Economy

Cost of energy rises as national grid takes in more diesel power

sondumiriu_image

The Sondu Miriu hydro-electric power dam is currently generating 15 MW against a capacity of 60 MW due to the prolonged drought. FILE | NATION MEDIA GROUP

Electricity distributor Kenya Power has increased its uptake of expensive diesel-generated power, setting up consumers for the highest rise in monthly bills in the past 16 months.

The Energy Regulatory Commission (ERC) Tuesday said it had exhausted the available options to cushion consumers from the impending cost of power shock.

READ: Kenya Power pays Sh14.6bn to diesel electricity companies

The fuel levy, which is paid to diesel power generators, this month hit a 16-month high of Sh2.85 per kilowatt hour (kWh) and is expected to rise further next month with increased uptake of thermal power.

Homes and businesses consumed 856 million kWh of electricity last month, meaning the increase in fuel levy by Sh0.51 per unit translates to a Sh436 million burden on consumers in December.

Costly power is often an inflation driver in the economy given the pivotal role that electricity plays in the manufacture of goods and impact on household budgets.

News of increased uptake of thermal power comes only a week after the UN warned of an impending severe drought in Kenya in early 2017 — meaning the country could become even more dependent on electricity from diesel in the first quarter of the year.

“We are doing badly. If the drought continues we may see the costs rise further,” the ERC director of electricity, Joseph Oketch, said, adding that the instruments that the agency has previously used to curb cost increases have nearly been exhausted leaving little room for manoeuvres.

That leaves consumers with the prospect of higher power bills and a steep rise in inflation that hit a nine-month high of 6.68 per cent last month.

Consumers have in the past couple of months felt the effect of thermal power in their bills with the rise in fuel cost levy, which is often linked to the amount of power on the grid from diesel generators.

READ: Holiday pinch as regulator increases prices of diesel, kerosene

The fuel levy, which is set every month, rose for the second month in a row in November and the trend is expected to persist in the first quarter of 2017.

The ERC’s data shows that Kenya’s thermal power intake jumped 17 per cent to 154.4 million units last month, expanding its share in the national grid to 18.3 per cent from 15 per cent in October.

That share had dropped significantly following the injection of additional 280 megawatts (MW) of cheaper geothermal power into the national grid two years ago.

Persistent dry weather has reduced hydropower generation capacity 12 per cent to 356.8 million units.

Hydropower, which is the cheapest, now accounts for 37 per cent of the electricity mix on the national grid while geothermal power grew marginally to 369 million units or 43.7 per cent last month.

The fuel levy is collected by Kenya Power for remission to power producers such as State-owned KenGen and independent power producers (IPPs).

Hydropower is Kenya‘s cheapest source of electricity but its output is often depressed by erratic weather.

Geothermal is the second cheapest at Sh7 per unit while thermal power is the most expensive source of electricity, costing consumers up to Sh20 per unit.

Depressed output

Official data shows that the prolonged drought has depressed output in many of the hydro-dams, including Kisumu’s Sondu Miriu which is currently generating only 15 MW against a capacity of 60 MW. That has left room for increased uptake of expensive power from the 30 MW gas turbine in Muhoroni.

“We are running the gas turbine in Muhoroni at almost full capacity because without it the voltage in West Kenya will collapse,” said Mr Oketch.

The drought has also affected the Seven Forks hydro stations on Tana River — Kenya’s main supplier of hydropower.

The energy regulator has in the recent past used various strategies to reduce the impact of fuel levy on consumer bills, a luxury it no longer enjoys.

The ERC in October allowed US­-based energy firm Orpower 4 to inject additional geothermal power into the national grid because despite the fact that rates for the additional plant had not been fixed.

The officials had to turn to the fuel surcharge to compensate the investor by loading an additional Sh0.03 to every unit of power consumed, raising the fuel levy to Sh2.34 per unit last month from Sh2.31­­iin October.

The levy is now up Sh0.51 per unit to Sh2.85 this month. Kenya’s peak demand stands at 1,618 MW against installed capacity of 2,300 MW.

ERC data shows that homes consuming 200 units monthly paid an average of Sh3,374 last month while users of 50 units paid Sh528.

READ: Consumers to pay more for petrol, kerosene

Power bills also come loaded with a forex levy that remained unchanged at Sh0.91 per unit this month alongside an inflation charge that stands at Sh0.29 per unit and is adjusted every six months.

Kenya Power’s payments to privately owned thermal plants (independent power producers) for purchased power surged 35 per cent to Sh14.6 billion in the year to June 2016.

The power distributor has been pushing for permission to raise power tariffs, citing increased costs, but the Ministry of Energy officials have ruled out any such increments.

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