A Twitter forum hosted by Nation.Africa yesterday elicited mixed reactions from stakeholders on the proposed increase in base power tariffs which could see prices for some poor households rise by up to 117 percent if approved.
The Twitter Spaces discussion brought together stakeholders from the power generation, distribution, retail consumption and bulk consumption segments of Kenya’s power supply chain.
It included a representative from Kenya Power, the Electricity Sector Association of Kenya (Esak), Kenya Association of Manufacturers (KAM) and Consumers Federation of Kenya (Cofek).
The discussion came days after the Energy and Petroleum Regulatory Authority (Epra) completed collecting public comments on the Retail Tariff Application (RTA) issued by Kenya Power, which is expected to take effect on April 1 if approved.
The Energy Act, 2019 requires the base power tariffs to be reviewed every three years, but the last comprehensive review was done by Epra, then the Energy Regulatory Commission (ERC), in 2018.
In the RTA, Kenya Power has proposed the introduction of a new tariff of Sh14 per kilowatt-hour (kWh) for customers who use less than 30 units of power monthly. It also wants to introduce a tariff of Sh21.68/kWh for those who use more than 30 units monthly.
In the current tariff that was approved in November 2018 – which was temporarily cut by Epra in January last year – customers who use less than 100 units per month pay Sh10/kWh and those who use more than that amount pay Sh15.8 per unit.
Reason for tariff hike
“We draw our revenue requirements for the various operations of the institutions within the energy sector from the tariff. The country operates on a cost-reflective tariff where all the institutions within the energy sector usually come together and look at the revenues that are required for us to run the entire sector in a sustainable manner,” said Samson Ondiek, the technical assistant to the Kenya Power managing director, in support of the proposed tariffs.
Mr Ondiek elaborated on the tough balancing act that Kenya Power faces in trying to balance between affordability, reliability and quality which he referred to as “the impossible trinity problem” that the firm continuously has to grapple with.
“If you look at that energy trilemma, it is an impossible trinity in the sense that if you try to balance affordability with security then you will have a problem with reliability and if you try to balance security with reliability then you will have a problem with affordability,” said Mr Ondiek.
'Limit to hikes'
But KAM Chief Executive Anthony Mwangi noted that Kenya already has some of the most expensive power prices in the region adding that power costs take as much as 30 per cent of the total operational costs of manufacturers.
He said that while manufacturers could pass a portion of higher tariffs to consumers in form of higher prices, there is a limit to which consumers can absorb the price hikes, which forces manufacturers and other businesses to internally absorb some of the additional costs.
“Power for manufacturers is like what fertilizer is to farmers. We offtake almost 55 per cent of the power from Kenya Power. We had an opportunity to speak with Epra and Kenya Power yesterday (Tuesday) and told them that as you do this you are going to kill the goose that lays the golden egg,” said Mr Mwangi.
“If you look at how much you pay in Kenya which is between Sh18 and Sh20 per kilowatt-hour (kWh), what Tanzanians are paying is between Sh8 and Sh9, Ethiopians are paying Sh5, it can only tell you that there is a big problem in Kenya,” he said.
George Aluru, the chairman of ESAK which represents independent power producers (IPPs), said some five new power plants have been connected to the national power grid since 2018 when the last tariff review which hugely raised Kenya Power’s financial obligations. He said the fact that the tariff was not reviewed to align it with the utility’s increased revenue requirements inevitably led to financial stress the company thereby hastening the need for a new cost-reflective tariff.
“Whenever there is new investment in power generation and transmission there needs to be adjustment that factors in the cost of that new investment. Kenya Power applied for a review a few times but it was denied,” said Mr Aluru.
“What this meant is that they (Kenya Power) are sitting on costs that they cannot recover. The availability of power is something that we all want guaranteed. The cost is an issue yes, but if power wasn’t available entirely, that is even worse,” he said.
'Kenya has sufficient power'
However, Stephen Mutoro, who is the Secretary-General of Cofek, countered the need for connection of more power plants to the grid as illustrated by Mr Aluru. He argued that Kenya has sufficient power and that there was no urgent need to sign up more IPPs to the grid, adding that they have greatly contributed to pushing power prices through the roof.
“The main problem we are facing is that we lack leadership in this (energy) sector and we are lacking political goodwill to address some certain basic fundamentals. We have a government that does not speak to each other because on one side you want to grow manufacturing and on the other side you are making manufacturing impossible,” said Mr Mutoro.
“The question we need to have is how much demand do we have because the issue is about energy planning and assessment of what we procure. Did we need more power plants coming on board? The answer is no,” he said.
However, Mr Ondiek argued that Kenya has a reserve margin - the amount of unused available power generation capability is at just 4 percent and therefore onboarding new power generators to the grid is necessary. He noted that the low reserve margin means that in case of events such as extreme drought which affects hydropower production, it could lead to power rationing if there aren't enough private power producers on the grid to plug the deficit.
Epra is currently reviewing Kenya Power’s tariff proposal following the conclusion of public scrutiny of the proposed tariffs and is expected to issue an update in the coming weeks.
Listen to the Twitter Space discussion by following the link below: