National Cement is set to build a 15 megawatt coal-fired power plant in Kajiado at a cost of Sh1.7 billion as part of its expansion plan.
The plant will feed its upcoming limestone mining and clinker manufacturing operation in the same location.
National Cement will transport the clinker to its factory in Lukenya –where it produces finished cement — whose capacity is being expanded to 1.7 million tonnes per annum from the current 600,000 tonnes.
Clinker is produced when limestone and clay are mixed with water and then heated at very high temperatures. The clinker is then mixed with small amounts of gypsum to make cement.
The company, which produces the Simba cement brand, says it decided to generate its own electricity because of delays in connecting to the national grid whose power is also more expensive.
“The cost of procuring electricity from Kenya Power is twice as much when compared with the cost of generating power using coal,” reads part of an environmental impact assessment (EIA) report for the proposed power plant.
Cement production is a power-hungry process, making energy costs one of the largest expense items for manufacturers of the commodity.
Electricity supplied from the national grid currently costs an average of Sh16 per kilowatt hour (kWh) compared to power from coal that is generally cheaper.
Based on current international prices of coal, power generated from the commodity costs Sh13 per kWh.
Coal prices have dropped 18 per cent since the start of the year and a further fall could make energy derived from the commodity even cheaper.
The government however says cost of power form the national grid could halve in the medium term on expansion of the country’s generation capacity to 5,000 MW from the current 1,300 MW.
Besides seeking lower costs, National Cement says it has been forced to put up the coal plant due to Kenya Power’s delays in connecting its Kajiado operations.
“Furthermore, Kenya Power is also unable to provide power to National Cement within the required time frame (within two years) and only install the electricity in three years’ time while electricity is needed for the clinker manufacture in 24 months’ time.”
The EIA report adds that electricity from Kenya Power can be unreliable and suffers interruptions which could affect the company’s production of clinker.
National Cement says it will import coal from countries like South Africa but Kenya’s move to start mining its own coal could see the firm source the commodity locally in the future.
The annual coal consumption for the proposed power plant is estimated at 63,360 tonnes.
Saving on energy costs is expected to boost the firm’s margins, underlining the importance of lower operational costs in an industry hit by vicious price wars.
Expansion by established players and the entry of new rivals like National Cement has pushed cement prices to new lows as surpluses mount.
The average retail price of a 50kg bag of cement in Nairobi, for instance, stands at about Sh650 compared to a peak of Sh740 in 2008 and 2009.