Electricity bills in Kenya to go down by 33pc from December

Kenya is preparing for an over 33 percent reduction in electricity tariffs starting December 2021 to shore up power demand and save the struggling utility firm, Kenya Power, from imminent collapse.

The reduction in consumer tariffs from an average of Ksh24 ($0.21) per kilowatt hour to Ksh16 ($0.14) per kilowatt hour is part of the recommendations by a 15-member Presidential Taskforce constituted to review the cost of electricity in the country as part of efforts to attract foreign direct investments (FDIs) and promote industrial growth.

The development comes as the electricity distributor which is 50.1 percent owned by the state faces a demand crisis due to its inflated electricity bills, corruption and increasing shift to solar energy by households and industries.

Last year, the firm, which is listed on the Nairobi Securities Exchange said demand risks were a major concern to its operations as heavy-consuming industrialists seeking reliable and cheaper supply shift to solar power.

Last year, total electricity demand decreased to 11,603.6 GWh from 11,620.7 GWh in 2019,with domestic demand falling to 8,796.4 GWh from 8,854.0 GWh in the same period, according to the Economic Survey Report (2021).

Electricity sales to large and medium commercial category declined by 3.6 per cent to 4,281 GWh while transmission and distributive losses amounted to 2,790.7 GWh, or for 24.3 per cent of total domestic generation in 2020.

KP’s industrial customers — account for 54.8 percent of its sales revenues — but gradually shifting to own-generated solar power, dealing a further blow to its already dwindling finances.

Last week, President Uhuru Kenyatta received the report of the Presidential Taskforce on Review of Power Purchase Agreements that was constituted in March 29, 2021.

The taskforce chaired by John Ngumi who is also the current chairman of the Industrial and Commercial Development Corporation (ICDC) recommended review and renegotiations with the Independent Power Producers (IPPs) to secure immediate reduction in Power Purchase Agreement (PPA) tariffs within existing contractual arrangements and cancellation of all unconcluded negotiations of PPAs and ensure future PPAs are aligned to the Least Cost Power Development Plan (LCPDP).

It also recommended that Kenya Power takes the lead in formulation and related PPA procurement of the LCPDP and carry out due diligence and contract management frameworks for PPA procurement and monitoring.

Kenya Power is also expected to adopt standard PPAs and proposed Government Letters of Support (LOS) along the lines of drafts provided by the taskforce and undertake a forensic audit on the procurement and system losses arising from the use of Heavy Fuel Oils.

“In line with the constitutional imperative for transparency in the public sector, KPLC’s annual report should include the names and beneficial ownership of all IPPs with which it has contractual arrangements,” according to the taskforce.

To ensure implementation of the reforms in the energy sector President Kenyatta implemented a Cabinet reshuffle that saw deployment of the former Cabinet Secretary in the Ministry of Defence Monica Juma moved to the Energy docket while Principal Secretary Maj. Gen (Rtd) Gordon Kihalangwa moved from the Ministry of Public Works to Energy ministry.

Kenya Power made a loss before tax of Ksh7.04 billion ($64 million) the year ended June 30, 2020, compared with a Ksh334 million ($3.03 million) profit the previous year.

This was due to impairment for slow and non-moving inventories, additional provisions for electricity and other receivables and unrealised foreign exchange losses due to depreciation of the shilling against major foreign currencies

The firm, however, returned to profitability during the six months period to December 31, 2020, by posting a net profit of Ksh138 million ($1.25 million), though a decline compared with a profit of Ksh692 million ($6.29 million) in the same period the previous year (2019).

In 2018 and 2019 the firm’s net profit stood at Ksh3.26 billion ($29.63 million) and Ksh261.55 million ($2.37 million).

Kenya Power is tasked with transmission, distribution and retail of electricity purchased in bulk from Kenya Electricity Generating Company Plc (KenGen), Independent Power Producers (IPPs), Uganda Electricity Transmission Company Limited (UETCL), Ethiopia Electricity Power Company and Tanzania Electric Supply Company Limited (Tanesco).

In July 2020, the government reconstituted the Kenya Power Board as part of efforts to streamline its operations, enhance efficiency in power distribution and transmission and restore the firm to a profitability path following a series of scandals by the firm’s directors.

However, in August, CEO Bernard Ngugi, resigned cutting short his three-year term, in the wake of escalating management dispute with the new board chaired by Vivienne Yeda.

Last year, total electricity generation in the country declined by 17.1 GWh to 11,603.6 GWh while thermal electricity generation declined by 42.5 percent to 754.5 GWh due to a significant reduction in thermal electricity generation by KenGen in the same period.

Wind electricity generation dropped by 14.8 percent to 1,331.4 GWh geothermal electricity generation decreased by 3.3 percent to 5,059.8 GWh.

However, hydro electricity generation increased by 32.1 percent to 4,232.7 GWh mainly due to favourable rainfall experienced in 2020.

Kenya Power faces high system losses that have increased to 23.46 percent from 18.68 percent in the last seven years, with the firm blaming it to rapid growth in the distribution network without commensurate growth in electricity demand resulting in underutilised grid assets leading to increased technical losses.

During the 12-month period to June 30 last year the firm had a total debt portfolio of Ksh118.73 billion ($1.07 billion), comprising of Ksh65.47 billion ($595.18 million) of commercial debt and Ksh53. 26 billion ($484.18 million) on-lent debt.

A World Bank survey on power cost and reliability in Africa revealed that utility firms in the continent are cash strapped and have allowed their assets to fall into disrepair, exacerbating power shortages.

The survey, sampling 39 countries five years ago (2016) found out that only power utilities in Seychelles and Uganda were fully recovering their operational and capital costs, and utility firms in 19 countries were able to cover their operational costs.

According to the survey, utilities need to focus on achieving an acceptable level of service quality to launch a trajectory toward cost recovery in tariff revenues.

“Raising tariffs while outages continue unabated is bound to invite a backlash. They could reduce costs by phasing out operational inefficiencies, implementing short-term measures to reduce the duration (if not the frequency) of outages, and addressing customer service quality in general,” says the survey.

According to the International Finance Corporation, unreliable utility distribution systems are a major drag on regional growth in Africa, with the cost of inefficiency in Africa's power and water sectors valued at $4.5 billion annually.

Along with financial costs, distribution losses also contribute to greater greenhouse gas emissions and increased water stress within the region.

On average, electricity utilities in the continent lose 23 percent of all energy consumed due to operational inefficiencies, at a cost of almost $3.3 billion per year, compared with a 10 percent global average.

Africa is struggling with huge operational inefficiencies estimated at more than $3 billion annually, which have caused the region to suffer the world’s highest energy prices, with most of its electricity providers barely breaking even, limiting their scope for re-investment.