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Kenya Power in U-turn on bills increase push

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Kenya Power new CEO Benard Ngugi. FILE PHOTO | NMG

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Summary

  • The Auditor-General says the electricity distributor has identified a reduction of capacity charges – paid to power firms regardless of generation – as one of the key actions that will pull it out of deep losses.
  • The electricity distributor says the move will also serve to bring down electricity bills.
  • This marks a U-turn by a utility that has since 2018 been pushing for an increase in electricity prices by up to a fifth.

Kenya Power #ticker:KPLC is seeking to lower fixed charges in contracts signed with electricity generating companies, a move that will boost its financial performance and lead to reduced power bills for consumers.

The Auditor-General says the electricity distributor has identified a reduction of capacity charges – paid to power firms regardless of generation – as one of the key actions that will pull it out of deep losses.

The electricity distributor says the move will also serve to bring down electricity bills.

This marks a U-turn by a utility that has since 2018 been pushing for an increase in electricity prices by up to a fifth.

Kenya Power argued it needed more cash to cover the cost of buying wholesale electricity from generators such as KenGen and maintenance of the national grid.

Now, the utility wants to cut the bill it pays generators, including OrPower, Lake Turkana Wind and Thika Power, with the ultimate goal of lowering the price of electricity for homes and businesses.

“It’s obvious that if the cost of electricity from generators comes down, the same will go to the economy or wananchi/customers by the regulator also reviewing the retail tariff downwards,” Kenya Power’s chief executive, Benard Ngugi, told the Business Daily.

“It would be very good if the economy gets the benefit of cheaper power to spur growth through manufacturing that heavily relies on electricity rather than merely to think of electricity players making money.” 

The size of the reduction in capacity charges and their impact on final electricity bills are expected to become clear once negotiations with producers, including KenGen and independent power firms, are concluded.

The wholesale power producers, including Gulf Power, Iberafrica, Tsavo Power last year, protested plans by Kenya Power to review bulk electricity prices citing low demand in the wake of Covid-19 pandemic.

Kenya Power reckons that time has come for the generators to cut their appetite for higher profits. 

“It’s high time cheaper power was achieved by all making some sacrifices to grow our economy for all,” Mr Ngugi said.

Most domestic customers are currently charged an effective rate of between Sh16 and Sh24 per kilowatt-hour (kWh), depending on their consumption bands.

Capacity charges, paid to power producers and recovered from consumers, are meant to help the companies earn a return on their capital investment which runs into billions of shillings.

“Management indicated that plans are underway to renegotiate downwards the capacity charges on the existing power purchase agreements (PPAs),” the Auditor-General said in its report on Kenya Power’s financial statements for the year ended June 2020.

“These charges, which account for 54 percent of the total cost of sales are significant and, considering their fixed nature, may have adversely affected the company’s performance resulting in losses.”

Kenya power paid capacity charges totalling Sh47.4 billion, representing more than half of the company’s cost of sales of Sh87.4 billion.

It buys power from 20 generators, but Kengen, OrPower, Lake Turkana account for 79 percent of the firm’s bulk electricity purchase costs.

The high costs, coupled with a sharp increase in administration expenses and provisions for bad debt, saw the Nairobi Securities Exchange-listed firm sink into a net loss of Sh939 million in the review period.

The company had made a net profit of Sh262 million the year before. 

Besides capacity charges, the power distributor has a long list of other costs, including interest on loans, infrastructure maintenance and staff remuneration. 

A cut in electricity prices is set to boost Kenya’s quest to make energy costs competitive compared with other African nations like Ethiopia, South Africa and Egypt.

The cost of power is a key determinant of new investments.

Reduced bills will ease household budgets given that electricity prices are among expenses whose costs have jumped the most under President Uhuru Kenyatta’s administration since 2013.

Electricity sales in the year ended June 2020 grew by a marginal 0.7 percent to 4,196 Gigawatt hours (GWh) compared to 4,176GWh the year before.