Electricity consumers will next month pay a record Sh7.90 for a unit of power to finance the running of diesel powered plants across the country despite the ongoing rains in catchments areas that should reduce dependence on expensive generators in favour of the cheaper hydro power option.
Power distributor Kenya Power and Lighting Company has through the latest Kenya Gazette served notice to consumers that the fuel cost surcharge on their power bills will next bills will next month be Sh7.90 per unit - the kilowatt hour - up from Sh7.75 on this month’s power bill.
This is the highest the fuel cost component - which is now the most expensive item on the power bills - has reached since consumers started paying for the fuel used in power generation in 1997. The money is collected by KPLC on behalf of producers who supply power to the company for distribution.
At present, domestic consumers pay between Sh2.20 and Sh4.40 per unit on the consumption charge, which means that the fuel charge is nearly double the consumption charge.
The average cost for a unit of electricity - the kilowatt hour - is Sh6.50 - across the various segments of consumers.
Other minor components of the bill include charges on foreign exchange, inflation and taxes and levies.
Apart from the adverse impact on household budgets the fuel cost has a domino effect on the economy with industries forced to charge consumers more for goods, raising inflationary pressures and hurting the competitiveness of Kenya’s exports in the region and overseas.
A steep drop in hydro power’s contribution to the national grid has seen electricity bills surge by a margin of 60 per cent since March on the back of rising fuel costs charges -- a varying item on the bills that is linked to the amount of power on the national grid that is generated from the expensive thermal sources.
Executives in the power sector are warning consumers to brace for further hikes in coming months as the country taps deeper into fuel driven power generators to offset the lower contribution of hydro power to the national grid.
“We have not had good rains as earlier anticipated and this means fuel costs charges will be sustained or change slightly upwards,” said Joseph Njoroge, the managing director of KPLC on Friday.
The Meteorological Department had forecast that the country will receive above normal rainfall during the short rainy season—raising expectations that the country’s depleted hydro power dams would be replenished.
This signalled a drop in the cost of electricity as the country was expected to consume more of the less expensive hydro power and cut back on the more expensive thermal power.
But the weatherman’s forecast of heavy rainfall especially in Eastern and Central provinces, where a significant number of the country’s least-cost hydro generation plants are located, has not come to pass.
The lower than expected rainfall the country has witnessed over the past two years has cut the contribution of hydroelectric power by nearly half, leading to the closure of some plants such as Masinga power station in June due to low water levels.
Still, the Masinga Dam, which supports power plants including Masinga power that generate about 47 per cent of the country’s electricity supply, has been operating on the minimum water levels due to low rain.
Last month, water levels at the dam were 30 meters below its optimum capacity of 1, 056.5 meters, and power producer KenGen said on October 19 that it expected it to be replenished by December as the short rains had filled the dam by two meters.
Sources at the firm on Friday reckoned that this might take longer as the rains have failed to maintain the tempo of early October.
Failure by the shirt rains to fill the hydro power dams clearly suggests that the power consumers will have to wait for the March to May long raining season to enjoy the benefits of the least cost hydro power.
This outlook means that electricity consumers will continue to bear a heavy cost burden into next year because of the continued reliance on fuel-driven power generators to meet the ever rising demand for power.
This will be worsened by the rising crude oil prices that point to a rise the cost of fuelling thermal power generators, which will be passed through to the consumers.
Crude prices were yesterday trading $76 per barrel on Sunday having risen from $68 last month and $45 in April, driven by optimism over the pace of global economic recovery.
Investment analysts, led by Goldman Sachs, are forecasting that crude prices will continue to rally and could hit $90 a barrel before year end — pointing to more pain for power consumers and motorists.
The fuel component of the bill has risen from Sh4.10 in March, adding pressure to the surging cost of living.
The high cost of electricity will affect more than one million consumers, most of whom have already suffered significant losses of purchasing power because of the escalating food, water and transport prices.
Besides the direct cost of domestic consumption, the rising power prices are upping production costs for manufacturers who are passing the additional expenses to their consumers.
Energy economists predict that the fuel charge will cross the Sh8 mark next month on increased use of thermal power to the national grid and the surging fuel prices.
Last month, KPLC bought 556 million kilowatts hour (Kwh) of electricity with thermal contributing 370 million Kwh, according to the Kenya gazette notice.
This means that thermal accounted for 66.4 per cent of total amount of electricity that KPLC bought from KenGen and Independent Power Producers (IPPs).
The fraction is lower than last months 53 per cent, and the jump is attributed to the injection of more power to the national grid by private power supplier Aggreko.
In mid August, KenGen, on behalf of the Government, contracted Aggreko to provide an additional 140 megawatts of emergency power to cushion the country against effects of the power shortfall—that had forced a rollout of a two month power rationing in August.
The contract is to run for one year, but it has an exit clause should the hydro dams be replenished.
Earlier, sources at KenGen had focused on December as the termination date, but this is likely to happen given the lower than expected rainfall.
At 66.4 per cent, the contribution of thermal is way above past trends where it normally accounts for about 16 per cent of the country’s total generation capacity with the hydro sources providing 70 per cent of Kenya’s power needs.
The Energy Regulatory Commission attributed the power crisis to decades of under investment in the sector, arguing that the weather helped unmask the problem.
As a result, a number of least cost power projects that were mooted in the 1990’s are yet to take off.
KenGen recently raised Sh25 billion through a infrastructure bond to help fast track some of these projects to help cushion the country for a power crisis.
However, the new power plants are scheduled for commissioning after June 2010, which suggests that the country will rely on the expensive IPP’s to bridge any power shortfall.
The IPPs including Aggreko, OrPower and Tsavo Power control half of the country’s power supply up from 25 per cent 2007 due to reduced contribution from KenGen which relies heavily on hydro power.
As the economy reels from the effects of drought which has led to a sharp decline in agricultural output, analysts have identified the supply of power to the growing economy as the biggest challenge the government will face in the coming years.
Kenya has an installed power capacity of 1, 480 mega watts, including temporary emergency power of 290 megawatts, but is currently supplying about 1050 megawatts at peak time.