Talks open for another 15pc power bills cut

Economy

Talks open for another 15pc power bills cut


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Kenya Power staff at work along Nyerere Avenue in Mombasa. FILE PHOTO | KEVIN ODIT | NMG

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Summary

  • The Ministry of Energy on Tuesday said it had opted for talks over forcing the independent power producers (IPPs) to lower tariffs in the wake of opposition from the foreign firms in the planned review.
  • The 15 percent cut implemented in January saw the cost of buying 200 units of electricity drop from Sh5,185 in December to Sh4,373 in February.
  • Electricity consumers often complain of steep bills, which are partially due to idle capacity charges that compensate power generators for electricity that is generated but never used.

Negotiations have begun around a deal to review power purchase agreements (PPAs) signed over the years by Kenya Power in the push to further cut electricity bills for homes and business by 15 percent in three months to June.

The Ministry of Energy on Tuesday said it had opted for talks over forcing the independent power producers (IPPs) to lower tariffs in the wake of opposition from the foreign firms in the planned review.

The goal is to lower Kenya Power costs and offer the utility room to cut retail tariffs by 15 percent without sinking into losses.

Kenya Power in January cut retail tariffs hinged on its lowering system losses – the share of electricity bought from generators such as KenGen that does not reach homes and businesses due to power theft and leakages from an aging network.

The State promised a similar cut in a plan based on the review of PPAs after a task force appointed by President Uhuru Kenyatta found that there was a huge disparity between the tariffs charged by main power producer KenGen and IPPs.

The IPPs, which are owned by powerful institutions like the World Bank, opposed a unilateral push to lower the cost at which they sell electricity to Kenya Power, setting the stage for a legal battle.

The fear of a legal tussle with powerful foreign investors forced the State to retreat and opt for a negotiated deal with the IPPs.

“Today [Monday]formal engagement between the Government of Kenya and independent power producers commenced within the framework of the ongoing wide-ranging reforms in the energy sector, ”the Ministry of Energy said in a statement.

“These conversations have established good faith, forged comfort and clarified a pathway to successful negotiations in the shortest time possible.”

The 15 percent cut implemented in January saw the cost of buying 200 units of electricity drop from Sh5,185 in December to Sh4,373 in February.

The State is aiming for similar cuts in phase two of the review.

Electricity consumers often complain of steep bills, which are partially due to idle capacity charges that compensate power generators for electricity that is generated but never used.

Under a typical power purchase agreement, a power producer gets paid for any electricity produced, even if it is impossible for Kenya Power to sell it to consumers because of reasons including excess production.

The cost of power is a key determinant of new investments.

Electricity prices have nearly doubled since President Uhuru Kenyatta took office in 2013, with 50 units rising from Sh508 in July 2013 to Sh945 in December before falling to Sh769 in February.

A task force appointed by the President found that there was a huge disparity between the tariffs charged by KenGen and IPPs.

Kenya Power bought 46 percent or Sh41.1 billion of its electricity from State-controlled KenGen, with other top producers being wind plant — Lake Turkana Wind— and US-based geothermal firm, OrPower 4 Inc.

More than half of Kenya Power’s Sh89.1 billion power purchase costs are capacity charges paid to power producers.

The IPPs opposed the reduction, arguing that Kenya has no unilateral right to alter the contracted capacity and payments, saying instead that the State has a duty to protect PPAs – which are inked over a period of 20 years.

They reckoned that they spent billions of shillings in building power plants through a combination of debt and shareholder funds that were sourced on the strength of the PPAs or wholesale electricity tariffs.

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