Why geothermal has failed to cut electricity prices


Mr Davis Chirchir, the Energy secretary. PHOTO | FILE

Higher tariffs awarded to Kenya Power last year and upward review of taxes have kept electricity bills unchanged from 2013 levels despite the injection of 280 megawatts of cheaper geothermal energy to the grid.

Inflation data from the Kenya National Bureau of Statistics show that electricity prices increased marginally in December compared to the same month in December 2013.

Though the additional cheaper geothermal cut electricity costs by 26 per cent since August, homes have seen little changes when the comparison is stretched to 12 months ago, given households consuming 50 kilowatt hour (kWh) paid Sh521 last month compared to Sh517 in December 2013.

READ: Electricity costs drop on 210MW injection

The static electricity prices have also been linked to revision of value added tax (VAT) on electricity from 12 per cent to 16 per cent in September.

“There is zero change when one compared current power prices to those that prevailed in 2013,” said a source at the Energy Regulatory Commission who spoke on condition of anonymity.

“The cut in fuel cost adjustments on bills due geothermal power were offset by review of tariffs due Kenya Power and the new VAT charges. The new geothermal only stopped the escalation in billings that started in May because of rising fuel cost charges.”

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In Kenya, an extra fuel charge is added to normal power rates depending on the amount of diesel generation used and global fuel costs.

The fuel cost charge now stands at Sh2.87 per kWh from Sh5.19 in December, a drop of Sh2.32 over the period.

But this gain was offset by the new Kenya Power tariffs brought into force in January last year and the second phase in July that saw an increase in the fixed charge — payable regardless of consumption levels — and the energy charge, which account for more half of the monthly power costs.

The fixed charge for domestic consumers rose to Sh150 per month from the Sh120 while the energy charge per kWh for those consuming above 50 units increased to Sh13.68 from Sh8.10, a Sh5.58 rise.

The Sh5.58 increase is higher than the Sh2.32 gain. The inclusion of the impact of fixed charge and the four percentage increase on VAT further diminishes the impact of the additional geothermal power.

This is a damning statement to the President Kenyatta-led administration that has been calling on businesses to transfer the benefits of the “rock-bottom” electricity prices to consumers in the form of lower product costs.

Businesses have in recent years complained that expensive power makes Kenya’s products uncompetitive.

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But the additional geothermal helped curb the rise in the fuel charge, which peaked at Sh7.22 in August, and a further escalation in billings.

The share of electricity generated from geothermal sources in October for the first time surpassed that of hydro power. About 140 megawatts was added to the grid in late July and 70 megawatts in September and 70 megawatts in late November.

Data provided by Energy secretary Davis Chirchir show that geothermal power accounted for 51 per cent of electricity bought by homes and businesses in December, from 14 per cent in the same month in 2013.

The share of hydro power stood at 38 per cent, down from 46 per cent in the period under review while that of thermal dropped to 10 per cent from 37 per cent.