IPPs push for renewal after expiry of 20-year contracts

Kenya Power workers carry out repair works along Haile Selassie Road, Mombasa. FILE PHOTO | KEVIN ODIT | NMG

Independent Power Producers (IPPs) are lobbying to extend their electricity purchase agreements after the expiry of deals with Kenya Power, promising to sell at cheaper rates.

Through their lobby, they told lawmakers the government will get lower electricity purchase rates because the plants will have fully recovered the financing costs and margins within the initial agreements of 20 years.

Kenya is grappling with high electricity prices, mainly attributed to costly purchase agreements with the IPPs.

IPPs whose power sale deals to Kenya Power are typically for 20 years sell electricity for an average of Sh11.87 per kilowatt hour (KWh) compared to the Sh3.93 KenGen offers.

“Power plants have a useful life greater than the 20 years of a template Power Purchase Agreement. The power that is produced from these plants would be cheaper as the financing costs and margins were fully recovered,” the Electricity Sector Association of Kenya (Esak) said in the petition to Senators.

Most of the IPPs have built their plants using a mix of loans and shareholder funds and the power purchase agreements with Kenya Power factor in these costs, ultimately leading to the high cost of electricity.

The high wholesale prices the IPPs sell electricity to Kenya Power have been cited as a major factor behind the high retail prices that have been the subject of parliamentary inquiries.

The high prices have lowered Kenya’s competitiveness compared to countries such as Ethiopia and Egypt which have cheaper power.

Esak cited KenGen whose plants are older than 20 years but supply less expensive power.

The lobby did not give the favourable rates it is promising under the new deals they are pushing for.

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