Energy CS says ending long-term pacts between KP and thermal energy producers will be tricky.
The energy ministry has been forced back to the drawing board over the rising cost of power.
This comes as the ministry grapples with how to handle the dilemma between the pressure from the public to reduce electricity tariffs on one hand, and the need to guarantee investor return on investments.
Faced with a raft of variable charges that make the largest component of power bills, the ministry is now going for several measures that will make a long-term gradual impact on the cost of power, in a bid to alleviate the pain of searing bills.
Energy Cabinet Secretary Charles Keter told the Sunday Nation that apart from the recently proposed gradual reduction on the number of diesel-run power plants, massive power lines and close to 40 power stations will be built to evacuate electricity from green sources and improve quality in the next one year.
The termination of the lengthy power purchase agreements signed with independent power producers is the trickiest of the measures, though. While their reduction has a huge impact on the cost of power as the less quantity of diesel used would be both economical and environmentally-friendly, the plants are needed to feed the grid during peak hours and the government is keen not to discourage investors in the sector by forcing several terminations or asking for very low prices.
“We are considering how to work around that because in some areas we will still need them, either because the electricity demand is still low as not to justify the building of a power line or when we establish that the existence of the plant throughout the agreed period is more costly than terminating it legally,” Mr Keter said.
The ministry is also considering involvement of the private sector in the construction and maintenance of major power lines, under public-private partnerships, to relieve the exchequer from the lengthy and expensive financing and construction processes of the critical infrastructure.
The ability to evacuate wind or solar generated power, for example, will enable certain areas to become less reliant on expensive thermal power plants and allow the government to naturally terminate them when their contracts end.
Mombasa, for instance, which used to rely on up to 300MW of thermal-sourced power, now only needs 100MW from the diesel-intensive sources, a situation attributed to the completion of the 400KV Suswa-Isinya-Rabai line.
Western parts of the country, which are prone to blackouts, will be the key beneficiaries of construction of major power lines expected to create up to two separate supply lines for more stability, with Olkaria-Lessos-Kisumu line expected to alleviate the diesel generator at Muhoroni, that is constrained by the ongoing power connectivity under the Last Mile connectivity project.
Regions supplied by the diesel-heavy sources contribute to the overall bill paid by everyone regardless of their location.
The component known as the fuel cost charge is among the key components of electricity tariff and varies with the cost of diesel. It is published monthly in the Kenya Gazette and reflects how much has been used to generate electricity from thermal sources.
The cost is then mixed up with other variables including inflation, which largely factors in the cost of fuel and the two are finally hit by a Value Added Tax of 16 per cent, another aspect Mr Keter said the ministry will have to push for re-evaluation.
“We are in very good discussions with Treasury to have the VAT on fuel cost charge removed because it amounts to double taxation,” he said.