Weak shilling ups electricity forex levy to 18-month high

The volatile shilling has pushed the forex levy in power bills to an 18-month high, denying consumers cheaper electricity from increased generation of low-cost hydropower.

The Energy Regulatory Commission (ERC) says the forex levy on electricity consumed in June has increased from Sh0.40 per kilowatt hour (kWh) to Sh0.60 – the highest since December 2013.

This has offset the benefits from the fall in fuel adjustment levy – which dropped by a similar margin – due to an increase in the share of cheaper hydropower in the grid.

The fuel levy, which is linked to the amount of power generated from expensive diesel, decreased to Sh2.31 per unit from Sh2.51 where it had remained unchanged since February.

This is the lowest level the fuel levy has dropped in more than six years.

But the weak shilling has offset the benefits of lower bills, bringing to reality the impact of the volatile currency on households’ budgets.

The forex levy comprises expenses incurred in foreign currency by power generators such as Kenya Electricity Generating Company (KenGen), the independent power producers as well as Kenya Power.

This makes the power sector attractive to foreign investors looking to be cushioned from currency risks.

KenGen said last week that hydro-electric power generation had increased by nearly 20 per cent due to the ongoing rains, signalling lower electricity bills for consumers this month.

READ: Forex levy to raise power bills by Sh300m on weak shilling

The shilling has in the recent weeks been trading at levels last seen three years ago against the dollar, raising living costs in a country that largely depends on imports for its consumer and capital goods.

The local unit has been under pressure due to falling revenues from tourism and horticulture – the key foreign exchange earners – amid concerns over a rising import bill.

KenGen said last Wednesday that daily output from its hydro-power dams had increased from 8.6 million kilowatt hours per day to more than 10 million kWh.

The fuel surcharge has been dropping from a peak of Sh7.22 per unit in July to Sh2.51 in February, largely helped by the injection of 280 megawatts of geothermal energy into the national grid between August and December.

The levy remained unchanged at Sh2.51 for three months before dropping to Sh2.31 this month helped by increased hydropower generation.

The tariff for KenGen’s hydroelectricity is Sh2.9 per unit ($0.03), which is the lowest compared to geothermal power at Sh6.8 per unit ($0.07) and Sh18.5 per unit ($0.19) paid to thermal generators.