Ideas & Debate

Could PPA task force report seed true power sector reform?

power
denniskabaara_img

Summary

  • Here’s a quick view of what that year looked like. Sh413 billion (in assets) KenGen turned a profit of Sh10.5 billion while Sh101 billion GDC did Sh1.6 billion in surplus.
  • We know the IPPs are in business, so generation is all fun and games.
  • Sh191 billion KETRACO lost around a billion during the year. Sh111 billion REREC clocked Sh5.3 billion in surplus.
  • Without any nuclear energy, NUPEA had a revenue surplus of Sh240 million (probably unutilised budget funds).

A month ago, we were inundated with screaming headlines on Kenya Power in our press. One daily carried these three leaders on consecutive days. “How Kenya Power plunged into Sh120 billion in debt”.

“Kenya Power loses Sh18 billion yearly in power theft”. “Costly power deals push cost up by 30 per cent”. Yes, 30 per cent! More recently, we read two more. “Safaricom’s smart grid to help Kenya Power cut Sh10 billion in system losses”.

Followed by “Electrical Workers Union call off planned strike at Kenya Power” (apparently one of the reasons for the strike was this Safaricom idea). Change is painful.

Why hasn’t someone made a movie or documentary on our power sector and Kenya Power? We could call it “Kenyan Power Games”. It might offer the practical work and life lessons that our new Competency-Based Curriculum is trying to manufacture.

Add press and social media disclosures early in the week about monstrous effective rates privately-owned Independent Power Producers (IPPs) “generated” from Kenya Power in 2019/20 (“take or pay” - Kenya Power “pays”, IPPs “take”).

Let’s step back. 70 per cent of our energy consumption is through biomass (charcoal and woodfuel), petroleum products account for a fifth; electricity is 90 per cent of the rest, with two thirds from renewable sources. Call this our energy policy-security context.

In the electric power sub-sector, outside the parent ministry and regulator, what does our power sector look like? Think KenGen, Geothermal Development Corporation (GDC), private IPPs, plus imports from Ethiopia, Uganda and Tanzania on the generation front.

Throw in Kenya Power and KETRACO on transmission, and Rural Electrification and Renewable Energy Corporation (REREC) and Kenya Power (again) on distribution. Oh, we also have the Nuclear Power and Energy Authority (NUPEA).

That was the old picture, before co-generation, mini-grids and private DISCOs (distribution companies). This emerging picture ages the older one. Before we get to smart grids and the Internet of Electricity.

Let’s add further macro-context using unaudited 2019/20 financials from the National Treasury. Across the six public entities we’re looking at a Sh1.132 trillion asset base.

Here’s a quick view of what that year looked like. Sh413 billion (in assets) KenGen turned a profit of Sh10.5 billion while Sh101 billion GDC did Sh1.6 billion in surplus. We know the IPPs are in business, so generation is all fun and games.

Sh191 billion KETRACO lost around a billion during the year. Sh111 billion REREC clocked Sh5.3 billion in surplus. Without any nuclear energy, NUPEA had a revenue surplus of Sh240 million (probably unutilised budget funds).

Then the king of the castle, Sh316 billion Kenya Power lost seven billion bob?

While the Kenya Power financials are an excellent justification for the old “follow the money” adage, it’s even more interesting at the kilowatt level. In 2019/20 the company sold 76 per cent of the power it bought, and lost the rest (24 per cent). In the same year, IPPs contributed 25 per cent of all power purchases.

Put differently, we bought from IPPs what we lost plus about a week of Kenya Power sales. Differently, total system losses during the year were higher than total sales to domestic consumers.

Which brings us to the question of power supply capacity vs demand need. Remember 5000MW? Well, peak demand in 2019/20 was 1926MW, against effective supply of 2708MW. That’s a safety, or reserve, margin of 40 per cent. Isn’t standard practice around 15 per cent?

Here’s a thought. KenGen, with 63 per cent of capacity accounted for 73 per cent of Kenya Power’s purchases. IPPs, with 33 per cent of capacity accounted for 25 per cent. Now throw in the financials.

That there is all manner of malfeasance in our House of Power is without doubt. But does this extend to planned “over-production”? A quick glance at the World Bank–demanded, truncated 2021-2030 Least Cost Development Plan (LCDP - basically, the power sector’s long-term strategic plan) offers a clue.

From current demand around 2GW (up from 1926MW last June), three scenarios are plotted. A “business as usual from 2010-2019” low scenario gets demand to 2928MW by 2030, a total of 50 per cent growth in ten years from 2020.

A “Vision 2030 plus Big Four plus” scenario gets it to 4251MW (120 per cent growth). The “reference” (i.e. realistic) scenario says 3183MW (65 per cent growth).

For the record, demand growth in the five years between 2015 and 2020 was 25 per cent.

So, what’s the generation plan to respond? 4,847MW by 2030. That’s a 65 per cent margin against the low scenario, 50 per cent versus reference and, well, 15 per cent if the vision happens.

Incredibly, the current, adjusted LCDP identifies 873MW in committed future projects and another 1552MW in “candidate” projects, which from today means 2030 capacity at 5133MW. Building castles upon castles!

Which brings us to the recommendations of the PPA Task Force. Reducing the power bills is populist. Revisiting IPP contracts will be tricky. Reforming Kenya Power will be painful.

But the most important recommendation seems to be this: get the demand forecast right; get the LCDP under control.

As I read the Task Force report, I hope to confirm that this seed of power sector reform is planted.