Rising demand reverses KPLC’s power tariff cuts

At Sh3.49. though, the fuel cost charge is still less than half the record Sh7.83 it hit in January.

Poor weather that depleted water in the hydro dams prompted the government to turn to the more expensive diesel-driven generators to meet the country’s electricity needs, a move that pushed power bills up by 60 per cent in the year to January.

KPLC says that the bulk of the demand is coming from industrial and commercial customers, who account for about 70 per cent of its revenues.

This is a signal of increased production on the factory floors after cutbacks in 2009 that led to widespread freeze in employment and payroll cuts.

Strong signals of the underlying activity have already been seen in robust half-year performance in all segments of the economy including cement makers, beverage manufacturers and agro based firms that have announced double digit profits growth.

Kenya’s economy took a beating in 2008 - that saw growth plummet to 1.7 per cent growth from the previous year’s 7.1 per cent as the country grappled with effects of post election violence, the global financial crisis and failed rains that battered agriculture, leaving millions of Kenyans hungry and with no money to buy consumer goods.

Green shoots of recovery have also been evident in key agriculture, financial, tourism sectors and the commodities markets.

Business leaders said optimism has helped remove cost cutting, the freeze in capital spending and restructuring from their radar screens in favour of innovation and expansion into regional markets - a move that is ultimately spurring demand for power.

While this new demand offers KPLC the potential to grow its revenue base, it also bears the risk of causing a severe supply shortage that may ultimately pull back growth.

Recent growth in demand has reduced the reserve margin — the gap between peak demand and what is available — to below 10 per cent compared to the optimum limit of 15 per cent.
Policy makers have identified supply and cost of power as one of the biggest challenges Kenya will face in the coming years.

The government has allocated Sh34.1 billion this year for construction of new power plants and reinforcement of the country’s transmission system, which loses a significant amount of power.