Deals with private power producers on spotlight

Lengthy and expensive power purchase agreements are threatening the Jubilee government’s cheap energy agenda.

The agreements were signed mainly between 2009 and 2014 and commit the government to pay private power producers even if they do not use their electricity.

The cost is passed on to consumers.

The Daily Nation has detailed information about 26 power plants contracted to supply largely thermal electricity for as long as three decades.

President Uhuru Kenyatta has called for a review of the independent power purchase contracts in a bid to terminate those that are derailing plans to cut the cost of electricity as the country feeds more geothermal power into the national grid.

Participants at a State House energy summit on Wednesday questioned why the government was still paying independent contractors who use diesel generators to supply electricity when the country has been generating more than 400 megawatts of cleaner and cheaper energy since 2013.

Information shows that Kenya entered into some of the agreements as late as January 2016 even after an additional 280MW of geothermal power was incorporated into the grid.

More than half the deals were made with diesel thermal plants, with some expected to last till December 2039.

The information also reveals the huge pricing disparity between the suppliers, with some charging as much as Sh21.9 per unit, more than double what State-owned Kenya Electricity Generating Company (KenGen) sells its thermal electricity to Kenya Power, at Sh8 per unit.

The most expensive supplier, according to the data, is the 80MW Athi River plant run by Gulf Power.

It charges Sh21.986 per kWh and has a 20-year contract till December 2034. Muhoroni’s Aggreko, whose contract expires in five months, charges Sh19.160.

Geothermal power, which costs as little as Sh3.5 per unit, is expected to push down the cost of energy even as KenGen charges as low as Sh3.037 per unit for power from its hydro sources.

POWER UPTAKE
Last year, the Energy Regulatory Commission voiced concern over high power bills despite Kenya being ranked the eighth largest global producer of geothermal energy, according to a study presented to the World Bank by KenGen.

The study ranked the country, which now produces 614MW geothermal energy, ahead of giant economies such as Japan, Russia, China and Germany.

Energy Principal Secretary Joseph Njoroge said local industries should increase power uptake as Kenya would still carry the expenses whether the power was used or not.

“The principle of independent producers all over the world is what we call ‘take or pay’. Once you allow the investment, you have to use the power. If you don’t, you still pay, especially the fixed cost charges,” Mr Njoroge said.

The private producers generate close to 400 MW and will continue to earn a fixed charge of $0.04 (Sh3.47) per kilowatt-hour to remain on standby even long after government stops using their expensive energy.

Their prices are pushed up by the fuel cost charge of between Sh7 and Sh18 per unit which is loaded onto consumers’ bills.