Experts have called on the government to pursue more power purchasing agreements (PPAs) that are denominated in local currency in a bid to lower the cost of electricity.
Speaking at the Sustainable Energy Conference in Naivasha, the experts reckon that this will shield the country against the forex fluctuations because the majority of the PPAs are dollar-denominated and this is passed on to the consumers through costly power.
The bulk of PPAs between Kenya Power and power producers are dollar-denominated, leading to higher forex exchange in the computation of power bills at a time the shilling has plunged to record lows against the greenback.
“We need more local currency-denominated PPAs because there is enough capital in the country to support energy projects in the local currency,” Janice Kotut, a founding member of investment firm Sustainable Link said.
Forex adjustment is one of the factors that determine power bills and this has exposed consumers in the wake of the record weakening of the shilling against the dollar.
“In our current energy mix, we have wind, geothermal and solar and these generally derisk the local currency because God does not sell them to us,” George Njenga, CEO of Ap Moller Capital East Africa Platform added.
Kenya Power’s PPAs with power producers are denominated in the dollar, making electricity bought from the power producers costly.
Forex adjustment caters for the fluctuation of hard currencies, notably the dollar against the Kenya Shilling for expenditure related to the power sector.
Kenya Power collects forex adjustments from consumers through bills on behalf of power producers.
The local currency has been on a freefall against the dollar from 111.7 units in November last year to 117.28 units as at last Friday on the increased demand of the greenback.
The weakening of the local currency has been passed on to consumers through high forex fluctuations, partly contributing to the rise in power bills before the government effected a 15 percent drop in the cost of power in January.