Geothermal cuts electricity prices below Ruto’s target

The cost of electricity will this month drop by a lower margin than the government targetted after the injection of 140 megawatts of geothermal power into the national grid failed to have the promised impact.

Electricity prices are expected to drop by about 12 per cent for homes that consume about 50 kilowatt hour (kWh) per month while middle class households will see bills drop by an estimated 8.5 per cent.

Deputy President William Ruto had promised that electricity prices would go down by about 20 per cent from this month on reduced reliance on expensive thermal power following the injection of the additional geothermal power to the grid towards the end of July.

Data from the Energy Regulatory Commission (ERC) shows fuel cost adjustment, which is linked to amount of power generated from expensive fuel-driven generators, has dropped to Sh5.71 per kWh for bills to be settled at the end of the months from Sh7.22 the previous month.

The amount of electricity generated from thermal power stood at 29 per cent last month, down from 33 per cent in July.

The Energy ministry had estimated that the share of thermal power would drop by at least eight percentage points to push the proportion of the fuel driven generators to less than 25 per cent of Kenya’s monthly consumption.

“We thought thermal will drop to a quarter. This signals that the 140 megawatts of geothermal plant did not meet its full capacity, which is typical with new plants in their first months of operation,” said a source at ERC who requested anonymity because the data is yet to be published in the official Kenya Gazette. 

The foreign exchange fluctuation adjustment cost has dropped to Sh0.17 kWh from August’s Sh0.28.

A wobbly shilling and heavy reliance on diesel-powered generators to produce electricity, due to low water levels in the country’s hydro-electric dams, have been blamed for the rise in fuel surcharge and forex adjustment costs.

Households consuming 200kWh of electricity this month will, for instance, pay at least Sh4,293 down from the Sh4,685, a 8.3 per cent drop.
Those consuming less than 50 units will pay Sh702.14, down from Sh800.15, representing a 12 per cent drop.

The cost adjustments are expected to ease pressure on the year-on-year inflation rate given that electricity is one of the biggest determinants of inflation after food.

READ: Power, food cost push inflation to 25-month high

Rising food, electricity and transport prices helped push up the rate of inflation in August to its highest level since June 2012, breaching the Treasury targets for the first time since last October.

Data from the Kenya National Bureau of Statistics (KNBS) shows that inflation increased to 8.36 per cent in August from 7.67 per cent in July.

Kenyan authorities prefer inflation at between 3.5 and 7.5 per cent, meaning the Central Bank of Kenya’s next rate-setting meeting is likely to worry about the inflation trend, which has increased for the sixth month in a row.

The additional energy is part of the ambitious 280MW geothermal project that KenGen is implementing in Olkaria to scale up supply of cheap power.

“We have uploaded 140MW and the balance will be fully commissioned and connected to the national grid before the end of this year,” said KenGen managing director Albert Mugo recently.

“Kenyans should expect to see the cost of electricity starting to decline in the coming months as geothermal gradually replaces the expensive thermal power.”

The 140MW is from two of KenGen’s Olkaria units. One has gone through reliability tests successfully while the other is expected to complete tests mid-month.

Mr Mugo said two more units will be assessed in September and October in a crash time-table which targets to commission the entire 280 megawatts by December.

The announcement comes amid intensified campaigns by KenGen to increase the component of renewable energy in the national power generation mix.