State House sucked into Kenya Power projects dispute

State House has been sucked into a raging row between the Energy Regulatory Commission (ERC) and electricity distributor Kenya Power over President Uhuru Kenyatta’s pet project to instal an additional 5,000 MW to the national grid.

The energy regulator and the power distributor have sought intervention on the future of the projects with Kenya Power notifying State House that the projects are no longer sustainable in the short term owing to excess generation capacity, a position that ERC has refuted.

Kenya Power chairman Mahboub Maalim Mohamed says the monopoly will no longer sign new Power Purchase Agreements (PPAs) pending a sector review intended to establish the country’s additional demand for energy.

Consequently, Kenya Power has frozen the signing of new contracts indefinitely, citing financial constraints and excess capacity.

“The KPLC Board of directors recognising the Government’s objective to keep power costs low and the fact that KPLC has an obligation to make payments for all generations capacity that comes online, has with immediate effect suspended consideration of PPAs for additional generation,” says Mr Maalim in a letter to ERC director-general Pavel Robert Oimeke dated December 21, 2018.

The letter is also copied to Chief of Staff and Head of Presidential Delivery Unit Nzioka Waita, taking the battle for the project billions to the corridors of State House. Energy principal secretary Joseph Njoroge was also copied in.

Safeguard interests

Mr Maalim maintains the decision to suspend signing of new PPAs has been taken to safeguard the interests of power consumers and the cash-strapped State utility.

“We refer to KPLC’s ongoing engagement with ERC and Ministry of Energy regarding the challenge of imminent generation overcapacity arising from the project implementation in accordance with LCPDP (Least Cost Power Development Plan) 2017-2037,” states Mr Maalim.

“The objective of this exercise is to ensure that KPLC operates a viable, profitable and sustainable business for the benefit of the economy, particularly the consumers of electricity,” argues Mr Maalim.

But in a sharp rejoinder seen by the Business Daily, ERC disputes the position taken by Kenya Power and warns that freezing outstanding power projects would have far reaching national implications.

“Although the ERC appreciates the concern of the KPLC Board, we are respectfully of the view that the Board should have consulted first as this is a critical national subject matter,” says Mr Oimeke in a response letter dated December 24.

“We respectfully request KPLC to consult widely on this matter including consultations with the policy maker as the decision has far reaching national implications.”

Mr Oimeke further argues that the energy regulator has been planning for energy projects in the long term insisting that they are in line with the country’s future power needs.

“ERC undertakes the exercise jointly with the other sector players as the Least Cost Power Development Plan output is implemented by different stakeholders,” he argues.

New contracts

The Business Daily has since learned that the ERC has disregarded Kenya Power’s decree on suspension of PPAs and has said it will continue issuing new contracts.

“The main reason is we need cheap and clean renewable power and LCDPD is a 20-year rolling plan that is reviewed every two years with all stakeholders,” said a source familiar with the raging dispute who requested anonymity to speak candidly.

“Further, the regulator has mandate on energy planning and shall adequately plan to avail affordable and sustainable power to energise the Big Four agenda.”

Kenya Power’s decision has thrown mega electricity generation projects valued at billions of shillings in limbo. The firm currently has 23 PPA applications under consideration with a total generation capacity of 2,240.5 megawatts (MW).

These include the High Grand Falls Hydro Project, which has 750 MW.

But Kenya Power acting chief executive Jared Othieno says that any new deals will be thoroughly scrutinised in line with demand.

“We are going to have more due diligence to see that they are coming in at a time when we can meet the demand,” said Mr Othieno earlier.

Kenya’s total installed capacity increased slightly to 2,339.9MW in 2017 from 2,327.0 MW in 2016, according to official statistics.

This is against a peak demand of 1,802 MW, with the balance being the reserve power meant for emergency situations such as plant repair shutdowns.

President Uhuru Kenyatta’s administration in 2013 set an ambitious plan to install an additional 5,000 MW to the national grid by 2017 from renewable sources such as geothermal, solar and wind farms with a target to connect all homes to power by 2020.