KPLC to pay more for Mumias power supply

Mumias Sugar Company has been awarded a new purchase price for power supplies from its co-generation plant, raising hopes for increased investment towards such environmentally friendly energy ventures.

In the new deal already approved by the Ministry of Energy and the Energy Regulatory Commission (ERC), Mumias will now earn $0.08 per Megawatt Hour (MWh) sold to Kenya Power and Lighting Company(KPLC) compared to the $0.06 per MWh currently realised.

New rates

“The new rates are a culmination of intensive discussions with the Energy ministry and the ERC(Energy Regulatory Commission) and we anticipate to have them formally gazetted any time soon,” the company’s managing director, Dr Evans Kidero, told Business Daily on the sidelines of an investor briefing in Nairobi on Monday.

“The upward adjustment of the prices is a positive development and will certainly encourage other people to venture into co-generation,”
Mumias and West Kenya so far remain the main drivers of co-generation using sugarcane by-product, bagasse, even though pricing of power generated through such sources has been a contentious issue amid concerns over the payback period for the sizeable investment made towards such projects.

“Co-generation at Mumias and West Kenya are positive developments, but the price being offered per MegaWatt Hour(MWh) of power by the Kenya Power and Lighting Company (KPLC) is not encouraging. While both Mumias and West Kenya do not anticipate losses from the transaction,the price of $0.06 per MWh renders the pay back period for sizeable investment in this activity rather long,” a mission from the Common Market for Eastern and Southern Africa(Comesa) said after an inspection of the local sugar industry in October, last year.

The mission further pointed out that ,worse still, KPLC was paying $0.20 per MWh to independent power suppliers generating power from diesel, with industry estimates showing that every 100 tonnes of sugarcane crushed produces 17 tonnes of bagasse. The cost of producing electricity from bagasse is also estimated to be less than half the cost of generating electricity from imported petroleum or natural gas.

“At the national level, there should be a deliberate policy that encourages power generation from environmentally-friendly and renewable sources rather than fossil fuels,” the group said.Most industry players have advocated for the rate of $0.11 per MWh as reasonable and would encourage more investment in co-generation as the payback period for large projects would be financially acceptable.

“The prices previously offered have not been encouraging because of the obvious issues that come up with pa backperiod,” Mr Peter Kebati, the chief finance officer at Mumias, told the investor briefing. “We have fulfilled all capacity and reliability tests and the new prices are certain to boost our revenues.” The company commissioned the 38MW co-generation plant in May 2009, enabling it to increase the electricity generation capacity from bagasse from 13.5 to 38 MW of which 25 megawatts are exported to the national grid. The company has also ventured into the environmental aspect of business through trade in carbon credits in which it produces power through burning of bagasse, a position that reduces carbon emission as no oil, coal or gas is used in power generation.

Kyoto protocol

Mumias in June 22, 2006, entered into a 10 year agreement with Japan Carbon Finance Company (JFC) which will allow the company to sell Certified Emission Reduction Credits (CERS) upon completion of the Cogeneration Project. The agreement will allow JFC to purchase CERS under provision of Kyoto Protocol, the Clean Development Mechanism (CDM) which is designed to help developing countries achieve sustainable development through greenhouse gas-reducing projects.

Meanwhile, the Cabinet has approved a proposed Sh24 billion integrated sugar project in Tana River District by Mumias. “We look up to starting work any time now following the approval by Cabinet,” Dr Kidero told investors.

The gesture by Cabinet is a major win for Mumias that has had to face numerous challenge both within and outside court on concerns over environmental issues and the viability of the project.

Only last December, the National Environmental Management Authority(Nema) issued a conditional approval of the project as long as its backers, Mumias and the Tana and Athi Rivers Development Authority (Tarda), fulfilled all its requirements.

As part of the approval deal with Nema, said the project will have to be implemented in three phases, beginning with the area initially under rice irrigation, to allow for the assessment of water use balance before further expansion of the project.