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Balancing cost-pricing component in electricity ecosystem inevitable

Wednesday July 15 2020
power

A geothermal power plant under construction at Olkaria 5 in Naivasha. Certain issues need to be addressed as a matter of urgency, if electricity consumers are to realise a reduced cost of power in the near future. PHOTO | FILE | NATION MEDIA GROUP

By DANIEL NJOROGE THUO

This year, Kenya has recorded one of the highest water levels. This is evident in inundated water levels in hydroelectric dams recently experienced by floods and heavy rains. Additionally, Olkaria 5 geothermal power station has been commissioned.

The paradox, then, is why, despite significant up-scale from renewable energy, which are less costly than thermal power, the cost of power is still high.

There is an argument that dispatching the entire power from hydro to achieve tariff reduction, particularly since it’s the cheapest source, would amount to depleting the already full hydro reservoir and, therefore, be left with low water levels during the dry spell that is expected soon.

With over 800 megawatts, accounting for 40 per cent of the national electricity generation, hydroelectric power are inherently used to stabilise the grid.

Recently, the Ministry of Energy indicated an intention to declare force majeure on power generation contracts, which technically means that Kenya will not be bound by the existing pacts on payment of electricity from the more than 10 power producers, part which are thermal generators.

ELECTRICITY GENERATION

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Kenya’s current electricity generation is slightly above 2,650MW with peak demand of 1,912 MW as at last November.

This has been further complicated by subdued electricity growth occasioned by Covid-19 pandemic, which explains why it would be difficult to reduce electricity price at this point in time.

Tariff reduction is not a short-term endeavour and would require a delicate balance between cost and electricity pricing, particularly given that different state agencies in the electricity sector are required to operate commercially.

But certain issues need to be addressed as a matter of urgency, if electricity consumers are to realise a reduced cost of power in the near future.

A careful look at the electricity bill will tell you that the fuel cost charge is one of the largest components that electricity consumers pay, reflecting the cost of thermal power plants. In 2018, for instance, Kenya Power paid Sh23.5 billion to thermal power independent power producers (IPPs).

EXPECTED TO RETIRE

Of the 23 thermal power plants, which account for 20 per cent of total installed capacity, only one has been decommissioned as its power purchase agreement expired mid last year, two more are expected to retire over the next two years. This leaves a significant number of the rest of the thermal power plants running with contracts extending beyond 2030.

The conversation then around conversion of existing thermal-to-gas electricity power becomes tenable at this point. To avoid electricity consumers continuing to bear increased electricity cost for the next decade, it’s important that the remaining thermal power is urgently converted to gas power, which is significantly cheaper than heavy fuel oil (HFO) and would translate to reduced power costs. That way, the affordable reduced power price will be achieved.

According to the International Energy Agency (IEA), the global gas production has increased, evidently coupled with the continued development of the international gas trade. Additionally, liquefied petroleum gas (LPG) is more environmentally friendly due to low carbon emission.

With the versatility aspect that makes it stand out, gas-fired electricity power stations have the ability to adjust rapidly to realise demands, especially over peak periods, more than any other energy source in the electricity generation industry.

UNIQUE OPPORTUNITY

Africa has a unique opportunity to adopt a much less carbon-intensive development path as it pursues the use of modern energy technologies. Thermal-to-gas conversion can offer quick wins for electricity users, who mostly are indolent and cannot afford increased power costs, and utility agencies.

Tanzania, for instance, enjoys low electricity prices from the conversion of some thermal- generated power plants, an example being Mtwara.

A major challenge for planners and policy makers in the electricity sector has always been identifying the optimal combination of electricity generation technologies within different load factor categories, in order to achieve the best match at the lowest cost and realise lower electricity prices.

There is a need to explore this window, where gas can play an increased role, next to renewables, as they advance universal access to electricity.


Mr Daniel is an energy economist at Africa Utility Forum. [email protected]

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