Energy sector regulator ERC has defended Kenya’s electricity billing regime that uses the cost of living measure in the United States to compute consumer charges.
The Energy Regulatory Commission’s response came after the inflation charge that Kenyan homes and businesses pay in electricity bills hit an all-time high, amounting to a Sh323 million burden.
The charge, which is pegged on Kenya’s inflation rate and that of the United States, rose 8.3 per cent to Sh0.39 per kilowatt hour (kWh) of power consumed in July.
“Adjustment to inflation based on the CPI (consumer prices index) is meant to take care of price changes as a result of devaluation of the foreign currency. The part of the tariff that is escalated is, however, minimal,” the ERC acting director-general, Pavel Oimeke, said.
This translates to a Sh323 million burden on electricity consumers, based on monthly consumption of about 830 million units. The ERC adjusts the inflation charge every six months, or twice a year, the second review coming in July.
It reckons that the adjustment is meant to cushion investors, mostly foreigners, from the loss shock associated with forex fluctuations.
“The value of money changes overtime due to various monetary and fiscal policies that are adopted by various countries. Escalation of the tariff using the US CPI ensures that investor returns are not eroded by inflation,” the ERC said, adding that the regime is seen to attract deep-pocketed foreign investors to Kenya’s power market.
Consumers are already paying a separate forex levy through their bills at Sh1.05 per kWh in July towards foreign currency fluctuations, translating to a burden of about Sh871 million.
Forex adjustment levy is reviewed monthly and is linked to foreign currency expenses incurred by Kenya Power and electricity producers.
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US inflation stood at 1.9 per cent in May while Kenya’s was at 9.21 per cent in June, above the government’s preferred ceiling of 7.5 per cent. Kenya’s inflation adjustment regime is rooted in a policy for renewable power stations – geothermal, hydropower, solar and wind power.
The feed-in-tariff (FiT) policy allows power producers to sell renewable energy to electricity distributor Kenya Power at a pre-determined tariff for a given period of time as agreed in the power purchase agreement (PPA).
The policy has a provision for upward adjustment along the way of the price at which producers sell to Kenya Power to be passed on to consumers as an inflation cover for investors.
For instance, the fixed tariff for a geothermal power project of 35-70 megawatts (MW) is Sh9 ($0.088) per kWh, with 20 per cent of the tariff increased for the first 12 years and 15 per cent thereafter.
The power purchase pacts often cover 20 years.
Solar power project (on-grid) investors with a capacity of up to 40 MW are required to sell at Sh12.36 ($0.12) per unit, with 12 per cent of the tariff increased after the fifth year for inflation.
Small hydropower station investors of up to 20 MW are entitled to Sh8.4 or $0.0825 per unit, with eight per cent of the tariff escalated.