Four more years of high power bills as Kenya keeps costly thermal plants

Posted on : Monday , 7th September 2015

 Kenyans will continue to shoulder the burden of expensive thermal generators for at least four more years, despite recent strides in unlocking cheaper sources of energy.

Data from the Energy Regulatory Commission (ERC), which is the energy sector regulator, shows that the earliest the first of the nine thermal power plants could be knocked off from the national grid is 2019. This is in case it is not renegotiated as has been the practice in recent past.
The ERC data shared with The Standard shows the country currently has seven 20-year contracts with Independent Power Producers (IPPs) operating thermal generators. The Kenya Electricity Generating Company Ltd (KenGen), which produces about 80 per cent of electricity consumed in the country, has two remaining thermal plants.
KenGen’s 60 megawatts (MW) thermal plant in Kipevu 1 is listed as the first to have its contract expire in 2019. The next to expire will be Kipevu 11, whose tenure ends in 2021. The other plants will all expire after 2030, with the latest addition—Triumph — being the last in 2035.
Though the thermal plants come in handy in cases where the country experiences significant power shortage due to low rainfall and other factors, the long-term power contracts make it hard for the country to retire them without incurring additional costs or litigation in case it lands on more sustainable and cheaper alternatives.
Some of the 20-year contracts include Ibera Africa, which commissioned in 2010, Kipevu II diesel (2001), Rabai (2010), Gulf power (2014) and Thika power (2014). The country appears to be shooting itself in the foot by signing two-decade long contracts despite recent successes in geothermal energy.
The total installed capacity of all diesel power plants is 698MW. This is more than two-thirds of all the hydro power generation by KenGen. This comes at a time when electricity bills have risen by the highest margin since May last year, due to increased use of expensive thermal power on household budgets.
Latest data from the Kenya National Bureau of Statistics (KNBS) data suggests that households that consumed 200 kilowatt hours (kWh) of electricity paid Sh3,684, up from Sh3,291 the previous month, representing an 11 per cent rise.
Homes that used 50 units paid Sh605, up from Sh507, reflecting a 19 per cent jump, which is the highest rise since last May when electricity costs rose by Sh111. The country has been fighting to keep power costs down, with heavy investments in geothermal energy.
Kenya injected an additional 280 megawatts of cheaper geothermal power between August and December last year, which were expected to cut energy costs significantly on reduced use of thermal power. Geothermal does not attract a fuel charge and this shields the country from the fluctuation of oil prices globally. The recent depreciation of the shilling by about 15 per cent has also had an impact on the fuel prices in the country given that Kenya is a net fuel importer.
For instance, due to these factors, the fuel cost charge increased to a nine-month high of Sh3.11 per unit this month, up from Sh2.51 in July. This is also above the government target of keeping the surcharge at between Sh2-Sh3 per unit.
Recently, ERC faulted the heavy uptake of thermal electricity and directed Kenya Power to revert to a mix that would stop the cost surge. As another measure to keep prices low, the energy regulator is planning to the strip Kenya Power off the power of deciding which power plant makes it to the national grid.
Geothermal sources
ERC wants a new entity established to ensure that only the cheapest energy available in the market ends up on the distribution lines. But before that happens, it wants to hand the role to Kenya Electricity Transmission Co Ltd (KETRACO). Last month, thermal accounted for 18.6 per cent of electricity bought by homes and businesses, up from 10 per cent in December.
Reducing the cost of energy has been a key plank of President Uhuru Kenyatta’s economic agenda, which is aimed at making locally produced goods competitive in local and foreign markets as well as slowing down inflation. Businesses have in recent years complained that expensive power makes Kenya’s products uncompetitive. Though the additional cheaper geothermal cut electricity costs by nearly a quarter since last August, homes have seen little changes when the comparison is stretched to more than 18 months ago.
The share of electricity generated from geothermal sources in October surpassed that of hydropower for the first time. About 140MW was added to the grid in July last year and 70MW in September and 70MW in late November.





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