Why your electricity costs may not drop anytime soon

Electricity Cost

Senate Energy committee chairperson Wahome Wamatinga during a session at Parliament Buildings on March 8, 2023.

Photo credit: File | Nation Media Group

Kenyans will continue to foot high electricity bills unless there is a reduction in the high cost of fuel, removal of exorbitant taxes and fluctuations in the local currency against the dollar, a Senate committee heard yesterday.

The Energy Committee was told that thermal plants run by independent power producers (IPPs) depend on high fuel oils (HFOs), which are expensive to purchase.

Appearing before the Nyeri Senator Wahome Wamatinga committee, Thika Power Limited and Iberafrica chairperson George Njenga told the committee that the high fuel prices are passed to Kenya Power, as part of contracts signed between the IPPs and the utility firm, with the same subsequently passed to the customers in terms of electricity bill.

He said the high cost of HFOs used by the thermal plants contributes 70 percent of the cost of production while the taxes for between 28 and 30 percent.

“I don’t think the high cost of electricity is because of IPPs. It is because of a number of factors but majorly the high cost of fuel which is passed to the consumer because of the nature of our contract with Kenya Power,” said Mr Njenga. “Fuel is where the problem is. If we deal with this then we will lower the cost of electricity. The alternative of going without electricity is even more expensive.”

Mr Njenga explained that there are other external factors like drought that make Kenya Power rely on thermal plants to meet its electricity demands.

“We are also called during droughts to dispatch power so that the grid does not collapse,” he said.

Mr Njenga also pointed out that the contracts were done either in Euros or dollars to lower their risk premiums because their investments as well as the purchase of equipment and fuel is done in foreign currency.

Thika Plant has a capacity of 87 megawatts while Iberafrica, located in Mukuru Kwa Njenga in Nairobi, is 52.5 megawatts.

Narok Senator Ledama Olekina maintained that the cost of electricity is high because of the thermal plants. “Is there need to have the thermal plants in place when there is this shift to geothermal? ” he posed.

Mr Njenga, however, said the thermal plants are crucial as they ensure baseload and grid stability as well as meet demands during peak times.

Nairobi Senator Edwin Sifuna sought to know why the IPPs signed long contracts.

The power purchase agreement with Kenya Power for the two plants expires in March 2034.

“We are not hostile to your businesses but we just want to find a way of lowering the cost of electricity for the people. When the contracts expire in 11 years’ time, are you going to look into renewing them?” he asked.

But Mr Njenga defended the long contracts, saying they are that long in order to spread the cost, as such plants are million-dollar investments.

On extension, he said, they can only ask for an extension not exceeding five years but the decision lies with Kenya Power.