Kenya, like many other African countries, has excellent untapped renewable energy resources – particularly wind, geothermal and solar. There is pressing need. Just 18% of the 41 million population has access to electricity. The population is growing at almost 2.5% per year and electricity demand growth is 7% per year.
But grid expansion will be expensive. Kenya Power has plans to spend US$700 million by 2017 on infrastructure projects, adding an additional 5GW of generation capacity to the grid. Current generation capacity is less than 2GW.
In February this year, Kenya Power sought government permission to increase their power tariffs by more than 50% in order to fund expansion of the distribution network and to upgrade power lines.
The Kenya Power management did not get the response they hoped for. On November 19th, Kenya’s Energy Regulatory Commission decided on exactly the opposite. They ordered that the cost per kWh of electricity in Kenya was to reduce from Sh15.51 (US$0. 18) to Sh12.26 (US$0.14) by July 2015.
Kenya Power can afford the tariff decrease if it breaks its reliance on expensive diesel generation, says the ERC. There will be an increase in renewable energy generation over the next couple of years – both geothermal and wind power -plus greater use of cheap coal and natural gas.
Kenya Power is generally acknowledged to be one of the better-managed utilities in Africa. But meeting the expectations of the ERC looks like a very tough ask. The utility’s profit before tax reduced by 24% in the year to June 2013, mainly because of an increase in financing costs.
Is there a way out of this squeeze? Well, there may well be some free money around that can certainly ease the burden. Kenya’s electricity technical and non-technical electricity losses are 19% of generation.
While average losses in Europe are more like 7%, Kenya does not perform badly compared to many other African countries. Network losses in Senegal are 22% and in Ghana they are 27%.
If Kenya Power could reduce those losses to 12%, according to the authors of a April 2012 report (Tariff Structures for Sustainable Electrification in Africa) commissioned by the European Copper Institute, the company could increase its return on investment 10%, attracting external funding for its grid expansion
still leave room to reduce the electricity tariff that customers pay.
The trick has already been successfully performed in South America. In countries such as Chile, Colombia and even Bolivia, systematic and comprehensive.