Written By: By Jemosop Faith, Faith specializes in energy conversations in Africa. Breaking down complex policy discussions into accessible, everyday conversations, she is a writer at Africa Digest News backed by 2+ years of focused experience.
Kenya proudly holds one of the highest shares of renewable energy sources across the African continent, a testament to its commitment to a sustainable future. Yet, despite these seemingly advantageous circumstances, the cost of electricity for the average Kenyan household and business remains stubbornly, and often painfully, high.
This stark contrast begs a critical question: why does a nation overflowing with power, much of it green, subject its populace to some of the steepest electricity bills in Africa?
To unravel this complex conundrum, we must delve into the intricate layers of Kenya’s power sector, dissecting the roles of key players, scrutinizing the pricing mechanisms, and ultimately understanding why the promise of affordable and abundant electricity remains elusive for so many Kenyans.
At the apex of the electricity supply chain sits KenGen, the Kenya Electricity Generating Company. Think of KenGen as the primary architect of Kenya’s power supply, the entity responsible for harnessing diverse energy sources – the reliable force of hydropower, the consistent heat of geothermal, the intermittent breath of wind, and the on-demand capability of thermal power – to generate the very electricity that powers the nation.
KenGen produces electricity at a relatively modest cost, approximately three Kenyan shillings per kilowatt-hour. This foundational cost, however, undergoes a significant transformation as it journeys from the generation plants to the end consumer.
The next crucial link in this chain is KETRACO, the Kenya Electricity Transmission Company. KETRACO acts as the vital artery system, responsible for transporting the bulk electricity generated by KenGen and other power producers across the vast expanse of the country.
Utilizing high-voltage transmission lines, KETRACO ensures that power reaches various substations and distribution points. Imagine KETRACO as the long-haul transporter, diligently carrying the raw electricity product from the source to different regions.
Following KETRACO in the distribution network is Kenya Power and Lighting Company (KPLC), the ubiquitous entity that directly interacts with the majority of electricity consumers.
KPLC takes the high-voltage power delivered by KETRACO and steps it down for distribution to homes, businesses, and industries. KPLC serves as both the crucial middleman and the face of the power sector for everyday Kenyans, responsible for metering consumption, issuing bills, and selling prepaid electricity tokens.
Overarching and regulating this entire ecosystem is EPRA, the Energy and Petroleum Regulatory Authority. EPRA acts as the industry watchdog, the government agency mandated to set electricity tariffs, issue licenses, and generally oversee the generation, transmission, and distribution of power. EPRA’s role is critical in ensuring fair pricing and operational efficiency within the sector.
Electricity consumption is measured in kilowatt-hours (kWh), a straightforward metric representing the amount of energy used over a specific period. For instance, operating a one-kilowatt heater for one hour consumes one kilowatt-hour of electricity.
KenGen’s initial generation cost for hydropower, for example, hovers around a seemingly low five US cents (approximately eight to nine Kenyan shillings) per kilowatt-hour, the price consumers ultimately pay can be nearly ten times higher. This significant markup is where the hidden complexities and cost drivers within Kenya’s power pricing system come into play.
Several key components contribute to the final electricity bill that Kenyan consumers face.
- The Base Tariff- represents the fundamental cost of generating and supplying power, as determined by the government. This tariff is intended to cover the basic operational expenses of the power sector. However, additional charges layer upon this base, significantly inflating the final cost.
- The Fuel Cost Charge (FCC)- is a variable component directly linked to Kenya’s reliance on thermal power generation. When the nation’s primary energy sources, predominantly renewable, are insufficient to meet the national demand, Kenya resorts to operating diesel-powered thermal generators.
The cost of this supplementary, often more expensive, power generation is directly passed on to consumers through the FCC. Fluctuations in global fuel prices can therefore have a direct and immediate impact on electricity bills.
- The Forex Adjustment Charge. Kenya Power frequently enters into power purchase agreements with Independent Power Producers (IPPs) in US dollars. Consequently, when the Kenyan shilling weakens against the dollar, Kenya Power’s cost of purchasing this power increases.
This added expense, resulting from currency exchange rate fluctuations, is then passed on to consumers through the forex adjustment charge.
A substantial portion of Kenya’s power supply, approximately 40%, originates from IPPs and imports, notably from Ethiopia. While IPPs play a crucial role in augmenting the national grid, their contracts and associated costs have become a subject of considerable controversy.
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Unlike KenGen, which often benefits from longer-term investment horizons and potentially lower costs of capital, IPPs typically operate under Power Purchase Agreements (PPAs) with a limited duration, often around 20 years.
Within this timeframe, they need to recoup their substantial investment costs, service loans, and generate a profit. This compressed timeframe, coupled with potentially higher costs of debt for private entities, often translates to higher tariffs charged by IPPs compared to KenGen.
Adding to the opacity and fueling public concern are the details of the contracts between Kenya Power and these IPPs. Despite parliamentary efforts to bring these agreements into the public domain, they have largely remained confidential.
This lack of transparency has raised suspicions that influential individuals or entities may be unduly benefiting from these arrangements, potentially at the expense of the average Kenyan consumer.
The existence of power generation companies utilizing expensive diesel, which were contracted to supply power and then required significant premiums to be withdrawn, further exemplifies the complexities and potential inefficiencies within the system.
The need for spare capacity, also known as the reserve margin, in a robust power system contributes to the overall cost. Ideally, a power grid should have between 15% and 30% of spare capacity to reliably meet peak demand and ensure grid stability.
This necessitates having readily available power sources that can be called upon as needed. While renewable energy sources like wind and solar are crucial for a sustainable energy mix, their intermittent nature means they cannot always be relied upon to meet sudden surges in demand.
This necessitates the continued availability of “firm power” sources, which can include thermal plants, contributing to the overall operational costs.
- The high level of transmission and distribution losses. Currently, these losses are estimated to be around 22-23%. This means that a substantial portion of the electricity generated never reaches paying customers due to technical losses in the transmission and distribution infrastructure and commercial losses, including theft and unbilled consumption.
Faced with the persistent burden of soaring electricity costs, the Kenyan government has acknowledged the need for reforms. There is a stated commitment to addressing the underlying issues contributing to high prices and a renewed push to increase investment in more cost-effective and sustainable energy sources like geothermal and wind.
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Some of the cheapest geothermal power on the grid currently comes from IPP-owned plants, highlighting that efficient financing and well-managed projects can indeed deliver competitive renewable energy prices. This underscores the importance of transparent and well-negotiated power purchase agreements.
The stark reality is that Kenyans are paying significantly more for electricity compared to their neighbors. According to the World Bank, the average cost of electricity in Kenya stands at 26 shillings per kilowatt-hour.
In stark contrast, Tanzania charges approximately 13 shillings, and Ethiopia, with arguably fewer resources and less developed infrastructure, charges a mere six shillings per kilowatt-hour.
This glaring disparity raises fundamental questions about the efficiency, transparency, and equity of Kenya’s power sector. It compels a critical examination of who truly benefits from maintaining high electricity costs in a nation blessed with abundant power generation capacity.
The push for cleaner, more affordable energy in Kenya is not merely an environmental aspiration; it is an urgent economic necessity. High electricity costs stifle industrial growth, burden households, and impede overall economic development.
