The presidential task force formed in March to review Power Purchase Agreements (PPAs) has a mandate to among others, scrutinise the deals entered into by the Kenya Power and review the suitability and viability of all independent electricity generation projects that have been proposed, under implementation or in operation.
Over the past two decades, Kenya Power has entered into several risk-bearing PPAs with Independent Power Producers (IPPs) hence the logic for a review. Moreover, the PPAs were entered at different times and stages of the power sector development. Some PPAs had onerous terms and clauses that did not address the present risks in power generation.
Even though Kenya has over time undergone a lot of legislative changes and policy reviews, the contractual terms of such PPAs are still binding upon the off-taker and IPPs.
As such any intended amendment requires proper stakeholder engagement and consultation.
Similarly, several projects have been issued with approvals at different stages of project development, from the expression of interest approval towards PPA negotiation.
Systematic engagement and renegotiation on terms agreeable to the parties to achieve a win-win result are inevitable.
Being contractual documents, the binding nature of PPAs can neither be denied nor wished away. It is, therefore, not possible for one party to unilaterally vary or amend a PPA without the consent of the other which consent must be expressed in writing in the circumstances. Ideally in negotiated PPAs, both parties (the off-taker and IPP) provide warranties and representations and equally have obligations that directly impact the validity and enforceability of the PPA.
Approved PPAs ordinarily do not end after negotiation and signing by the parties, they proceed to receive the instrument of approval from the regulator presently referred to as the Energy and Petroleum Regulatory Authority. At this stage, it is expected that the PPA complies with all applicable government policies, legislation and regulations.
In reviewing the suitability and viability of all independent power generation projects that have been proposed, are under implementation, or in operation, a balance must be struck between the suitability for demand and viability to supply the requisite power on demand. The demand aspect also entails the government commitment to expand power supply to end consumers thus broadening the consumer demand side of the curve. This may be achieved through full implementation and completion of the last-mile connectivity project and accelerating industrialisation. Through the Big Four agenda, the generation capacity at the moment can be easily balanced by active participation by the public sector in facilitating the demand side for power production, especially for manufacturing to match the supply curve-side by the IPPs.
Secondly, to ensure stability and cost-effective supply of power through reduction of intermittency, IPPs can incorporate energy storage system in their generation plants.
A suitable strategy for engagement with the IPPs and other stakeholders may be achieved through consultations on input parameters and the favoured balanced scenario that will inform the progressive development of the energy sector while achieving relief for consumers and ensuring the long-term viability and sustainability of the sector.
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