Business Daily (Nairobi)
Zeddy Sambu
25 June 2009
The search for an emergency power producer who will add 100 megawatts to the national grid in two months will begin this morning, pointing to rising concern over the country's energy security.
The Energy ministry and public power producer, KenGen, are expected invite tenders for the supply of emergency electricity to cushion the economy from a looming crisis that industry players say could begin as soon as next month.
A rapid decline of water levels on hydro dams along the Tana basin has exposed the country to an acute power crisis that requires rapid response, said Mr Patrick Nyoike, the Energy permanent secretary.
"There is a serious crisis. Water levels at the Masinga dam stand at 1,036 metres above sea level. This is one metre below the set operating minimum level of 1,056.5 metres," he said.
The fuel driven emergency power operator will mean that consumers will have to pay more for electricity in the form of high fuel cost charges-- a varying item on the bills that is linked to the amount of power on the national grid that is generated from thermal sources.
Masinga Dam is the biggest on the Tana River basin and the drop in water levels to below the operating minimum of 1,037 metres signals that it could soon be shut down - leaving a huge supply gap on the national grid.
It supports the seven forks dam system that generates about 47 per cent of Kenya's electricity needs. Other dams at the basin are Kiambere, Kindaruma, Gitaru and Kamburu.
The extent of the looming shortfall is not known but the PS said the generators are likely to run until the end of the year, which means that power consumers should expect the surge in electricity cost to last till the end of the year.
Though more expensive than the hydro sources, the IPPs offer the country a window to escape supply shortages similar to the 1999-2000 crunch that threw the country into a rationing crisis.
It also means that the country will increasingly rely on the expensive thermal power to meet its needs - a development that energy economists warn could increase production costs across all sectors of the economy and stifle growth.
Peak demandAggreko -- the country's most expensive power producer sells electricity to KPLC at a price of Sh15 per kilowatt hour compared to Sh7.50 charged by other suppliers.
Kenya generates 1,248 megawatts of power, including 150 from temporary emergency sources, against a peak demand of 1,070 megawatts, leaving a reserve margin of only 14 per cent.
Aggreko, which came to the country in 2007 after Cabinet sanctioned the procurement of emergency capacity of 400 megawatts, has been injecting 150MW into the national grid each year. Its supply is much more expensive than that of the three independent power producers (IPP) Iberafrica, Tsavo Power and Ormat.
The looming crisis has forced the Government to extend the services of Aggreko's Embakasi-based plant which contributes 60 megawatts of electricity to the national grid and the Eldoret plant produces an additional 40 megawatts despite the heavy cost burden.
The two plants consume a total of 20 million litres of ordinary diesel instead of low-priced heavy fuels or crude oil residues.
Kenya's energy problems have in recent years been compounded by delays in completion and commissioning of cheaper hydro sources to speed up retirement of the emergency power producers.
Though the country's dependence on thermal power has been rising since late last year, the steep decline in crude prices that came with the global economic crunch has shielded consumers from the possible surge in bill.
More recently however, crude prices have been rising steadily to pass the $70 per barrel mark two weeks ago, pointing to a possible rise in the cost of producing thermal power that will ultimately be passed on to the consumer in the form of fuel cost adjustment on their monthly bills.
Last month, thermal power accounted for about 41 per cent of total amount of electricity KPLC bought from KenGen and IPPs.
KPLC bought 545 million kilowatts hour (Kwh) of electricity in May with thermal contributing 226 million kwh.
Power consumers will this month pay a fuel cost charge of Sh4.68 per unit of power up from Sh4.36 last month and Sh4.10 in March. Energy economists say that charges would cross the Sh7 mark by September, raising power bills by nearly 25 per cent since March.
Thermal power's contribution to the national grid has averaged between 30 and 35 per cent since the start of the year from the optimal level of 16 per cent.
Increased reliance on thermal power means Kenyan manufacturers have to incur higher costs producing the same quantity of goods they produced last year in a market where demand for low-priced goods has been rising with the slowdown in economic growth.
It also means that consumers are unlikely to get relief on their power bills soon besides hurting the competitiveness of their goods and services in the regional market.
But industrialists however, said keeping the expensive diesel generators is the better of two evils. The other option is to rely on the little hydropower that will be generated during the dry spell and accept power rationing as part of their operations.
Vimal Shah, the Kenya Association of Manufacturers (KAM) chairman called on the government to finance part of the costs incurred in the production of emergency power.
He however, said a solution to the power crisis lies in increased investment to tap the existing geothermal potential through Public Private Partnerships (PPPs).
"Unless Government bears part of the cost, our goods will become more expensive and uncompetitive and jobs will be put at risk due to high power tariffs," Mr Shah who is also the managing director for Bidco Oil Refineries said in an interview. He asked government to conclude power projects faster.
Early this week, international prices for diesel or Automotive Gas Oil (AGO) stood at $73.34 (about Sh570 per barrel). "Price of AGO peaked to $77.99 (Sh624) per barrel on June 12 and this is when the industry material loaded and is expected here tomorrow (Friday).
The full impact of this recent price increase will be felt thereafter," said an oil industry chief executive.
Joseph Njoroge, KPLC's managing director, said the power transmitter will strive to avail cheaper power to Kenyan homes and industrialists by diversifying existing generation mix.
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