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Power bills pain as producers lock in Sh66bn guarantees

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A Kenya Power technician. FILE PHOTO | TOM OTIENO | NMG

Electricity consumers will pay a total of Sh66.2 billion as annual fixed capacity charges on 12 new power plants that are expected to be completed in the medium term.

The special charges represent the cost of making the electricity available such as maintenance.

The fixed capacity payments form part of the electricity billing structure which also includes charges for units consumed, fuel and movements in currency movements.

The new power plants including the proposed coal-fired one in Lamu will have a total installed capacity of 1,752 megawatts (MW).

Each electricity producer has signed supply agreements that include secured fixed annual payments based on its output.

The new production nearly matches the current peak demand of about 1,800 MW and will expand the existing capacity of 2,351 MW by 42 per cent, raising the possibility that consumers will end up paying for electricity they do not need.

Taxpayers' exposure

Details of consumers and taxpayers’ exposure to the new power projects are disclosed by the National Treasury in its 2018 public debt management report.

Some of the power plants are under construction while others are yet to secure funding.     

The Lamu coal plant, backed by a consortium including Chris Kirubi’s Centum Investment, will earn the highest annual fixed payment of Sh36.3 billion for guaranteeing availability of some 1,050 MW.

Africa Geothermal, which plans to produce 140 MW, will charge Sh7.7 billion while Kipeto Wind Power will ask for Sh6 billion once their power plants are complete.

Akiira Geothermal will earn Sh3.7 billion for its 70 MW while Triumph will make Sh2.4 billion to provide 82 MNW. Gulf Power will charge Sh1.8 billion to guarantee supply of 80.3 MW.

The remaining new power plants will earn between Sh1.1 billion and Sh1.4 billion for their capacity ranging from 35MW to 40 MW. The new players will join the existing electricity producers who are also earning billions of shillings annually.

Besides the capacity charges to be borne by consumers, the government is also on the hook to the tune of the cost of the new power plants should it terminate them.

Govt support

Some of the firms have received letters of support from the government, protecting their capital-intensive ventures from certain political risks.

The Treasury documents shows that KenGen has also applied to build another 140 MW plant at Olkaria which is expected to earn it about Sh7 billion in fixed capacity charges annually.

The government previously had an ambitious plan to raise the country’s installed electricity generation capacity to 5,000 MW but shelved the target after it became apparent that it was too ambitious.

There is no commitment to a new production target but the upcoming plants are raising installed capacity at a much faster rate compared with economic growth, raising concerns that they will be underutilised while consumers pay the fixed charges.

Over ten years, the 12 upcoming power plants alone will be paid a total of Sh630 billion. Most of the power projects are on a build, own, operate (BOO) basis. Treasury official say the government will encourage public-private partnerships going forward to reduce the cost of funding infrastructure projects.