Lobbies offer plan to cut electricity bills by Sh31bn

Davis Chirchir

Energy and Petroleum Cabinet Secretary Davies Chirchir. 

Photo credit: File

Various sector players in the country have told a parliamentary committee inquiring into the high cost of electricity that consumers can be saved at least Sh31 billion in power bills if short-term measures are implemented.

According to their calculations, the Sh31 billion savings will see the cost of the electricity unit bought by consumers reduced by three shillings or more.

In various memorandums presented by the Kenya Association of Manufacturers (KAM), Kenya Private Sector Alliance (Kepsa) and Engineers Association of Kenya to the Committee on Energy, the players said consumers can enjoy lower electricity bills than it is at the moment.

According to KAM head of research, policy and advocacy Job Wanjohi who appeared before MPs, if system losses are reduced from the current 22.43 per cent to 14.50 per cent, they will save the customer on average Sh6 billion annually.

The association also told MPs that if Kenya Power is incentivised, then it can reduce commercial and technical losses of power from the current 22.43 per cent to 14.5 per cent, saving consumers Sh6 billion borne annually.

The manufacturers added that if Kenya could reduce the thermal power production by three per cent of the total energy mix from the current 13 per cent to 10 per cent, the move would save consumers another bill of sh6 billion annually in terms of fuel.

Mr Wanjohi said industries can also be billed at the generation tariff but pay for the transmission cost to Kenya Electricity Transmission Company, which is cheaper for the high cost not passed to the final consumer when it is high.

“Time of use (ToU) tariff should be restructured to get more industrial customers into the bracket and help improve capacity utilisation during off-peak periods. This will give an additional Sh10 billion benefit to the customer up from Sh1.3 billion recorded in 2022,” said Mr Wanjohi.

“By implementing these and the legal provision, the customer burden will be reduced by approximately Sh31 billion, translating to a reduction of Sh3 per unit or more.”

The manufacturers warned that currently, Kenya’s competitive positioning as an investment destination is being eroded by developments in other economies.

Tanzania, Ethiopia, and Uganda are investing in hydropower generation. However, Kenya is investing in geothermal, wind and solar power.

“While in the neighbouring countries, the developments are contributing to a decrease in the price, conversely, in Kenya, our investment in renewable energy is not translating to a reduced cost,” the KAM told the House team.

The Kepsa, through its representative George Aluru, also called on the reduced system losses at Kenya Power related to theft and technical deficiencies to allow for improved collection of revenue by the utility firm.

“These efficiencies can then be passed on as reduced tariffs to consumers,” he said.

Kepsa also challenged MPs to reign in the high taxes, especially on fuel that in the long run have an impact on the final cost of electricity passed to the consumer.

In particular, the private sector lobby group called for the removal of taxes on heavy fuel oil, which is used in power generation. They pointed out that the move would lead to lower Fuel Charge Costs in the consumer bills and consequently lower electricity tariffs.

“Rationalising the taxation and levies applied on electricity can be a quick and effective step of reducing the cost of electricity in the short term,” said Kepsa.

The lobby group also warned Parliament against the endless inquiry into the energy sector, saying such actions make the industry riskier and investors tend to levy higher capital when putting up their plants.

“This prolonged and cyclic investigation process has increased the perception of risk among investors, leading to lower availability and higher cost of capital for energy sector projects.

“This matter needs to be settled fairly and conclusively to restore investor confidence in the Kenyan electricity market, which was once perceived to be a leader in the East Africa region,” said the Kepsa.

Currently, both the National Assembly and Senate committees are investigating the high cost of electricity. There have been four task forces and three parliamentary enquiries in the last six years looking into independent power producers and the cost of electricity.

The engineers’ lobby group pushed for the reduction of taxes and levies to cut the power bills.

“It is worth noting the unit cost of electricity consists of multiple taxes, VAT (value-added tax) at 16 per cent, levies to support sector agencies Epra (Energy and Petroleum Regulatory Authority), Rerec (Rural Electrification and Renewable Energy Corporation) and upstream agencies like Warma (What are the functions of Warma) uncommon in other economies.

“There is a need to consider reduction of the VAT rate levied by Warma besides the effort to reduce thermal generation by retiring units with expired Power Purchase Agreements,” said the lobby, calling for the increased uptake of green energy and to mitigate the intermittent behaviour with low hydro-generation there is a need to invest in emerging technologies such as green hydrogen and battery storage.

The move, they said, would allow grid stability during peak times when thermal, and hydro sources are called upon besides storing excess energy during off-peak times when steam is vented out at geothermal sites.