How Kenya can enjoy lower electricity tariffs
This week, Kenya Power company announced a plan to increase the electricity tariffs and connection fees by about 45% from the current prices. They have also proposed a reduction in off-peak tariffs by about 20% to encourage heavy power users to utilize off-peak periods for their consumption. Off-peak in Kenya is from 11PM to 5AM where power consumption is about half the peak consumption.
The move to lower the off-peak power tariff is something I have been advocating for because doing so will lead to the following:
- If heavy users shift their consumption of power from peak time to off-peak time, then the spike in demand will reduce. Power for peak load conditions is mostly generated from sources that can come into and out of the grid at short notice, these are mostly fossil fueled plants. Lowering the % of power generated from fossil fuels can considerably lower the overall electricity costs. Take a look at the fuel adjustment figure on your electricity bill to understand what impact lowering this figure can have on your overall bill. If electric power utilization in Kenya were nearly a straight line, there would be no need for introduction of expensive peak load power plants into the grid as base and intermediate load plants can serve customers at a lower cost.
- The utilization of off-peak period by heavy users such as factories can lower their cost of production because energy is a huge component of manufacturing costs in Kenya. Kenyan manufacturers pay 21 US cents per KWh compared to Egypt and South Africa which pay 3.1 and 4 cents per KWh of electricity respectively. Power costs are the main reason behind many manufactures shifting base to outside Kenya.
History of Electric power Monopoly in Kenya
In 1908, Harrali Esmailjee Jeevanjee (Jevanjee Garden in Nairobi is named after him), a wealthy merchant in Mombasa bought a second-hand generator from Seyyied Bargash who was the sultan of Zanzibar. The Sultan had purchased this generator from spice money in 1875 to light up his palace and nearby streets in Zanzibar.
At around the same time an engineer, Mr Clement Hertzel, was granted the exclusive right to supply electricity to the then district and town of Nairobi. This leads to the formation of the Nairobi Power and Lighting Syndicate. in 1922 the Mombasa and Nairobi generators are merged under a new company incorporated as the East African Power and Lighting Company (EAP&L). Between 1922 and 1983, EAP&L expands into East Africa and builds power networks and sales the distribution rights to the respective governments. By 1982, EAP&L was only present in Kenya and it changed names to Kenya Power and Lighting company (KP&LC).
Breaking the Monopoly
Since 1908, electricity distribution model has been an expansion of the original one consisting of a centralized source of power shared by many. The acquisition of exclusive rights from day one by Clement meant that no one had the permission to generate and distribute electricity. A Monopoly was therefore born. Kenya can considerably lower its power distribution and generation costs by opening the market to several players. I have discussed in detail in a previous blog post how this can be done here
Improve generation and distribution efficiency to lower costs
A huge chunk of the electricity costs go towards three things.
- Paying for the capital expenditure in the generation and distribution network equipment: Most of the CapEx comes in form of loans from ‘development’ banks and western foreign governments. We can considerably lower the cost of these loans by borrowing in the currency in which we will buy the equipment in or better borrow from the Chinese who are giving the lowest long-term development loan interests.
- Costs introduced by inefficient systems: The Kenyan power grid is inefficient. We lose about 7% of the generated power due to poor electric lines and about 10% due to use of old inefficient generating systems and transformers. My former Electric transmission lecturer who was also the then director at KIRDI reckons that improving the electricity grid efficiency in Kenya by 1% can save the economy about 7 Billion shillings annually.
- Idle capacity costs introduced by a short peak time demand period: During off-peak, the idle capacity becomes a cost, See how idle capacity can become a cost here. By spreading the load over a 24 hour period through encouraging heavy users to use off-peak power, the component of idle capacity costs in the operating costs of the national power system can be drastically reduced leading to lower electricity bills to consumers.
If the above costs are reduced as outlined, the Kenyan consumer can continue to enjoy lower power tariffs for a long time to come. The reason why other countries can afford to offer power at five times below what Kenya is offering is because they adopted these measures to lower the cost of electricity.