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Economy

Lamu coal plant to cost power users Sh37bn yearly

Lamu residents protest against plans to build coal plant in 2016. FILE PHOTO | NMG
Lamu residents protest against plans to build coal plant in 2016. FILE PHOTO | NMG 

Electricity consumers will pay a fixed charge of Sh37 billion per year through their bills towards Lamu coal-fired power plant, irrespective of whether it generates power or not.

The Treasury’s latest budget policy statement indicates that $360 million (Sh37 billion) will be paid yearly to the developers, Amu Power Company, as “annual fixed capacity payments”.

The planned payout is Sh5 billion more than what it cost to build the 50km Thika superhighway.

Homes and businesses will pay the hefty bill for the 1,050-megawatt plant through their monthly bills to cover the developers’ fixed expenses on the project, regardless of whether they generate electricity or not.

Besides the capacity charges, customers will also be billed separately for the cost of generating coal-fired electricity (energy charge), partly dependent on coal import costs.

“Located in Manda Bay, the Lamu coal power plant is on a BOO (build-own-operate) basis over a 25-year concession period,” the Treasury says in the 2018 budget statement.

Construction of the $2 billion (Sh206 billion) coal plant is yet to start after suffering delays since 2015.

Like with the current fuel cost charges in power bills that compensate power producers for fuel costs in generating electricity, consumers will absorb global coal price fluctuations through the monthly pass-through charges.

Highest charges

At Sh37 billion yearly, the Lamu coal plant will have the heaviest capacity charges among power projects in Kenya.

The Energy ministry reckons that the coal plant, the first in East Africa, would help diversify Kenya’s power mix and drive growth.

Construction of the plant was set to start in September 2015 and end in June 2017 but the developers suffered delays.

The Amu Power consortium includes Centum Investments and a group of Chinese companies.

A group of global organisations have discouraged Kenya from setting up the coal plant over environmental concerns.

The European Union, Switzerland-based World Wildlife Fund and South Africa-based Greenpeace Africa have both expressed their reservations warning of likely health risks to the people and degradation of the pristine ecosystem in the coastal Lamu town.

Power capacity

At 1,050 megawatts, the proposed coal plant is equivalent to 44 per cent of Kenya’s current installed power capacity of 2,400 megawatts.

“Based on best industry practice the size of each machine operating at base load should ideally not exceed 10 per cent of base load, or five per cent of peak demand (currently about 1,730 megawatts),” according to a recent energy sector report on the coal plant.

Coal is the most polluting of the major fossil fuels and is blamed for greenhouse gases that stoke global warming, floods and rising sea levels.

But officials from Amu Power Company, the consortium that won the tender to build the plant, have continually allayed the fears saying they have lined up tight and clean safety technologies.

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