Experts warn of Sh50bn burden in State energy plan

Workers at a geothermal well at Menengai Crater in Nakuru where the Geothermal Development Company hopes to produce 400MW of electricity by 2016. FILE 

By Herbling David, hdavid@ke.nationmedia.com

In Summary

• Power experts say there is no capacity to absorb the 5,000 megawatts planned to come onstream by 2017.
• The experts argue that with nearly 1,300 MW of clean and cheaper energy set to come into the grid in the next couple of years, the inclusion of thermal power in the planned generation mix lacks a justification.

Kenya’s plan to produce additional 5,000 megawatts of electricity in the next 40 months will leave the country with a disproportionately huge surplus and saddle consumers with a Sh50 billion idle capacity charges burden every year, a new study shows.

The unpublished report by a team of power sector experts says the Jubilee government’s decision to go heavy on thermal sources such as coal and natural gas will result in expensive electricity that could increase the unit cost of power by a third or ¢7 (Sh6.03) per kilowatt hour – making Kenya one of the most expensive places to do business.

The report reckons that Kenya lacks the capacity to absorb such massive amounts of electricity given the sluggish rate of economic growth, delays in rolling out Vision 2030 projects and a poorly performing manufacturing sector.

“The power plants will remain totally redundant for several years, attracting almost $600 million (Sh50 billion) per annum in idle capacity charges,” reads the report titled Review of Kenya’s Power Sector (1998-2013) and Its Future (2013-2023).

The Sh50 billion idle capacity burden would arise from the fact that up to 3,000MW of the planned electricity generation will come from expensive thermal sources developed by private investors.

Power experts argue that with nearly 1,300 MW of clean and cheaper energy set to come into the grid in the next couple of years, the inclusion of thermal power in the planned generation mix lacks a justification.

The list of renewable power projects in the pipeline includes 400MW from the Ethiopian interconnector that is already signed up, 300MW from Turkana Wind Power, 280MW from KenGen’s geothermal plant and 105MW of geothermal power from Geothermal Development Company’s (GDC) Menengai plants and another 100MW from Orpower 14.

All this power will go to the base load, pushing out all thermal sources in the reserve margin.

READ: China says ready to fund 5,000MW power generation

Kenya’s energy sector regulations require electricity distributor Kenya Power to sign 20-year Power Purchase Agreements (PPA) with power producers and to denominate the tariffs in dollars, whetting the appetite of independent power producers (IPPs).

The off-take agreements are based on the take-or-pay model that will force Kenyan consumers to pay for the 5000+ megawatts of electricity whether consumed or not — effectively beating President Uhuru Kenyatta’s vision of reducing the cost of power in the economy.

The PPAs further classify fuel costs as well as foreign exchange fluctuations as pass-through charges that are recovered from consumers through Kenya Power.

“Such charges must either be absorbed by the State or borne by electricity consumers, resulting in increased tariffs burden,” the report says.

The findings cast a dark cloud over the Kenyatta government’s plan to have 5,538MW on the national grid by end of 2016.

The power surplus forecast is hinged on key parameters that determine the rate at which a country’s consumption of electricity grows, including industrial and economic growth.