Kenya Power raises fuel cost charge as water levels fall

Kenya Power has increased the fuel cost segment on its billing, signalling that electricity prices that had fallen in November are unlikely to sink further.

The power distributor has served notice to consumers that the fuel cost adjustment — a varying item on the bill linked to power generated from diesel engines — on their March power bills will rise to Sh5.60 per kilowatt hour (kWh) from this month’s rate of Sh5.44.

Consumers have enjoyed cheaper power in the past two months on increased generation from hydropower, and it was expected that electricity prices would continue to fall on reduced fuel prices.

This also cancels out the gains of the stronger shilling on the power bills, or foreign exchange (forex) adjustments, which is set to drop to Sh1.30 a unit from this month’s Sh1.40.

Consumers will pay an extra 60 cents per unit of power — or an additional Sh400 million cumulatively — to Kenya Power next month.
“The increase is due to a rise in generation from thermal sources since fuel costs and the dollar are now favourable to consumers,” said Kaburu Mwirichia, the Director-General at the Energy Regulatory Commission (ERC).

Diesel is retailing at Sh107 per litre from Sh114.50 in December while the shilling is trading at Sh82 to the dollar compared an average of Sh100 in November.

The twin commodities pushed electricity prices to record highs in November when the fuel cost and foreign exchange adjustments rose to Sh9.02 per kWh and Sh2.74 per kWh.

The government and Kenya Power had previously signalled that power costs would further drop this quarter on increased hydro production and strengthening of the shilling and latest prices look set to disappoint consumers.

The largest power producer Kenya Electricity Generating Company (KenGen) had said it is able to generate two-thirds of electricity from cheaper hydro plants due to heavy rains witnessed recently.

KenGen’s managing director Eddy Njoroge said water levels at the Seven Forks dams have risen to near spilling levels, enabling more power generation capacity from the hydro sources. The rains have since ceased.

Apart from the adverse impact on household budgets, the fuel surcharge and forex adjustment costs have a domino effect on the economy.

The fuel adjustment is influenced by the amount and price of petroleum used on thermal power generation while forex adjustments is mainly based on foreign currency-denominated loans held by Kenya Power and electricity generators.

The bulk of the foreign loans in Kenya’s power sector are held in Japanese yen and euros and local currency has lost more ground against the two units than to the dollar – 30 per cent and 33 per cent to the European and Japanese currency respectively.

As the cost of commodities rise across the board, consumers are realigning their spending to focus on necessities such as food items, cutting back their consumption of other non-essentials such as alcohol and entertainment.

This has the potential of reducing profitability of businesses that could react by freezing new hiring or laying off existing workforce in the fragile economy.