Kenya Power seeking to raise cost of electricity as industries cry foul

The cost of electricity in Kenya could rise if utility firm Kenya Power is granted permission to review tariffs.

Kenya Power, which has handed its application to the Energy Regulatory Commission (ERC), is seeking cash to lay a $125 million underground cable in Nairobi and to cover the firm’s operation costs.

The underground cabling project is aimed at strengthening the quality of electricity supply while reducing the costs and challenges associated with overhead cables.

If the ERC grants the request, it will deflate hopes of stepping down power costs to help industries that produce goods for export across East Africa compete with rivals in South Africa and Egypt.

Hopes had risen with the impending injection of 310MW from the Lake Turkana Wind Power project into the national grid.

ERC has confirmed receiving the proposal, and says it still believes a decline in power costs is possible given the cheaper generation matrix.
“Kenya Power has applied for a review of tariffs and we are reviewing the proposal, which we think will result in a decline because cheap generating sources are expected to come on stream,” ERC director-general Pavel Oimeke said.

This is the second review Kenya Power is seeking in two years. The review in 2015 was denied for being against government policy of reducing power costs. 
Kenya Power last reviewed its tariffs in 2013 when ERC increased the cost of electricity by an average of 13 per cent.

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Kenya is struggling to revive its manufacturing sector that has largely lost out to Ethiopia due to the high cost of electricity. The country is hoping to utilise the power from the Lake Turkana Wind Power (LTWP) to regain its competitive edge. 

Though Kenya is investing in various electricity generation plants including the 158MW Olkaria V geothermal plant and the controversial 1,050 MW Lamu coal plant, the coming on stream of the Turkana power plant is expected to have an immediate impact on the cost of electricity.

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LTWP is expected to result in a 2.3 per cent reduction in generation tariff from $10.06 cents per kilowatt hour to $9.8 cents per kilowatt hour. In effect, this will translate into a reduction in the cost of electricity for end user by the same margin .

Currently, low-volume electricity consumers of up to 50 units per month pay $0.023 cents per unit, those using 51-1,500 units pay $0.12 cents per unit while consumers of above 1,500 units pay $0.19 cents per unit.

Consumers also pay a fixed charge of $1.4 irrespective of consumption levels. 

“Electricity consumers will benefit when Turkana power starts feeding the national grid because there will be a 2.3 per cent decline in electricity costs,” said Mr Oimeke.

According to the Kenya Association of Manufacturers, industries in the country pay $15 cents per kilowatt hour compared with Ethiopia, where they pay $0.4 cents and Egypt where they pay $0.6 cents. In Tanzania, manufacturers pay $14 cents per kilowatt hour, Uganda $12 cents and South Africa $0.9 cents.

Private investors

Private investors of the $670 million Turkana power project have completed implementation of the biggest wind farm in Africa and are awaiting the completion of the 400kV transmission line to commence power evacuation.

Kenya’s Energy Cabinet Secretary Charles Keter blamed the delay in completing the 428km high voltage line from Loiyangalani in Marsabit to Suswa on financial problems bedevilling Grupo Isolux Corsan of Spain, which is the main contractor.

The problems have made it hard for the 10 local sub-contractors to get material to complete the line.

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“We decided that instead of terminating the contract, we’d rather manage by getting the materials because the subcontractors who are working on the line are Kenyans. If we get the materials within the next three months, we should complete the line,” he said.

He disputed concerns that delays in completing the line on schedule have been caused by local communities staging attacks demanding compensation.

“There was an incident in Baragoi but the law is clear and we have sorted out all the compensation issues,” he said, adding that the government plans to have the line completed in the next three months.

Finance boost

The line is fully financed by the Kenyan government and is being implemented by state-owned Kenya Electricity Transmission Company (Ketraco).

He added that to ensure Kenyans benefit from the cheap LTWP electricity, the ERC has come up with a modest wheeling charge tariff that the private company will pay Ketraco for using the transmission line.

Apart from enabling a decline in electricity costs, the Turkana wind power project will also enable Kenya to significantly reduce power generation from thermal plants which are largely the cause for high electricity costs due to energy and capacity charges.

Over the past one year, the massive decline of water levels in the Tana River cascade has drastically reduced power generation from hydro and increased thermal generation.

Currently, the energy generation mix stands at 40 per cent geothermal, 34 per cent hydro, 25 per cent thermal and about one per cent wind.

When operational, the Lake Turkana Wind Power will drastically cut thermal generation to between five and 10 per cent and increase wind to 15 per cent. The plant will also increase Kenya’s installed electricity generating capacity to 2,635MW from 2,325MW.

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