ERC rejects push to raise thermal power on the grid

What you need to know:

ERC said thermal power producers had sought its nod that would have resulted in a sharp rise in bills on increased use of expensive diesel-generated power.
The energy regulator said that the economy cannot afford to overlook the principle of least-cost power option, which gives priority to cheapest available power source for supply to homes and businesses at lower costs.

Consumers have been spared higher electricity bills after the energy regulator blocked the bid by diesel electricity producers to raise their power supply to the grid to clear fuel stockpiles.

The Energy Regulatory Commission (ERC) said thermal power producers had sought its nod that would have resulted in a sharp rise in bills on increased use of expensive diesel-generated power.

The injection of additional 280 megawatts (MW) of geothermal power in 2014 has cut the share of thermal power supplied to the national grid to 13 per cent last month from over 35 per cent two years ago.

This has left independent power producers (IPPs) with stockpiles of fuel for longer. The heavy fuel used to generate power cannot be sold to motorists, limiting their disposal options.

“They wanted their electricity to be given preference over other power sources in order to clear fuel stocks that some have held on to for over seven months,” ERC director-general Joseph Ng’ang’a said Monday in an interview.

“We declined to change the economic merit order of power dispatch to the grid.” Electricity prices have a direct bearing on inflation with an increase piling pressure on household budgets.

The fuel levy, which is linked to the amount of power generated from diesel and supplied to the national grid, has dropped to Sh2.31 for every unit of electricity consumed this month from Sh7.22 in August 2014. The ERC reviews the levy monthly.

READ: Diesel power generators stuck with costly stocks

The energy regulator said that the economy cannot afford to overlook the principle of least-cost power option, which gives priority to cheapest available power source for supply to homes and businesses at lower costs.

The country relies on an energy mix of hydro-electric power, the cheapest source at Sh3 per unit (kilowatt hour), geothermal (Sh7), and thermal sources at about Sh18.

Due to high costs, thermal electricity is only connected to the grid after supply of cheaper hydro-electric and geothermal electricity is exhausted.

Power demand is at its highest between 6pm. and 10pm when Kenyans return home from work and switch on house lighting, cooking appliances and TV sets.

“This five-hour evening window is where diesel plants come in, which are quite flexible to start and stop based on the short-period demand,” says Mr Ng’ang’a.

As the ERC declines to grant priority to thermal electricity, it has instead agreed to reduce the amount of fuel that the producers have in the past been required to store at any given time as a safeguard against stock-outs.

The regulator requires them to store at least three months equivalent of fuel supplies. Diesel-fired plants will, however, be allowed to run occasionally to keep them in operation mode.

The share of hydropower consumed by homes and businesses stood at 39.5 per cent last month, geothermal at 45.3 per cent while expensive thermal electricity stood at 13.5 per cent.

Some of the IPPs are Gulf Power, Triumph, Tsavo, Iberafrica, and Thika Power Diesel Plant.