Power bills shock as new tariffs set to start next month

Consumer electricity bills are set to rise steeply next month when the second phase of the billing structure that the energy sector regulator set last December comes into force. This will add to the burden of rising cost of living that started in January.

Middle-class households and industrial consumers will bear the highest burden when electricity distributor Kenya Power brings the new tariffs into force, raising their monthly bills by at least 10 per cent.

Households consuming 200 kilowatt hours (kWh) of electricity this month will, for instance, pay at least Sh4,712.5 up from the Sh4,302.3 they would have paid based on the current tariffs, a 10 per cent jump if the variable components remain fairly stable.

Small commercial entities using 15,000 kWh of power will pay Sh396,549 or 10 per cent more than the Sh360,249 they would have paid under the current tariff regime.

The escalation in billings is linked to the planned increase in the fixed charge – payable regardless of consumption levels — and the energy charge, which account for half of the monthly power costs.

The fixed charge for domestic consumers will rise to Sh150 next month from the current Sh120 while the energy charge per kWh will rise to Sh13.68 from Sh11.62.

Commercial firms consuming up to 15,000 kWh will pay Sh14 in energy charge per kWh next month, up from the current Sh12 they have been paying since last December.

The new tariffs will remain in place until July next year when the energy charge is expected to drop marginally for the various categories of consumers. Fixed charges will either remain unchanged or rise further for industrial firms.

READ: Kenya Power in Sh32bn loan deal after tariff boost

The looming cost escalation will stand in stark contrast to the decline in power bills that Energy secretary Davis Chirchir had promised consumers six months ago when the Energy Regulatory Commission (ERC) set the new tariffs regime.

Mr Chirchir’s promise of cheaper power was hinged on the expected addition to the national grid of about 140 megawatts of cheap geothermal power this month, but that did not materialise because of a delay in completion of the Naivasha-based plant.

Costly electricity means inflationary pressure which rose to 7.3 per cent last month will escalate, diminishing the consumer purchasing power as prices of goods and services produced by expensive power increase.

Analysts have singled out the cost of transport and electricity as the key factors driving the inflation rate.

“Transport and electricity remain key concerns for us as there seems to be no immediate solution to easing pressure on this front,” Standard Investment Bank (SIB) said in a recent opinion.

It remains to be seen whether Mr Chirchir’s promise of an additional 280 megawatts of cheaper geothermal power to the national grid by year-end will eliminate the fuel cost increases and relieve consumers of the billing burden.

In the near-term, power costs escalation is expected to continue as the country relies more on expensive thermal power from diesel generators that significantly increase the fuel cost segment of the billings.

The latest industry statistics show that the fuel cost segment of the billings jumped to a two-year high this month to stand at Sh7.22 per kWh and account for more than 30 per cent of the total cost of electricity.

Forex charges also rose to Sh0.2 this month, up from zero last month, as the shilling depreciated  against major world currencies.

Electricity is one of the biggest determinants of inflation after food, making the looming cost escalation significant.

Year-on-year inflation stood at 7.3 per cent last month, up from 6.4 per cent in April and marking the fifth straight rise since December.

Higher prices of staple foods have been the main drivers of the steady rise in inflation and the latest addition of electricity is expected to make the situation worse.

Higher inflation means reduced purchasing power whose negative impact on aggregate demand for goods and services hurts job creation and new investments in the economy, limiting growth.

Workers are likely to be left worse off than last year when they enjoyed a net earnings growth of 7.7 per cent -- their pay having risen by an average of 13 per cent against an average inflation rate of 5.3 per cent.

Businesses and consumers also face a squeeze in terms of costlier credit as lenders respond to the rising inflation with higher interest rates.

Analysts expect the Central Bank of Kenya to respond to the emerging challenges with a raise in the benchmark rate that stands at 8.5 per cent, setting the stage for overall interest rate increases.

“The May inflation most likely signals the start of a new interest rate cycle in Kenya, although we do not expect interest rates to rise as much as they did in the last tightening cycle,” said Razia Khan, the head of Africa Research at Standard Chartered Plc.

“A sufficiently early rate hike will help moderate the overall pace of tightening that is required,” she said, adding that the Central Bank Rate (CBR) increase could start in July.

A fresh tightening of monetary policy portends higher interest rates on loans for consumers and businesses which had recently benefited from falling cost of credit to the current average of 16.7 per cent.

The risk of costlier loans could, however, be mitigated by the planned issuance of the $1.5 billion (Sh132 billion) sovereign bond later this month, a move that is expected to reduce the government’s domestic borrowing appetite and ultimately depress domestic interest rates.