Ideas & Debate

Energy demand grows in tandem with the economy

nmg

A technician inspects power lines in Nairobi. file photo | nmg

The 2017 economic survey shows the 2016 total commercial primary energy (oil, coal, electricity) demand increasing by 5.8 per cent with oil growing at 6.0 per cent and electricity at 5.0 per cent.

In the same year the national economy expanded by 5.8 per cent showing a strong correlation between energy use and economic growth.

The word “commercial” above signifies energy that is traded and documented as opposed to the “non-commercial” forms of energy like biomass (firewood and charcoal) which although unrecorded form a significant fraction of rural energy.

It may surprise many that in Kenya, in terms of commercial energy, oil is significantly above electricity.

If one includes the oil used in thermal generation of electricity, imported petroleum in 2016 accounted for 82.0 per cent of all energy used in Kenya, while electricity (from local sources like hydro, geothermal, wind) accounted for only 12.0 per cent of total energy with imported coal accounting for 6.0 per cent.

These statistics are a sign of an economy heavy on transportation, construction, services and agriculture and shallow on manufacturing and processing which are major consumers of electricity.

The data is also an indication of how much Kenya remains dependent on imported energy (oil and coal) requiring us to produce and export enough goods to earn sufficient dollars to fund imported energy.

This scenario will of course reverse when our local discoveries of oil and gas are directly or indirectly incorporated in our energy supply and demand.

At about 100,000 barrels per day the commercial discoveries of oil in the north just about equal Kenya’s annual imports of oil.

Another interesting observation is the high increase (11.0 per cent) of transportation fuels (petrol and diesel) demand in 2016, while the number of newly registered vehicles decreased significantly by 16.3 per cent.

This is an indication of increased vehicle usage for business and personal travel prompted by a growing economy and lower fuel prices which on average went down by about 5.0 per cent.

The survey shows the total oil import bill reducing by 14.0 per cent from Sh226.1 billion in 2015 to Sh197.5 billion in 2016 as global crude oil prices dropped from an average of $ 55.5 per barrel to $ 44.2.

Reduced oil import bill lowers pressure on the Shilling exchange rate as more dollars become available for other non-oil foreign payments. This year we expect the average global oil price to climb back towards $55.0.

In 2016 LPG usage continued to grow mostly aided by a drop in retail prices as VAT was waived and global prices remained low.

However an inadequate and inefficient LPG supply chain continues to restrict demand which has a huge growth potential created by the ongoing massive urbanization.

Turning to electricity, from 2012 to 2016 the electricity generation mix became significantly greener as thermal generation reduced from 28 per cent to 15 per cent share with geothermal correspondingly increasing from 19 per cent to 45 per cent per cent share of the mix. What remains in contention is whether this has sufficiently translated to reduced consumer billings.

The installed power generation capacity increased from 1,800MW in 2013 to 2,326MW in 2016.

The ambitious generation plan launched in 2013 targeted “5000MW by 2018” which shows how far off the mark the energy economists at the Ministry of Energy were in forecasting electricity demands.

It is also important that the viability of a number of planned generation projects is interrogated to ensure that we do not incur huge surplus capacity carrying costs.

We should also protect renewable geothermal and wind generation from being crowded out by other non-renewable projects.

The rural electrification data is quite revealing in that a 38.2 per cent increase in rural connections in 2016 resulted only in 2.3 per cent increase in units of rural electricity consumption.

Yes, rural electrification is quite an essential “social investment” with a strong socio-economic multiplier effect.

Lighting up thousands of rural homes, schools and markets will link up rural communities to a modern economy and living, and this is already happening. By all accounts, rural electrification has been a big story that justifies the huge costs.