Business Daily
Date: 23.11.2016
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Reducing electricity costs
becoming a daunting task
BY GEORGE WACHIRA
Last week, four news items related
to power supply appeared in the
media. The Cabinet Secretary
for Energy commissioned a committee
to review power purchase agreements
(PPAs) mainly signed with thermal gen­
erators. The objective is to seek opportu­
target in harnessing locally produced
natural gas for base load generation,
and has significantly scaled down use
of imported fuel oil. Uganda has commit­
ted huge projects to deliver maximum
hydro generation from the Nile waters.
For Kenya, the equivalent local natural
resource driver for base load generation
nities to deliver lower electricity costs.
Then we heard the Cabinet Secretary for was meant to be geothermal.
Mathematically, the percentage
Industrialisation stating that industrial
development in Kenya is conditional on share of thermal generation is a func­
tion of total generation which in turn
low energy cost inputs.
In the same week the industrialist is dependent on total demand. If
Narendra Raval of Devki Group an­ the total demand is not growing fast
nounced a 15­MW coal power plant at enough and thermal generation is fixed,
Athi River to hedge against high elec­ then the impacts of thermal shall remain
tricity costs for his steel and cement in­ dominant. And ifgeothermal (or any oth­
dustries. Finally, local and international er cheaper alternative) is not growing
environmental pressure groups were ex­ fast enough, it will take longer to dilute
pressing environmental concerns over
high thermal generation costs.
the reviews have to recognise the bind­
ing sanctity of agreements and potential
negative impacts of "forced" revisions on
future foreign direct investments.
Let us now look at the demand side.
When the "5000 MW new generation
target by 2017" was mooted, energy
economists correctly argued that this
level of demand is not existent within the
stipulated timelines. I recall arguing at
the time that having an ambitious target
is better than having none, and that if
half of the target is achieved it will be a
major accomplishment because electric­
ity demands usually grow on the back of
a buffer supply.
Yes the ongoing last kilometer power
distribution project is perhaps the big­
gest socio­economic story ever scripted
in Kenya this century. However this "re­
tail" demand is not likely to substantially
the 1,000 MW coal plant at Lamu.
I attended the launch of the 5,000
The committee appointed last week
will need to interrogate how increase the total demand. It is the 'bulk"
MW power generation plan just over
three years ago. The main thrust of the
Tanzania has within a consumers who are domiciled in indus­
plan was to deliver sufficient power gen­
eration capacity to power an ambitious
national economic development plan.
The other two objectives were to deliver
the least cost generation mix while fo­
cusing on low carbon green solutions.
Geothermal generation was intended
to be the critical pivot for delivering on
the three objectives.
short time managed tries, institutions and other energy in­
to bring down thermal tensive projects that shall define a quick
generation to nearly path to a 5000 MW demand.
zero. But above all, the
In the last three years, we have closed
committee will need to
down the Mombasa refinery, previously
answer the very sensi­ a major power consumer. Contrary to
tive question of why, expert opinion, the SGR opted to use
in spite of massive de­ imported diesel instead of locally pro­
crease in imported fuel duced electricity. We also lost the op­
oil prices, the power
bills in Kenya have not
The challenge, as I see it, is that for
significantly come down. What in the
whatever reasons we are not
power supply chain is gobbling up the
delivering geothermal gen­
benefits from low oil prices?
eration fast enough to di­
The challenge for the committee is
lute the impact of high cost
how to seek areas of flexibilities and
thermal generation which
common interests within PPAs that
uses imported oil. Geo­
portunity to pump Uganda crude oil.
A number of industries have also re­
cently closed down. Energy efficiency
initiatives are also gradually reducing
energy demand. And many entities are
making their own power. All these will
decelerated the pace towards the 5000
MW generation target.
thermal is a local natural
can translate into cost savings for con­
resource with a low carbon
sumers. Specifically I have in mind the Lamu coal generation, my concerns
restrictive capacity protection "take or are more economic than environmen­
footprint. Wind generation
is the other significant nat­
ural resource with even
greener credentials.
Tanzania is nearly on
pa/ PPA clauses. The clauses specify that
the buying firm either takes the power
from the supplier or pays the latter a pen­
alty when it declines to take it. However,
In respect of the proposed 1000 MW
tal. With an inevitable scaling down of
the 5000 MW generation plan due to
weak demand, supplies from Lamu
plant (which is fueled with imported
Ipsos Kenya ­ Acorn House,97 James Gichuru Road ­ Lavington ­ Nairobi ­ Kenya
Business Daily
Date: 23.11.2016
Page 9
Article size: 532 cm2
ColumnCM: 118.22
AVE: 224622.22
coal) could potentially crowd out the
natural resource supplies from geother­
mal and wind. Over­capacity is likely to
result in the unintended consequence of
"take or pay" penalties.
All said and done, it is a serious con­
cern that the electricity supply (genera­
tion and distribution) is not delivering
lower costs to the economy. I suggest that
the outcomes from the ministerial com­
mittee review should inform revisions to
the national power generation plan.
The ultimate objective is to sustain­
ably establish a power supply cost that
maintains business competitiveness
especially in the manufacturing and
processing sectors.
The challenge is
thatforwhatever
reasons we are
not delivering
geothermal
generationfast
enough
Kenya Power workers during the launch of the Live­Line maintenance programme on June 8. It will take longer to dilute high
thermal generation cost ifgeothermal is slow, file
Ipsos Kenya ­ Acorn House,97 James Gichuru Road ­ Lavington ­ Nairobi ­ Kenya