Electricity producers seek an end to Kenya Power’s stranglehold

Lake Turkana Wind Power project in Laisamis, Marsabit County.

Lake Turkana Wind Power project in Laisamis, Marsabit County.

Photo credit: File | Nation Media Group

Independent Power Producers (IPPs) want Parliament to review Kenya Power operational efficiencies and ensure an overall reduction in power theft.

The Electricity Sector Association of Kenya (Esak) told lawmakers to enact reforms that will encourage more competition in the generation, transmission and support services in power generation.

They want the sector opened to competition, warning, the country risks power rationing within the next three years if local IPPs are not licensed to generate additional electricity.

“We propose that you open the Kenya Power market to competition from local independent power producers. This House passed the Energy Act, 2019 which provides for competition,” Esak chairman George Aluru told Senate Committee on Energy.

“There are 29 regulations lying at the Energy and Petroleum Regulatory Authority (Epra) that need to be passed by Parliament to open up the power generation market and competition in power transmission.”

Esak appeared before the committee, which is conducting a public inquiry into the high cost of electricity, to give their views. The committee has questioned 11 IPPS, including KenGen, over the skyrocketing cost of electricity.

The committee chaired by Mr Wahome Wamatinga is seeking to establish why the IPPs are selling electricity to Kenya Power at inflated prices.

The utility firm’s Power Purchase Agreements (PPAs) remain controversial amid concern that it has signed contracts committing it to take more electricity than it can sell, leaving it to pay onerous capacity charges to energy producers even when their plants are idle.

As a short-term measure to bring the cost of power down, Mr Aluru proposed that the government re-evaluates the taxes and levies on electricity bills with the option of adjusting the fuel used in thermal plants to cheaper alternatives and methods of reducing the operational hours for thermal plants.

“This includes completion of missing transmission links and substations including Olkaria-Lessos-Kibos line, Olkaria-Narok-Bomet line and Mariakani Substation,” he said.

The association wants the government to explore the possibility of extending IPPs’ PPA tenures to bring some cost benefits as debt repayment is spread over a longer period.

“As a medium-term measure, the government should explore the possibility of taking over existing IPP debt and replacing it with lower concessional loans, where available, and competitive tendering for acquisition of power capacity,” Mr Aluru said.

“There is also need to encouraging better use of the electricity capacity in the night-time to increase [Kenya Power’s] revenue and spread the overall cost over more users.”

The IPPs were invited into the market initially to curb costly power from emergency generation plants following a drought that significantly reduced hydro-electric power generation capacity in the early 2000’s.

The association asked MPs to amend the energy laws to ensure pension schemes such as the State-backed National Social Security Fund (NSSF) are incentivised to put money in power generation for projects undertaken by local firms.

“For us to achieve low electricity bills and have investors comfortable with our market, we desperately need local IPP investors who can tap into the huge resources held by pension schemes to invest in power generation,” Mr Aluru told Senators.

“Old Mutual is doing this in South Africa. We need to make the sector attractive to commercial banks to direct money to local investors who are immune to local shocks like demonstrations as opposed to foreign investors.”

Mr Aluru cited Kenya Power Pension Scheme which is a shareholder at Gulf Energy, an IPP.

The association blamed Ministry of Energy officials of deliberate failure to approve or grant licences to local IPPs for unknown reasons.