Electricity distributor the Kenya Power and Lighting Company has increased the fuel cost segment of its billing, signalling that consumers are unlikely to get relief from the heavy cost burden they have been bearing in recent months despite the onset of heavy rains.

The rains were expected to cause an immediate drop in the cost of electricity as the country consumed more of the less expensive hydro power and cut back on the more expensive thermal power.

A steep drop in hydro power's contribution to the national grid has seen electricity bills surge by a margin of 60 per cent since March on the back of rising fuel costs 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.

Power producer KenGen and the Energy Regulatory Commission (ERC) reckon that the hydro power dams will be replenished in December at the earliest should the rains persist at the current rate.

"We have filled a meter within two days and if the rains continue like this, we should get to 30 meters in December," a senior KenGen executive said.

That outlook means that electricity consumers will continue to bear a heavy cost burden for the remaining part of the year because of the continued reliance on fuel-driven power generators to meet demand.

Though the portion of thermal power on the national grid is expected to decline marginally, rising crude oil prices is expected to erode any potential pricing gains to consumers in the next two months.

Crude prices hit a one-year high of $79 per barrel on Monday having risen from below $70 last month, driven by optimism over the pace of global economic recovery.

Investment analysts, led by Goldman Sachs, are forecasting that crude prices will continue to rally and could hit $90 a barrel before year end--pointing to a possible steep rise in the cost of fueling thermal power generators.

KPLC has informed power consumers, through the latest Kenya Gazette notice, that they will next month pay a fuel cost surcharge of Sh7.75 per unit of power up from Sh7.43 on this month's power bill.

This component of the bill has risen from Sh4.10 in March, adding pressure to the rate of inflation that has also been subject to a steep rise in food prices and the ongoing recovery of global petroleum prices.

The high cost of electricity will affect more than one million consumers, most of whom have already suffered significant losses of purchasing power because of the escalating food, water and transport prices.

Besides the direct cost of domestic consumption, the rising power prices is jerking up production costs for manufacturers who are passing the additional expenses to their consumers.

The Central Bank of Kenya (CBK) has warned that the cost of living is set to rise further in the remaining part of the year, fuelled by rising water and energy prices.

"Inflation is likely to rise as a result of the rising fuel costs as diesel is used to generate thermal energy," said CBK in their latest update on the economy.

Energy economists predict that the fuel charge will cross the Sh8 mark next month on increased use of thermal power to the national grid and the surging fuel prices.

"Obviously when petroleum prices go up, one can expect an increase in electricity prices," said Mr Peter Nduru, a director at ERC, adding that the power cost could come down after "two months of continuous rainfall."

Already, private power supplier Aggreko is expected to inject more thermal power into the national grid in the coming weeks.

In mid August, KenGen, on behalf of the Government, contracted Aggreko to provide an additional 140 megawatts of emergency power to cushion the country against effects of the power shortfall.

The British firm has since injected a portion of the power to the national grid and is expected to add the remaining portion in the coming weeks, says sources at KenGen, adding that the contract could be terminated in December should the rains replenish the hydro dams.

Last month, KPLC bought 521 million kilowatts hour (Kwh) of electricity with thermal contributing 278 million Kwh, according to the Kenya gazette notice.

This means that thermal accounted for 53 per cent of total amount of electricity that KPLC bought from KenGen and Independent Power Producers (IPPs).

The fraction is lower than last months 59 per cent, but its impact on pricing was higher due to rising petroleum prices.

(Oil prices have risen by more than $12 per barrel since last month).

At 53 per cent, the contribution of thermal is way above past trends where it normally accounts for about 16 per cent of the country's total generation capacity with the hydro sources providing 70 per cent of Kenya's power needs.

But the lower than expected rainfall the country has witnessed over the past two years has cut the contribution of hydroelectric power by nearly half, leading to the closure of some plants such as Masinga due to low water levels.

Players in the power sector say the country must receive two months of continuous rains for the hydro power plants to operate at their optimal capacity.

With the country being heavily dependent on the rain-fed hydro power sources, power rationing was rolled out from August but it was withdrawn last week following the supply of emergency power from Aggreko.

The power shortfall has created a fertile business opportunity to private power generators as the state controlled power generator KenGen, which supply's about 75 per cent of the country's power needs, struggles to get financing to construct power plants.

The private investors including Aggreko, OrPower and Tsavo Power control half of the country's power supply up from 25 per cent 2007 due to reduced contribution from KenGen which relies heavily on hydro power.

As the economy reels from the effects of drought which has led to a sharp decline in agricultural output, analysts have identified the supply of power to the growing economy as the biggest challenge the government will face in the coming years.

Kenya has an installed power capacity of 1, 480 mega watts, including temporary emergency power of 290 megawatts, but is currently supplying about 1050 megawatts at peak time.