Power fuel cost levy hits three-year high

FCC last hit similar highs in July 2018 when it stood at Sh4.60.

The rise in FCC coupled with an increase in Value Added Tax (VAT) means the cost of a unit of electricity will rise Sh0.14 this month, increasing pain to households and businesses reeling from the coronavirus-induced economic meltdown.

“Notice is given that all prices for electrical energy specified in Part II of the said Schedule will be liable to a fuel energy cost charge of plus 377 Kenya cents per kWh for all meter readings to be taken in August 2021,” Epra said in the Kenya Gazette.

VAT on electricity bills has increased to Sh3.43 per kilowatt hour (kWh) from Sh3.3, setting the stage for the rise in power bills this month.

For example, consumers will get 40.17 units for Sh1000, down from 40.37 units for a similar amount last month.

The rise will see the domestic power consumers pay Sh24.89 per unit from Sh24.77, increasing the burden on households hit by layoffs and salary cuts.

Epra did not disclose what drove the rise in FCC, coming months after the charge fell to Sh2.92 per kWh on reduced reliance on diesel plants due to the ongoing good rains across the country.

FCC had fallen consecutively in April and May— the first time this year it dipped twice in a row, offering a reprieve to consumers.

The levy is influenced by the share of electricity from diesel generators and has been on a decline following the heavy rains that started last November

Fuel cost charge has been on a gradual rise since May last year at the back of the global recovery of prices in crude oil, increasing the cost of diesel used for generating electricity.

It, however, dipped last month to Sh3.30, coinciding with the fourth consecutive month that diesel prices were kept unchanged to stem growing public outrage over the rise in the cost of living.

The rising electricity prices pile pressure on inflation as households and businesses endure financial hardships due to layoffs, salary cuts, and reduced earnings in the wake of the Covid-19.

The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in Kenya.

Producers of services and goods are expected to factor in the higher cost of power, unleashing pricing pressure across the economy with ramifications on the cost of living measure.

The anticipated increase in the cost of electricity comes at a time of growing concerns on the Power Purchase Agreements (PPAs) between Kenya Power (KPLC) and independent power producers.

President Uhuru Kenyatta in March appointed a task force to review PPAs signed between Kenya Power and all electricity generators to renegotiate energy prices and other terms downwards.