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Independent power producers increase the cost of electricity

Thursday May 3 2018

Kenya Power

A Kenya Power worker. FILE PHOTO | NATION MEDIA GROUP 

PETER WARUTERE
By PETER WARUTERE
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In recent weeks, Kenya Power has been fighting to quell the wrath of electricity consumers over the cost of electricity and failure of its prepaid power platform, which caters for 4.5 million, or 70 per cent, of its customers.

Granted, energy sector issues are complex. But the bigger crisis now is that consumers continue to pay for expensive power from diesel- and thermal-powered generating plants while cheaper electricity from geothermal, hydro and wind sources goes to waste.

Independent power producers (IPPs), introduced in 2000 in an emergency plan to sustain electricity supply during droughts, have become a permanent feature and the biggest beneficiary of a business model that compensates them fully for the fuel they use in operations.

FUEL COSTS

Last year, Kenya Power paid Sh22.1 billion for fuel costs, or 28 per cent of its power purchase costs of Sh78.9 billion, while foreign exchange costs, the cover for exchange rate fluctuations, added 7.8 per cent.

Since the cost of fuel is directly passed to consumers, they can expect their bills to remain high, particularly with the rise in global oil prices.

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Ideally, the controversial IPPs should have been decommissioned since there’s no drought.

Kenya has, over the past two decades since the first IPP was planted at Embakasi, expanded output from geothermal, which accounts for 47 per cent of the electricity consumed. Hydro, whose stability has been enhanced by modernisation of the old stations, contributes 39 per cent, thermal 13 per cent and wind one per cent.

The IPPs remain in business owing to a systemic disconnect between the sources of cheaper power and the national distribution network. Energy Cabinet Secretary Charles Keter attempted to explain that last week in response to the outcry about high electricity bills.

TRANSMISSION LINE

The fundamental problem is a missing transmission line to connect KenGen’s Olkaria geothermal stations to the national grid at Kenya Power’s Athi River sub-station. The stations run 24/7, so most of the power produced during low demand, at night, is lost. Supply to the Coast is maintained through base power from expensive diesel and thermal generators.

And a much bigger crisis is in the offing: The Lake Turkana Wind Power Project, with a listed capacity of 310 megawatts, indicates it has started producing electricity and is billing Kenya Power. But there is no transmission line to the national grid through Kenya Power’s Suswa sub-station.

Construction of the line was abandoned in 2016, when an Italian firm contracted by the Kenya Electricity Transmission Company went bust. A Chinese consortium is expected to complete the project by August.

WEAKNESSES

So, the government has many issues to resolve — from unfriendly tariffs to systemic weaknesses that cut back on value for money to consumers. These problems eclipse its significant gains in expanding electricity access to domestic and industrial consumers. Use of technology, such as pre-paid electricity tokens and electronic billing, has contributed to better revenue outcomes and is environmentally friendly as it has cut down on the paper Kenya Power used to send bills.

The government also needs to expand the incentive structure for manufacturers to expand their night shift production, when there’s plenty of idle power.

The manufacturers should take up more power at night at half the cost of daytime to improve on their bottom line.

The peak demand from industry and households is 1,770 MW but, after 9 pm, the demand halves as most of the country goes to sleep. Improving infrastructure and security in shopping areas and residential neighbourhoods would encourage micro and small enterprises to stay up late and consume more low-cost power.

 Mr Warutere is a director of Mashariki Communications Ltd. [email protected]

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