Fuel cost levy on electricity bills hits six-year low

The fuel adjustment surcharges levied on December electricity bills sank to a six-year low following increased injection of cheaper geothermal power to the national grid.

Data from the Energy Regulatory Commission shows fuel cost adjustment dropped to Sh2.87 per kilowatt hour (kWh) for bills to be settled this month from Sh3.47 in November and Sh7.22 in August.

At Sh2.87, the fuel surcharge – which is responsible for steep electricity bills and is linked to the amount of power generated from expensive diesel – is trading at levels last seen in March 2008.

This is the result of additional geothermal power into the national grid from KenGen, with 140 megawatts having been added to the grid in late July and the second tranche of 70 MW added on September 16.

The state-owned power generator is Thursday expected to inject another 70 MW of geothermal power to the grid, signaling lower electricity bills next year.

The foreign exchange fluctuation adjustment cost, however, increased to Sh0.33 per kWh from last month’s Sh0.30 per kWh and Sh0.23 in October, reflecting the impact of the wobbly shilling—which is trading at three-year lows to the dollar.

READ: Power prices fall further as fuel levy hits four-year low

The December adjustments will cut electricity prices by about 6.8 per cent for homes that consume about 50kWh this month to Sh540 compared to Sh800.15 in August – representing a 32.5 per cent drop since the injection of the 140MW of geothermal power in late July.

Middle class households that use 200 units of power monthly expect to see their bills drop by 4.2 per cent to Sh3, 644 compared to Sh4,685 in August – a 22.2 per cent drop.

Savings on power bills will ease pressure on inflation, which stood at 6.09 per cent last month, down from 6.43 per cent in October and 8.36 per cent in August.

The falling electricity prices offers relief to businesses that say expensive power makes Kenya’s industry uncompetitive in a regional trading block where product pricing influences market share growth.

“With more geothermal power, we want to completely remove the fuel charge cost from our bills,” said Davis Chirchir, the Energy and Petroleum minister in an earlier interview.

Kenya in August set a target to halve electricity bills next year from present levels of between Sh15-Sh16 per KWh on back of increased renewable like geothermal

Diesel generation costs about Sh30 per kWh while the cost of geothermal power ranges between Sh7.12 and Sh8.01 per KWh.

In September, the share of electricity from geothermal sources surpassed hydro for the first time in Kenya’s history.