What you need to know:
- Emergence of mini-grids in remote villages, means loss of potential future customers for Kenya Power
- The Competition Authority has already backed opening up of distribution, citing global practice
- With five million people, for instance, Finland has 80 power suppliers
As Kenya Power battles court cases over inflated bills, another looming showdown is shaping up for the electricity distributor, this time one that threatens its core business.
The utility firm has for long enjoyed unchallenged dominance in power distribution market and will probably do so for a couple of more years.
The monopoly is, however, increasingly coming under attack, with private investors setting up smaller networks, complete with power plants, for direct sale of electricity to homes in remote off-grid areas.
Emergence of these mini-grids in remote villages, means loss of potential future customers for Kenya Power whose business model depends on increased connections and power consumption to grow revenues.
American companies Powerhive along with Vulcan, owned by Microsoft co-founder Paul Allen, have constructed and seek to expand their solar-powered mini-grids in remote villages of Kisii, Kajiado and Samburu.
But what’s probably giving the national distributor sleepless nights is the Energy Bill, which expressly provides for the licensing of rival electricity distributors and retailers — in a move that aims to increase competition and improve the quality of service.
The proposed law is awaiting Parliament’s approval, which if passed, will open up the national grid – transmission and distribution network – to multiple players, diluting the current monopoly.
With an open market, retailers will buy power from different sources and pay a fee for using the State-owned transmission network to transport it to consumers.
The Competition Authority of Kenya (CAK) recently also backed the opening up of the retail market, citing it as the best global practice.
“In our position, electricity retail market should be opened up to other distributors for purposes of fairness to the consumer,” CAK director general Wang’ombe Kariuki said.
Kenya, with a population of 48 million strong, is served by the sole distributor while an advanced economy such as Finland has about 80 electricity distributors who serve a population of only 5.5 million people.
Finland’s wide pool of power supply options has greatly favoured customers while forcing electricity providers to continually up their game, lest they lose market.
It is this flexibility that Kenyan customers lack since they have to buy electricity from only Kenya Power.
The enactment of the Energy Bill will also strip Kenya Power the role of electricity purchase and award it to an independent player, identified to be Kenya Electricity Transmission Company (Ketraco) – the agency in charge of high transmission network.
Kenya Power’s scope would be reduced to distribution and infrastructure maintenance, a proposal modelled on Britain.
Mr James Wanjagi, director of a consultancy firm, Iricon, witnessed the opening up of power distribution in the US State of Texas, saying it could offer Kenya a roadmap in the journey ahead.
“It was messy for a while, but soon picked up, guided by market forces and an interesting clause in the National Energy Act that said in part - electricity rates offered by utility companies were to be kept at a “price to beat”, said Dr Wanjagi who relocated back to Nairobi to create the consultancy firm.
“This “price to beat” needed to be sufficiently high so that incoming retail competitors could become competitive without having to face early bankruptcy.
Without this price to beat, utility companies with financial muscle could simply decrease their rates until new fragile retail providers went bankrupt.
This rate stayed frozen for three years, after which a six per cent reduction would be required for residential and small commercial consumers,” he added.
Kenyan Energy ministry officials are, however, opposed to the opening up of the retail power market soon, citing lack of a framework and an underdeveloped transmission network.
The fact that Kenya’s demand is low (currently at 1,770 megawatts at peak) is also seen to work against market liberalisation, since only 6,000 large power users account for over 60 per cent of Kenya Power revenues.
This accounts for a paltry 0.1 per cent of the company’s customer base of 6.7 million, meaning a majority of consumers, largely domestic users, have very low power needs.
Neglect bottom-end users
If the market is opened up, the ministry reckons, retailers will cherry-pick customers to sell to, mostly large consumers while neglecting bottom-end users, skewing the market.
Energy Principal Secretary Joseph Njoroge says that introducing competition would do away with the current arrangement where Kenya Power buys power and sells it at predetermined rates set by the energy regulator in favour of consumers.
“We can only afford market liberalisation either if we have more large power users such as factories and businesses, hence higher demand, or a domestic population with higher power needs,” he said.