Why excess electricity is better than a deficit

Excess power generation situation arises when new generation projects are delivered regardless of demand projections in the economy. FILE PHOTO | NMG 

By BEN CHUMO

Summary

• Excess power generation situation arises when new generation projects are delivered regardless of demand projections in the economy.

As a country, we are better off dealing with excess power generation than when we have a deficit. When we experience a deficit we would require to invest in power generation projects that take time to be completed. Excess electricity arises when the delivery of power generation projects come ahead of demand.

What the sector is facing currently is a mirror reflection of the performance of the economy. It is a true test on whether the economy grew in the last five years or not. If demand for electricity did not grow, then the economy did not grow. If it did, demand for electricity could have been felt and the current sector challenges of excess generation could not have arisen.

In the last five years, ESKOM of South Africa has been struggling with a biting shortage of generation of power. What this means is that ESKOM failed to implement power generation projects in the past to keep pace with future demand.

That future came sooner than ESKOM thought and South Africa suffered a devastating power rationing as they resorted to thermal power plants to plug the deficit. There comes a time when a country requires electricity at any cost, including having to burn expensive diesel just to keep the economy going as affordable power generation is sought.

Kenya has come out of that situation for now and power planners need to sustain the effort to keep the country out of power rationing.

Ideally, power planning is based on demand projections that look at historical growth as well as future projected economic expansion estimations. Existing customer expansion plans as well as known new investors are factored in the planning process. A 30 percent reserve margin is taken into account for purposes of maintenance of generation machines or unplanned outages.

Power generation projects are implemented on least-cost basis. The least cost factor recognises the cost of the project as well as the potential cost of power to customers.

A deficit occurs when power generation projects are NOT implemented in good time and in accordance with demand projections to coincide with growth in the economy and therefore growth in demand for electricity. The solution to a deficit takes time to come and is always expensive to the economy. The immediate solution is to share available power generation.

The process of sharing available power is ‘power rationing’ a term Kenyans would not want hear again. When engineers want to speak their engineering language they call it Load Management. All this terms mean one thing; the power distributor does not have enough power and is sharing the little there is among its customers.

Another solution to plug the deficit is to bring in emergency diesel power plants that are expensive to the economy. Kenyans should remember 1998-2001 when the country, supported by development partners, brought in emergency diesel power plants. The cost of thermal plants is always higher than any renewable source of power.

The country export products competitiveness drops and the cost of living soars as the high cost of power find its way into the economy. The motivation to have more power generation is fuelled by the country’s previous painful power deficit experiences. We can recall the ambitious 5000 megawatts plan meant to market Kenya as an international manufacturers’ destination of choice.

Excess power generation situation arises when new generation projects are delivered regardless of demand projections in the economy.

The problem with such a situation is that the distributor, particularly if it is a single off-taker, finds itself with more power than it requires. If it has signed power purchase agreements (PPAs) on a take-or-pay basis with generators, it has to pay for it even if it cannot sell as customers have enough already.

Excess power generation may also arise when existing customers fail to consume the demand that had been planned for them and which they have been consuming.

This is caused by a decline in business activity or an economic slump. This is what the electricity sector is currently facing as a result of covid-19.

Large customers who are few (about 6,000 out of the 7.5 million customers) and pay above 60 percent of the sector revenue are not in operation and therefore the power distributor receives and pays for power from generators but it cannot sell as demand has declined.

The solution to excess power generation such as what the sector is facing is to first and foremost bring all sector players to the table to reschedule their delivery of generation projects and loan commitments. Negotiate with both generators and their financiers to reschedule their project loans to a later date to allow normalcy to return and demand to grow.

It is advisable to note that whatever we do now as a country sends a message to power generation investors on country risk. If this situation is mishandled, it could scare such investors in future.

The second solution to excess power is restore the power planning approach of basing delivery of power generation plants on realistic demand projections and strictly following the least cost power development planning criteria to avoid recurrence of excess power.

The writer us Chair, EagleHr Consultants and former CEO Kenya Power.