Kenya plans to start fixing the wholesale prices of electricity offered to power producers in shillings as it seeks to reduce exposure to volatile foreign currencies.
The country is moving away from dollar-denominated rates and taking the cue from countries such as India and South Africa that have successfully adopted local currency-denominated bulk tariffs for renewable energy projects.
The Energy Regulatory Commission (ERC) yesterday commissioned a three-month study to guide the shift that aims to deliver lower power prices to homes and businesses.
Currently, power purchase agreements (PPAs) between electricity distributor, Kenya Power and electricity producers come with fixed tariffs that are denominated in US dollars.
“The aim of this study is to present a case to have PPAs in shillings in order to promote local financing leading to reduction of power costs to consumers,” said ERC acting director-general Pavel Oimeke, adding that the proposed regime should encourage more local investors in the power sector.
The study is being undertaken by Dalberg International.
Kenyan consumers currently pay a forex adjustment levy through their bills which is reviewed monthly and is linked to foreign currency expenses incurred by Kenya Power and electricity producers.
The shilling-denominated deals promise to wipe out forex levy, easing consumers’ burden.
The forex levy for this month stands at Sh1.05 per kilowatt hour (kWh), translating to about Sh871 million that consumers will pay towards the surcharge based on Kenya’s monthly consumption of about 830 million units.
For instance, a plant selling power at 8 US cents per unit in 2013 meant Kenyans paid about Sh6.80 in wholesale prices based on the conversion rate of Sh85 to the dollar then.
The shilling has, however, depreciated to Sh103, meaning consumers are currently paying higher at Sh8.24 per unit, according to the energy regulator officials. This has translated to an increase in forex levy in power bills.
Critics, however, point out that the dollar denominated tariffs have served as an incentive in attracting foreign investors to Kenya’s energy market and that removal could cause investor flight.