Electricity distributor, Kenya Power, has awarded National Oil Corporation of Kenya (Nock) a Sh4.85 billion tender to supply low sulphur diesel for its off-grid power stations in the next two years, the company says in its latest notification of tender awards.
The move signals that consumers will continue to bear the burden of higher priced electricity, which comes with the inclusion of the cost of diesel.
Nock has won the tender to supply 1.84 million litres of diesel every month to run the 30 thermal power stations over the next two years, according to Kenya Power.
Most of the stations are located more than 700 kilometres from Nairobi and in mostly arid and semi-arid northern Kenya counties such as Wajir, Mandera and Turkana, which consume 330,000 litres of diesel per month, being the largest amount of diesel use, followed by Marsabit with 200,000 litres.
“The duration of the contract will be for 24 months from the date of initial fuel delivery. Delivery of fuel will be made pursuant to orders made by the procuring entity from time to time,” Kenya Power says in the tender documents.
Habaswein, Merti, Baragoi, Maikona, Khorodile, Eldas, Lokiriama, Moyale, Kakuma, Kotulo, Elwak, Lokichoggio, Kamoliban, Takaba, Rhamu, Banissa Mfangano and Sololo are also in the list of areas that will share in the diesel supply contract.
The deal comes despite Kenya’s focus on green and cheap sources of power such as wind and solar.
A large solar plant is set for launch 15 kiloometres from Garissa town, with a capacity to generate 54.6 MW, making it the largest in East and Central Africa.
In addition, 310 megawatt (MW) Lake Turkana Wind Power Station in Loiyangalani, Marsabit County, is set for commissioning. The project carries a hope for consumers as wind power is expected to cost Sh8 per Kwh compared to thermal power which costs about Sh15 per Kwh.
The two plants come onboard just a year since the Kenyan government partnered with the World Bank on a Sh16 billion Kenya off-grid solar access project (K-OSAP) to supply power to 86 remote areas in 14 least electrified counties. The aim is to connect 1.3 million households.
But Kenya Power’s take in of such large volumes means consumer tariffs are unlikely to come down because the cost of buying the diesel is ultimately passed on to the consumer in form of fuel costs.
Fuel surcharge — which is based on the amount of power from diesel-powered generators injected into the national grid — stands at Sh2.50 per kilowatt hour (kWh).
In the financial year ended June 2017, Kenya Power spent Sh1.47 billion in fuel costs for off-grid power stations, up by 61.9 per cent from Sh909 million in the previous financial year.
This saw its total fuel costs hit Sh25.1 billion or a 74 per cent surge from Sh14.45 billion in the year ended June 2016. By end of June last year, off-grid power stations supplied 41 gigawatt-hours (GWh) of electricity to consumers.
Kenya is also stuck with expensive thermal power purchase agreements with producers who supply the national grid whenever output from renewable sources such as hydro declines.
Kenya has in recent years been forced to retain the contracts to maturity in order to avoid paying huge financial penalties for breach of the agreements.
Tsavo Power and Rabai Power agreements will be the first to come to an end in 2023, while Gulf Power, Triumph Power and IberaAfrica’s contracts expire in 2031.
Thermal power plants’ contribution to the total energy mix in 12 months to June 2017 increased to 21 percent up from 13 percent the previous year.
This was after the amount of power generated from thermal plants increased by 66.9 percent from 1,297 GWh to 2,165 GWh.
Kenya has an installed generating capacity of 2,370MW against peak demand of about 1,770MW.
The country relies heavily on renewables such as geothermal and hydro power.