Kenyans are likely to endure high costs of electricity for the next decade following revelations that consumers are paying millions of shillings for idle power produced by Independent Power Producers (IPPs), but not taken up by the grid.
MPs were shocked to learn that 97 per cent of the electricity cost paid to IPPs by taxpayers is deemed as capacity charges which go into maintaining generators and not the actual power consumers end up using.
Majority of the Power Purchase Agreements (PPAs) with IPPs come to an end in 2034, meaning that for the next 11 years, taxpayers will continue to pay for the capacity charges which are running into millions of shillings.
The National Assembly Energy Committee probing the high cost of electricity in the country yesterday heard that taxpayers are paying millions of shillings every month for idle generators of IPPs which are not producing any power for consumption.
In a meeting with four IPPs – Gulf power, Thika power Limited, Ibeafrica power East Africa, and Triumph Energy – MPs heard how despite some of the IPPs selling less than 10 per cent of power to Kenya Power, they pocket 100 per cent of the charges.
Documents tabled before the committee indicate that, for instance, Gulf Energy pocketed Sh132 million Euros (Sh20.33 billion) last year as capacity charge, 100 million Euros (Sh15.2billion) as fuel charge and only three million Euros (Sh462 million) for power actually consumed and taken up by the utility company.
During the period between 2009 to December 2022, Ibeafrica pocketed Sh28.8 billion in capacity charges alone and only 3.7 billion on energy charge.
“This capacity charge must be re-looked. Kenyans pay IPPs for supplying nothing but just for keeping their generators there? This is skewed,” said the committee chairman, Vincent Musyoka
“It is very clear that most of these generators are just there to be paid for even if they are switched off. What kind of business is that where the owner does not take any risk?” he added.
“When we pay you for supplying nothing, that cost is passed to the common man who feels the pain of the high electricity cost,” said Embakasi South MP Julius Mawathe.
Gem MP Elisha Odhiambo said IPPs have been raking in millions of shillings from poor Kenyans through the capacity charge, and that it is time parliament moved in to protect the common man.
“You have been in this business for over 10 years now, yet you still don’t see the need to reduce the cost of power,” Mr Odhiambo said.
“We will need a special audit to determine whether we need these many IPPs. It is clear that we only need a few of them to operate,” he added.
Ruiru MP Simon King’ara questioned whether the country needs the 22 IPPs which are overcharging taxpayers for their idle generators.
“Substantial amount is going to this capacity charge without any supply of power. It is time we ask ourselves whether the 22 IPPs are relevant,” Mr King’ara said.
Nyatike MP Tom Odege said it is pointless for taxpayers to pay for standby generators.
“It is clear that when we switch off some of these IPPs, Kenya will not experience blackouts. So they must reduce their capacity charge, or we switch them off,” Mr Odege said.
Thika Power Limited chairman George Njenga told MPs that in this month of June, they have dispatched a paltry 3.4 per cent of power to Kenya Power, translating to 2.9 megawatts, against the firm’s capacity of 87 megawatts.
However, despite dispatching only three per cent, taxpayers will have to pay for 100 per cent, a cost which is passed to the consumer by Kenya Power, leading to the high cost of electricity as the contract IPPs signed allows them to recoup the cost of 97 per cent unused power.
“It is the dispatcher (Kenya Power) that decides how much it wants from us. We don’t make that decision,” Mr Njenga said. Gulf Energy General Manager Norman Wanyiri told MPs that without the capacity charges, it will not be possible to attract investors in the energy sector.
“Without the capacity charge, it will be difficult for an investor to put his million dollars only to be paid when power is dispatched,” Mr Wanyiri told MPs.
The IPPs also absolved themselves from any blame, saying they are always ready with the power but only dispatch it upon request from Kenya Power.
The IPPs also told the committee that they use the capacity charge to repay the loans they used to set up the power plants and that it is a standard requirement in all PPAs across the globe.
They also defended their position on the idle energy paid by consumers, whether used or not, saying it was among the requirements put by the government during the bidding process.
“It is the government which put it as a requirement that as a power producer, you must have a certain capacity of megawatts,” he said.
They also dismissed claims that they are selling their power at exaggerated prices compared to KenGen, saying they don’t operate on the same level.
“KenGen gets soft loans from the government to set up their plants while we get our loans from commercial banks, therefore, the comparison between IPPs prices and KenGen is unjustified,” Triumph Energy General Manager Siva Shankar told MPs.
According to the Auditor General Report for Kenya Power for the year ended June 2022, the four IPPs sell their power to Kenya Power at a price of between Sh28 to Sh48 depending on the contract each signed, while during the same period, KenGen sold to Kenya Power at Sh6 shillings.
According to the report, the four IPPs were cumulatively paid Sh16 billion.
It also emerged that all the IPPs have already recouped the money they used to set up their power plants in the country yet they still continue to collect the capacity charge.