Kenya ends idle fuel cash cow for thermal plants
Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo when he appeared before the National Assembly Committee on Finance and Planning on September 28, 2021.
The State has revoked a controversial deal that allowed independent thermal power producers to charge consumers for idle fuel stocks amid dwindling uptake of their more expensive supplies by Kenya Power.
The Energy and Petroleum Regulatory Authority (Epra) in April 2016 approved an application by thermal power producers to adjust the minimum level of fuel stocks that would be charged on consumers to offset financial loses following a decision by KPLC to shift to bigger purchases of cheaper geothermal power.
The deal meant that the firms raised the minimum quantity of fuel stocks held for “maintenance” and billed Kenya Power even when the supplies were not used to generate electricity thanks to a contentious ‘take or pay’ model where the utility firm is obliged to pay as long as there is an 85 per cent availability of plant capacity.
But faced with renewed pressure over the high cost of electricity, Epra has now revoked the deal, which will deny the thermal plants a good portion of their fuel cost cash cow.
Lowering cost
“Pursuant to the provisions of sections 10, 11, and 23 of the Energy Act, 2019, the Energy and Petroleum Regulatory Authority wishes to notify the general public that it has revoked the Gazette Notice No. 2826 of 2016, with effect from November 1, 2021,” Epra director-general Daniel Kiptoo said about the 2016 deal approved by his predecessor, Mr Joseph Ng’ang’a.
This means that thermal power producers will now be required to only stock fuel that will be used to generate electricity. This paves the way for lowering the fuel cost charge (FCC) component in electricity bills, which forms a significant part of power costs and will, for instance, set consumers back Sh4.21 per unit of electricity they buy this month.
Despite making a small part of the total electricity consumed by Kenyans, thermal power producers get the highest revenues of any power producers per unit of electricity sold.
Kenya Power spent Sh12 billion to reimburse thermal power plants for fuel costs in Financial Year 2020/21, up from Sh11.87 billion in 2019/20.
Lapse of Tsavo Power’s PPA in September means thermal power plants that still operate are Kipevu diesel and Muhoroni gas turbine plants operated by KenGen, Rabi Power, Thika Power, Iberafrica Power, Gulf Power, Triumph Power, and dozens of off-grid thermal power stations.
