eric Musau, an analyst at Standard Investment Bank.

Traditionally, industries have accounted for the largest portion of the electricity consumed at any given time due to demand for higher units to drive heavy machinery.

Nairobi area has the largest concentration of industries in the country and by June 30, 2012, was consuming only 716 megawatts at peak.

This comprises the town and residential estates extending to Kajiado, part of Machakos County, Namanga, and Loitokitok. Government statistics show that half of the country’s wealth is generated in this region.

To absorb the 5,000 megawatts, demand for power will have to build by seven times the size of the current demand in Nairobi region. This would mean tripling the country’s wealth in the next three-and-a-half years.

This is no mean feat, given that to double an economy in a decade, a country needs to grow by at least 7 per cent every year.

GOVERNMENT PROJECTIONS

Government projections show that the economy will record 5.6 per cent uptick this year, rising to 7 per cent in the medium term and to double digits by 2017.

Failing to create this demand could see electricity consumers slapped with huge electricity bills as the government seeks to raise revenue to pay for capacity charges accruing out of the unused power.

“What the government is doing is putting the cart before the horse. In the business of electricity, you first create demand, then go ahead and generate the power,” said an industry source who cannot go on record as he is retained by government as an energy consultant.

Capacity charges comprise those that Kenya Power, the country’s sole electricity distributor, pays when it fails to honour its obligations to purchase power from generators, as contained in power purchase agreements (PPAs).

Demand that is lower than supply and lack of sufficient electricity distribution network are some of the factors that have been cited as possible causes for Kenya Power’s inability to purchase the entire 5,000 megawatts from producers.

“The journey towards accomplishing the 5,000MW additional capacity target has commenced in earnest.

Towards this, plans to source investors and funding for the various electricity generation, transmission, and distribution projects that will deliver the additional energy to customers and the economy at large are at an advanced stage,” said Mr Ben Chumo, the acting managing director of Kenya Power.

According to Mr Chumo, the demand for additional capacity will be driven by economic activities in the counties, the mining and processing industries, giant irrigation projects, running of expanded oil pipelines, powering of modern transport systems such as the planned electric railway, and lighting new resort cities as well as economic zones.

Speaking to Smart Company in a telephone interview from Machakos County, Mr Chumo said Kenya Power was in talks with governors to monitor their region’s electricity needs as a way of creating demand for the anticipated power production.

“It is important for Kenya Power to interact closely with the counties to monitor their power needs. Power supply infrastructure is capital-intensive and requires ample lead time to enable Kenya Power to put in place financing arrangements and also implement and commission,” said the Kenya Power boss.

FUELLED DEBATE AROUND MEGA PROGRAMME

The Lamu Port Southern Sudan Ethiopia Transport (Lapsset) Corridor is expected to use 1,000 megawatts of the planned generation capacity, but the project will not be completed until 2018.

The initiative includes construction of a second port at Lamu, rail and roads linking Kenya, South Sudan, and Ethiopia, an oil pipeline connecting oil fields in South Sudan to a planned refinery at Lamu, and a resort city at Lamu and Isiolo.

Clearly, setting up these facilities might not happen before the lapse of the 40-month period the government has planned as the maximum duration before the additional power is fed into the national grid.

This issue has fuelled debate around the mega programme.

For instance, analysts are questioning the usefulness of the planned oil pipeline between Kenya and South Sudan, which at the time of conceiving the project was to enable the latter find an alternative route for its crude exports following a spat with Sudan.

The two countries have since held talks and export of Juba’s crude through Port Sudan has resumed.

While it has already been proven that Kenya is home to valuable minerals such as niobium and rare earth metals, actual mining is yet to start because the Ministry of Mining is currently involved in a legal tussle with Cortec Mining Kenya, a company that is licensed to extract the minerals at Mrima Hills in Kwale County.

Mining Cabinet secretary Najib Balala’s revocation of the licences of 43 companies this year and the resultant acrimony between the government and sector players could also slow down the pace of setting up large mining projects.

And even for the companies that have already started extraction, not much electricity will be required in comparison to the targeted capacity.

AVERAGE POWER DEMAND

“The average power demand for the Kwale Mineral Sands Project is around 9 megawatts, which is supplied to Base Titanium’s Kwale Mine from the national grid.

This will rise in later years to about 12MW as tonnage and pumping distances increase. We estimate our annual electricity bill to be around $12 million over the life of the mine (13 years),” said Mr Joe Schwarz, the firm’s general manager for external affairs and development.

Locally, mining projects take several years to actualise because of political interference and conflict arising from communities living around these plants, most of which relate to sharing of revenues.

These conflicts have been precipitated by lack of adequate laws to guide the drafting of benefits share structures that recognise local communities, and now the county governments.

The existing Mining Act dates back to 1940 and does not address emerging issues in the mining business. The latest casualty of the changing dynamics was British Oil explorer, Tullow Oil Plc.

The firm had to suspend activities at its two exploration wells in Turkana for a week as local residents protested, demanding jobs in the company.

Further, despite the government acknowledging that commercially viable coal deposits exist in Mui Basin, Kitui County, mining has not started as a deal between Fenxi Industry Mining Group, that is licensed to mine the resource, and local communities regarding revenue-sharing has not been inked.

In its latest search for investors to set up a coal-fired power plant in Lamu with the capacity to generate between 900 and 1,000 megawatts of electricity, the government indicated that an investor would be tasked with importing coal from neighbouring markets, a pointer that mining of the locally available resource is not likely to take place within the stipulated 40 months.

According to Mr Samuel Nyandemo, an economics lecturer at the University of Nairobi, relying on county government initiatives such as the recently launched Machakos City plan to create a market for the additional electricity is not a viable solution.

“For the county governments to create such cities, long-term investments will need to be put in place, hence it is not possible to create a city and power it immediately,” he noted.

UECONOMICAL TO CONNECT RURAL HOMES

In a press briefing held earlier this year, Kenya Power indicated that it was uneconomical to connect rural homes, calling for government funding to enable the rural population to have access to electricity.

The situation is likely to see the firm concentrate on urban connections, with a preference for industries which singly account for about 30 per cent of its electricity sales.

WHY THE PROJECT MATTERS

The ambitious project to produce 5,000 megawatts of electricity in 40 months was officially launched in September this year.

It is hoped that it will help the government achieve its target of growing the economy by 10 per cent, as envisaged in the Vision 2030 economic growth plan.

The government hopes to increase use of renewable sources such as geothermal, wind, and solar in the production of electricity, thereby reducing reliance on hydro resources.

Hydro resources, which account for nearly half of the country’s total electricity generation capacity, often fail during dry seasons when water levels in dams drop, forcing Kenya Power to source electricity from emergency power producers and thermal generators, which utilise fuel, thus exposing consumers to additional costs.

Kenya’s total electricity generating capacity currently stands at about 1,600 megawatts, with less than 30 per cent of the country’s entire population having access to power.

To increase this capacity by another 5,000 megawatts, the government is eyeing power generation from geothermal, solar, wind, small hydros, liquefied natural gas (LNG), and coal.

The project will be implemented through a mixture of investment methods including contracting Independent Power Producers (IPPs) and through Public Private Partnerships whereby private investors will enter into joint ventures with the Kenya Electricity Generating Company (KenGen), that is 70 per cent owned by the government.

About 887 megawatts of geothermal power is expected to be developed in Olkaria, Menengai, Baringo, Suswa, Longonot, and Akiira areas. Construction of a 280 megawatt geothermal power plant by KenGen in Olkaria is ongoing and is expected to be completed by the end of next year.

This project will entail drilling of 400 geothermal wells by both government and private investors.

The government is also exploring opportunities to generate power from wind and has installed 61 wind masts and data collection equipment at various locations to inform wind power development.

Currently, only 5 megawatts of wind power is fed into the national grid from a KenGen-owned wind plant located at the Ngong Hills area.

There is a plan by KenGen to increase this capacity to 25 megawatts. Construction of another 300 megawatt wind plant that will be located in the northern part of the country recently received a boost after the European Union gave a Sh3.5 billion grant for the project.

It had stalled for more than two years due to failure by the Lake Turkana Wind Power Company to acquire necessary guarantees for its construction.

Early this month, Aelous Kenya also received a licence from the Energy Regulatory Commission for the construction of a 61 megawatt wind power plant at the Kinangop area.

Recently, tenders for the development of coal and natural gas fired plants were advertised and an evaluation committee from the Energy Ministry is currently evaluating the applications as part of the procurement process.

As the country is yet to strike commercially viable deposits of natural gas and also start mining of its coal resource, winning investors will be expected to import the resources from markets such as South Africa and Qatar.

There is also focus on small hydro generators, which are estimated to hold a potential of producing about 3,000 megawatts of electricity.

KenGen will be responsible for producing about half of the required targeted capacity. The rest will be sourced from private investors.