Recently, the country’s only power utility company announced that it was slowing down the roll out of the prepaid metering system that they launched about 6 years ago. The reason given for this about turn was that the company is losing revenues as it is now collecting less from the same customers who are now on prepaid metering than they did before when the same group of customers were on post paid metering system.
According to the Kenya Power records, about 925,000 out of the 3.17 Million customers are on prepaid meters. Before the 925k moved to prepaid, they were collecting about four times more than what they currently collect from the same customers. The Kenya Power MD stopped short of accusing customers with prepaid meter tampering as his explanation of the reduced revenues. With the reduction in revenues, Kenya power has decided to classify this reduction as ‘unpaid debts’ in their books. Meter tampering would be across both pre and post paid users if he still holds the opinion that prepaid users are tampering with meters. In fact there are lower chances of a prepaid user tampering with the meter than a post paid user doing the same.
My little accounting knowledge tells me that it is every company’s dream to convert all their customers to prepaid. This shifts the cash flow position to a very favorable one of positive cash flow, you have the money from customers before they consume your service/product. With a prepaid metering system, Kenya power was heading to accounting nirvana but the recent revelations about the accumulating ‘debts’ from prepaid customers was a shock to many. First and foremost, if you do not buy prepaid meter tokens, you cannot consume power on credit and pay later, so how is this reduction in revenues from prepaid meter consumers classified as a debt as opposed to an outright reduction in collected revenue?
There are two main brands of power meters used by Kenya power, Actaris and Conlog. The later brand was found to be defective 3 years into the roll out, the meters were erroneously calculating remaining power tokens especially after a power outage, you could be having say 30Kwh’s remaining on your meter and after a power blackout, the meter reads -30Kwh or some other random negative value. This is what consumers would notice, we cannot for sure say that the same meters also under bill on the same breath. Of course if it under bills, very few consumers would complain or even notice, they would however be quick to notice a negative token value because they would lose power. Could faulty meters be the problem here? Could Kenya power be suffering from substandard meters? Here is a blog link to one affected consumer who complained in 2012 about the faulty meters. Kenya power attempted to replace some Conlog meters but I still see some in the wild in use.
Reality of estimate billing?
We have all been there, where you receive an outrageous bill from Kenya power. This is because more often than not, they estimate power consumed and never get to read the meters in your house. When was the last time you saw a Kenya power meter reader on a motor bike in your estate if you are on postpaid? According to Kenya power books, one post-paid domestic customer consumed 12 Kwh of electricity and on average paid Sh1,432. And each prepaid customer consumed an average 23 Kwh and paid roughly Sh756 to the power company. This can only mean two things:
- The postpaid customers are over billed due to poor estimation methods as meters are seldom read. I noticed this on my water bill too. When my bill is say 600/= and i overpay 2000/= when settling the 600/= bill, my next bill will be in the regions of 2000/= (estimated from my last payment). So i make sure i pay the exact amount on the bill these days to deny them room to estimate and over bill me.
- The prepaid meters are spot on accurate. This is the most plausible reason and I will explain below.
Prepaid meters are accurate?
Unlike the old school postpaid meters that measure total ‘apparent’ power consumed, the new prepaid meters assume an efficient electricity grid and measure effective or real power consumed by the customers appliances. In a situation where the power distribution grid is inefficient, the voltage and current are not in phase. This leads to a lot of ‘wasted’ power. In postpaid, consumers pay for the grid inefficiencies, in prepaid, they do not. This is why there has been a drastic reduction in revenues because consumers are now paying for what they consume and not the wastage on the grid. Perhaps this is what Kenya power sees as ‘consumed but unpaid for power’ by the prepaid meter users? Could be, this is because its not possible to consume more than what you have paid for on a prepaid meter. apparent power is consumed but not measured by the meters. This is especially true if you have appliances with electric motors in them such as washing machines, water pumps and air condition systems. Read more about power factor by clicking here
You can read older articles on my blog touching on Kenya Power by clicking the links below:
- How Kenya can enjoy lower electricity tariffs
- Kenya is ripe for a Demand Response Provider
- Kenya Power Needs To Be Penalized For Blackouts
- There is need to end the Kenya Power monopoly
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.
The rainy season in Kenya is synonymous with prolonged and frequent power outages. As I write this, I am seeing very many tweets from people complaining of going three days in a row without power in their homes. Kenya Power seems overwhelmed in ensuring reliable supply of power to many of its customers. There have been calls to end the Kenya power monopoly by licensing other independent power utility companies to compete with Kenya Power. I have even discussed how this monopoly can end in a previous blog post here.
One thing worth noting however, the Kenyan situation is fairly better compared to the situation in Nigeria or Angola. For example, in Lagos, power is available only about 35% of the time and people have to depend on private generator sets to cover for the deficiency. in Nigeria fuel is 1/3 times cheaper than here in Kenya and the use of personal gen-sets in Kenya is therefore an expensive affair.
I have also discussed on a previous post on how the introduction of a Demand Response Provider can help lower the level of investment in power generation systems in the country by eliminating or leveling off the peak power demand curve. I would like to revisit the issue of the use of demand response providers but from a slightly different angle.
As opposed to Megawatts which is a measure of quantity of power consumed, Negawatts measures the quantity of power NOT consumed (in essence negative watts). Assume your house consumes about 10 Kwh power day like mine. If for some reason there is no power supply to my house for a day then my Negawatt consumption is equal to the power I have not consumed = 10. At the current tariff, a Kwh is about 18 shillings bringing my total daily power consumption to 180 shillings.
So if we price Negawatts at a rate of 25 shillings, then if there is a blackout in my house for a day then the cost of Negawatts “consumed” is 250 shillings. This will be the amount the utility provider owes me for not consuming power (either though my own deliberate action or by a provider caused blackout).
This therefore means me not consuming power costs Kenya Power more than if I consume power. What will happen is that this Negawatt tariff will essentially be a penalty of sorts to the Kenya power management and staff for not providing me with power, the Negawatt cost will come from their profits and bonuses. There is no reason why Kenya power should declare a 6.2Billion Shilling profit in the wake of very unhappy customers, some of these profits should be used to pay off aggrieved customers who have lost business and comfort due to their inefficiency.
This therefore means Kenya power will get penalized by their consumers by the hour for blackouts caused at a rate higher than if they would have supplied electricity to these consumers.
At the rate of 18 shillings per Kwh, my monthly bill of power consumption will be approximately 180 x 30 = 5400 shillings, assuming i experience blackout totaling to 10 days, then my power bill becomes without Negawatts penalty is (180 x 20) =3600. However, with Negawatts penalty it becomes (180 x 20) -(250 x 10) = 1100 Shillings. So Kenya Power gets penalized 2500 shillings for the loss suffered by my business or home due to lack of power which i am now so dependent on.
This set-up will spur Kenya power to improve on their response times, invest in more robust distribution networks and increase staff output as they all work towards now losing money due to inefficiency.
At the end of the day, the customer will enjoy better power supply and Kenya power will not lose money due to Negawatt payouts to consumers.Follow @tommakau