KenGen to lose revenue billions on shut diesel plants
A KenGen power plant. KenGen will lose billions in revenue after Kenya Power declined to renew the supply contracts of two of its diesel plants as part of a shift to cheaper renewable energy.
Giant electricity producer, KenGen will lose billions in revenue after Kenya Power declined to renew the supply contracts of two of its diesel plants as part of a shift to cheaper renewable energy.
Kenya Power said it will not renew the power purchase agreements (PPAs) for KenGen’s 73.5 megawatts (MW) Kipevu I diesel-powered plant and the 60MW gas turbine (GT) facility in Muhoroni when their current contracts expire later in the year—joining two other privately owned diesel plants that have faced a similar fate.
“Some of the retired thermal plants include Iberafrica and Tsavo Power while Kipevu 1 and Muhoroni GT will be retired at the lapse of their contracts. The recently commissioned imports from Ethiopia hydropower have reduced thermal contribution to the energy mix to below 10 per cent,” Kenya Power Managing Director Joseph Siror said.
This is a blow to KenGen which has been earning billions of shillings annually from the two plants, especially during periods of increased uptake of thermal power during periods of low hydropower, wind, and geothermal energy production.
KenGen sold 141 gigawatt-hours (GWh) of electricity to Kenya Power from the Kipevu I plant earning it Sh2.492 billion in the financial year to June 2022. It also earned Sh2.02 billion from the sale of 40GWh from Muhoroni GT in the same window.
This totals Sh4.51 billion, out of which Sh797 million is non-fuel costs while Sh3.71 billion is for fuel costs.
Kenya Power also said a PPA with the privately-owned 52.5MW Iberafrica Power plant will expire in the current financial year that ends June 30, 2023. Iberafrica, which was this year sold by Naturgy to A.P Moller Capital, earned Sh3.28 billion from the sale of 86GWh to Kenya Power in the fiscal year 2021/22.
Decommission thermal power plant
Tsavo Power in March said it will decommission its 75 MW thermal power plant located at Kipevu in Mombasa following the expiry of its contract with Kenya Power. Tsavo signed a 20-year PPA with the utility in January 2000 which ended in September 2021.
This means the contracts of four thermal power plants will have expired in just two years, following the expiry of Tsavo Power’s contract in September 2021.
This also means that KenGen will remain with only one thermal power plant – the Kipevu III power plant which has an installed capacity of 120MW.
Dr Siror said the expiry of the contracts of the thermal plants will enable the utility to take up more units of cheaper renewable energy.
“Some of the initiatives that the Company has deployed to achieve this target (cheaper power) include reduced dispatch from thermal plants due to retired thermal plants with the consequence of reduced FCC pass-through costs thus reducing the overall cost of power,” said Dr Siror.
The official was speaking at the Africa Energy Forum that is being held in Nairobi.
The removal of thermal power plants, which help grid stabilisation during peak periods, comes at an ideal time when Kenya has started to enjoy a steady supply of cheaper hydropower from Ethiopia to plug any deficit.
Kenya in January started importing 200MW from Ethiopia which will be stepped up to 400MW in three years.
The power imports helped the country avert power rationing at the height of severe drought at the beginning of the year.
