Rising demand reverses KPLC’s power tariff cuts

Monthly demand for electricity rose by 11 per cent in June compared to January as economic activity picked up from a two-year slump, forcing the country to turn to expensive thermal power to ease supply pressure.

Kenya Power and Lighting Company (KPLC) said it had been forced to retain much of the geothermal power supply it brought to the national grid during last year’s drought, making a reduction of the consumer tariffs impossible despite increased supply of cheaper hydro-power with good rains.

KPLC sold 589 million units of electricity to consumers in July, compared to 527 in February on increased demand from industrialists.

A high demand for electricity usually reflects the level of economic activity and policy makers said the latest industry data is a pointer to the fact that Kenya is on course to realising the targeted 4.5 per cent annual rate of growth.

“It suggests that more equipment is being plugged to the national grid. And that’s a pointer that people are making new investments,” said Robert Bunyi, a financial analyst at Mavuno Capital.
Though many Kenyans will find relief in the fact that the economy is on a steady recovery path, they must as well contend with rising demand for power reversing the steady fall in electricity tariffs that started in March as the country phased out some of the expensive thermal power generators.

KPLC has termed the growth in power consumption normal and in line with economic activity.

He said declining rainfall in parts of the country has also reduced KenGen’s ability to generate more hydro-power to meet the new demand, leaving thermal power as the best alternative.

Data from KPLC indicates that demand for power increased from 566 million units in June to 589 million KWhs last month, reflecting a four per cent increase.

That level of demand saw KenGen and the Independent Power Producers (IPPs) such as Aggeko and Tsavo step up their thermal supply by 11 million KWhs to 174 million KWhs.

The increased uptake of thermal electricity is the reason KPLC has put consumers on notice that the fuel cost adjustment —- an item on the power bills linked to the amount of electricity generated from fossil fuels – for bills to be settled next month will rise to Sh3.49 from Sh3.18 — a 10 per cent increase.

The higher bills will disappoint the 1.2 million consumers who had hoped for further price cuts with the recent reduction in the amount of thermal power supplied by Aggreko under the emergency power contracts signed last year.

Industry statistics show that instead of dropping with the recent retirement of one of its generators, Aggreko’s supply of the power to the national grid from its Embakasi unit more than doubled to 10.6 million from 4.6 million KWh in June.

The reversal in the direction of power prices is also expected to raise concern among industrialists, who have been complaining about expensive electricity, saying it hurts their competitiveness in the regional market where pricing is the key driver of penetrating new markets or increasing presence.

Mr Njoroge is expecting a monthly increase in demand of between three and four per cent for the remaining part of the year, signaling additional supply side pressure and leaving little room for further cuts in electricity prices.