Low pricing keeps private investors off green energy

Low bulk power purchase tariffs are blocking private investors from developing low cost sources of electricity such as geothermal and wind power.

An energy conference in Nairobi concluded on Monday that private investors were shying away from geothermal and hydropower because current tariffs could not cover the huge capital requirements and offer a return on the investment.

Most investors opt for thermal power which, though is cheaper to develop and has high returns, gets expensive in the long run when its impact on power bills inflation and the environmental damage it causes are factored in.

“Our proposal for nine US cents for wind generation has been rejected. Other competitors like South Africa offer investors 14 US cents. We cannot afford to match such tariffs without hurting the economy,” Energy permanent secretary Patrick Nyoike told the meeting, which was called to seek solutions in boosting the supply of affordable electricity at a time when the country is facing a power deficit and expensive electricity.

Huge capital requirements

Most private investors tend to shy away from putting their money in geothermal and hydropower plants on claims that the current tariffs cannot cover for the huge capital requirements and offer a return on the investment.

“Our proposal for nine US cents for wind generation has been rejected. Other competitors like South Africa offers investors 14 US cents. We cannot afford to match such tariffs without hurting the economy,” said Energy permanent secretary Patrick Nyoike.

“We have no funds to fast rack programmes for the supply for geothermal as well as other renewable sources. We will therefore continue to rely on quick fixes like thermal-powered sources,” said Mr Nyoike.

In deed, the country has witnessed investments by thermal based independent power producers (IPPs) in the supply of electricity to the national grid to cushion the country from a power crisis because state controlled power producer KenGen has been facing difficulties getting money it needs to develop new power sources.

Ramps up consumer prices

Thermal power mainly ramps up consumer prices through fuel cost charges — a varying item on the power bills — that is linked to the amount of power it contributes to the national grid.

At present, consumers have seen electricity bills surge by a margin of 60 per cent since March on the back of rising fuel costs charges, which has risen from Sh3.80 in March to Sh7.90 per unit — the kilowatt hour — this month.

The expensive power is coming at a time when the country is faced with a power crisis as power supply fails to match demand — a move that forced the rollout of a two month of power rationing in August.

During the past five years, demand for electricity grew at annual average rate of 8 per cent as big consumers such as manufacturers expanded their intake to meet rising demand for their goods in a growing economy.