Power tariff structure queries need answers

Last week, Kenya Power chose to pull the carpet under our feet by issuing a profit warning amidst the public furore around high cost of electricity in the country. This came at a time when the government, just a few months ago harmonised the electricity tariff structure as part of an effort in addressing the high cost of electricity.

In all this,’ the underlying structural issues about electricity tariff regime are not being addressed.

Let’s start with the fuel cost charge, which is the cost adjustments passed directly to consumer every month collected on behalf of generating companies. When you plot the fuel cost paid out between 2009 to 2017 on a graph, there is an abnormal dip in 2016 - the figures understated by almost half as compared to other years.

To further confirm this understating of 2016 figures, fuel cost paid to Uganda Electricity Transmission Co. Ltd in 2016-2017 sharply increased by 500 per cent but purchased capacity only doubled. For KenGen, the biggest power generator, the paid fuel cost increased by 160 per cent when purchased capacity only increased by 2.7 per cent. So, is 2016 the year where the Sh10 billion fuel cost that Kenya Power admitted to not have billed customers and was trying to recover in this financial year plugs in?

Second, fuel cost charged on consumers has not been in tandem with global oil prices as the applied formula would demand.

For example, 2014 saw global oil prices at an all-time low but it’s the year electricity consumers paid the highest fuel cost with lesser unit in the last five-year period. So which matrix is being used to calculate fuel cost charge? Third, according to transmission planning Lake Turkana Wind Power (LTWP) was expected to be connected to the national grid by mid-2017 replacing thermal and hydro plants which are fuel-dependent therefore trimming fuel cost levied on consumers.

But the Kenya Electricity Transmission Company (Ketraco) failed to deliver on its part leading to a penalty fine. So as Kenya Power plans to release its latest financial statements, electricity consumers should be on the look-out if that penalty cost was passed to the consumer as also part of the Transport and Distribution cost by Ketraco. That fine should be solely picked by Ketraco.

Coming to power generation, there is an impending inefficiency problem, which is a cost the electricity consumer will be carrying. Between 2018-2020, LTWP 260 megawatt (MW), Ethiopia’s 400MW, Olkaria V geothermal among other committed projects will all be coming into the grid raising existing capacity to around 3900MW.

Contrary, according to estimated demand it shows that we will be having around 583MW of excess capacity out of those projects. Some will argue that heavy introduction of intermittent power generators (wind and solar) in this medium-term period will lead to system instability and therefore backup capacity is needed.

Now, taking this account into consideration, the backup capacity that is needed is only 160MW, so what happens to the rest of the 420MW that Kenya Power has already committed to purchasing? It means consumers will be paying for 420MW worth of idle capacity. Lastly, it’s estimated that on average Kenya loses 18 percent of electricity due to unreliable transmission and distribution system when recommended system loss for a reliable in transport and distribution should not go beyond 15 percent. Operating above that threshold means that consumers will be paying ‘a steeper price for the inefficiencies.

Whilst standing at 18 percent, its surprising that we are more concerned about increasing generation capacity and not arresting the serious problem of system losses.

A look at Kenya Power financial statements shows that there is constant increase of system losses since 2012 meaning that the utility company has either failed to forestall the loss of power in the grid or has not dedicated enough resources to improve the grid and make it secure, efficient and reliable.