Monitor Global Outlook reports: Kenya’s goal of 5000 megawatts of electricity generation by 2017 is steadily bringing down electricity prices as renewable sources increasingly replace expensive fuel. Kenya can’t use up all the power it is producing, however, and that is resulting in a surplus.
Electricity costs in Kenya are declining as the country works toward its goal of 5000 megawatts of electricity generation by 2017. A surplus of energy, however, needs to be addressed.
MGO reported in September that Kenya’s one-year-old push to up its electricity supply by 5,000 megawatts (MW) by the end of 2017 was set to drive down energy prices. Indeed, as geothermal and hydro energy add to the country’s energy mix, the fuel surcharge in electricity bills – the key component of the bill that drives cost – is declining. [Please see: Kenya power prices to drop but delivery still fraught]
The fuel surcharge is at 4.79 Kenyan shillings shillings ($0.05) per KwH this month, down from 5.71 shillings ($0.06) in September and 7.22 shillings ($0.081) in August.
The drop was driven by 70 KW coming online in June and 140 KW coming online in July and August as new plants began operation. Another 70 KW will be added at the end of October as another plant comes online, and costs are expected to continue to decline. An economist in the Energy Regulatory Commission’s (ERC) economic regulation department predicts the fuel surcharge could go as low as 2.5 shillings ($0.03).
The rapid growth in electricity supply is not completely a positive, though. David Mwangi, an independent energy consultant who served as Kenya Power & Lighting Company’s (KPLC) chief manager for planning from 2001 to 2010, warns that it is outstripping demand and someone will end up paying for power that can’t be used.
“This is not free surplus,” he tells Monitor Global Outlook. “Geothermal is supposed to run 24 hours a day and yet the demand itself – the way Kenya consumes power, during the night after 11 p.m. to about 5 a.m. or 6 a.m. – the demand is about 50 percent of what it is in the evening, from 6:30 p.m. to 10:30 p.m. or 11 p.m., which is the peak.”
“The economics of making it cheap works by saying it will be operated above 90 percent” of the peak at all times, he says.
The government is trying hard to court more industry in order to use up the surplus, hoping that businesses will be attracted by cheaper electricity. The government is planning to build industrial parks next to the existing Olkaria II Geothermal Power Station. The new plants would offer discounted power and possibly allow companies to use the steam and residual heat of the Olkaria plant directly.
Cement and paper are among Kenya’s most energy-intensive industries, with the country’s growing mining industry set to join them, as well as possibly the textile industry, which is receiving significant support from the U.S. Agency for International Development (USAID), as MGO reported Sept. 22.
[Please see: USAID aims to spur investment in Africa with trade hub]
The brunt of the cost due to surplus, as of right now, will fall on KPLC, although the government may subsidize some of the costs. Regulators may also permit KPLC to pass some of the cost on to consumers in their electricity bills, Mr. Mwangi says.
The Kenya Electricity Transmission Company, Ltd. (KETRACO), tasked with improving transmission capacity, has also faced challenges, particularly in securing agreements to build on privately owned land. Kenyans are asking for significant compensation that could even impact the commissioning of plants as transmission lines connecting them to the grid are delayed, Mwangi says.
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Source: Monitor Global Outlook, Oct. 23, 2014
