Electricity sector pains are caused by scanty power demands

From media reports one can discern an electricity subsector under enormous stress. The power distributor (Kenya Power) has complained about EPRA (Energy and Petroleum Regulatory Authority) licensing processes. Kenya Power is also under cashflow pressures as tariff increases remain unapproved by EPRA. The main power generator (KenGen) complains of delayed payments from the distributor, and failure by the distributor to lift available production.

And consumers (domestic, institutional, and industrial) are unhappy with high billings, and frequent power outages. Yes, electricity is an arena where no one seems to be winning, pointing to an expensive and inefficient power sector with critical pinch points in its supply chain.

My thinking is that the power sector is trying hard to grow and modernise but is held back by electricity demands that have refused to grow. Despite the national economy showing GDP growth year after year, the total electricity demand is a meager 1,912 MW, an insignificant demand for a country that aspires to become a developed nation. By now Kenya should be consuming upwards of 5,000 MW, and with an assured growth of about 5 percent annually.

Whereas lighting and appliances provide the baseload electricity demand, it is the “electric motors” in industrial and mining settings that would be driving significant increases in electricity demands. In any economy, it is manufacturing and mining activities that are most “electricity intensive”, while also being great GDP drivers.

Kenya’s liberal policies on imported consumption; slow success in creating new industries; slow recovery of collapsed agricultural industries; and an apparent absence of coordinated development of the mining sector, have all conspired to stagnate potential for electricity demands growth.

Acceleration of agro-industries and revival of sugar mills, paper mills, ginneries, cotton mills, pyrethrum plants, timber sawmills will significantly increase power demand growth, while also reducing imports. Specifically, the CS for agriculture should be supported to revive sugar, cotton and pyrethrum crops and their processing capacities. Development of already identified mining potential will similarly deliver increased electricity demands, while simultaneously delivering more jobs.

Commercial energy in Kenya is mainly supplied from imported petroleum (75percent) and electricity (25percent). It is the petroleum that has been the main GDP energizer especially in transportation and construction sectors. The services sectors, which have traditionally contributed to GDP success, do not consume much electricity.

Most of our power plants are by global standards small (less than 200 MWs) and these come with high capital and operating unit costs which translate to high tariffs. In the absence of reliable future demands data, the regulator is inclined to incrementally license small plants. Increased demands will allow investments in larger power plants with increased efficiencies and lower tariffs. Further, with a higher demand divisor, the cost impacts from existing thermal plants will be diluted.

Other future opportunities for electricity demands include electrification of transportation (electric vehicles, SGR, and urban mass transportation). Also, there are many projects listed in vision 2030 which if followed through will deliver significant MWs of power demands.

A new power demand study will serve little purpose unless it is done as part of a wider national plan to expand national economic production. Electricity is merely a driver of wider economic activities and cannot therefore be studied in isolation. The current national power demand of about 2,000 MW is such a small playing field for so many sector players and potential investors who are ready to increase participation in the energy sector. Therefore, a realistic electricity demand study is necessary.

In summary, low electricity demands are symptoms of an economy that is slow to industrialize and hesitant to reduce imported consumption. An economy that sits on enormous mineral wealth but lacks decisive plans to develop these resources. Increased MWs will arrive when we resolutely commit to increase our productive economic capacity. If productive sectors do not grow, low national electricity demands will continue to keep electricity unit costs high, due to absence of economies of scale.

In the meantime, EPRA should exercise caution in licensing new generation capacity, and where flexibility exists should cancel or delay existing commitments. This is until we come up with a national economic development model which permits sustainable growth of electricity demands. Economic growth and electricity demands are inseparably conjoined.