Low bulk power purchase tariffs are blocking private investors from developing low cost sources of electricity such as geothermal and wind power.

An energy conference in Nairobi concluded on Monday that private investors were shying away from geothermal and hydropower because current tariffs could not cover the huge capital requirements and offer a return on the investment.

Most investors opt for thermal power which, though is cheaper to develop and has high returns, gets expensive in the long run when its impact on power bills inflation and the environmental damage it causes are factored in.

"Our proposal for nine US cents for wind generation has been rejected. Other competitors like South Africa offer investors 14 US cents. We cannot afford to match such tariffs without hurting the economy," Energy permanent secretary Patrick Nyoike told the meeting, which was called to seek solutions in boosting the supply of affordable electricity at a time when the country is facing a power deficit and expensive electricity.

Huge capital requirements

Most private investors tend to shy away from putting their money in geothermal and hydropower plants on claims that the current tariffs cannot cover for the huge capital requirements and offer a return on the investment.

This has seen the country receive investors keen on developing thermal power, which though is cheaper to develop and has high returns, it ultimately gets expensive in the long run when its impact on power bills inflation and environmental damage it causes are factored in.

"Our proposal for nine US cents for wind generation has been rejected. Other competitors like South Africa offers investors 14 US cents. We cannot afford to match such tariffs without hurting the economy," said Energy permanent secretary Patrick Nyoike.

"We have no funds to fast rack programmes for the supply for geothermal as well as other renewable sources. We will therefore continue to rely on quick fixes like thermal-powered sources," said Mr Nyoike.

In deed, the country has witnessed investments by thermal based independent power producers (IPPs) in the supply of electricity to the national grid to cushion the country from a power crisis because state controlled power producer KenGen has been facing difficulties getting money it needs to develop new power sources.

Ramps up consumer prices

Thermal power mainly ramps up consumer prices through fuel cost charges -- a varying item on the power bills -- that is linked to the amount of power it contributes to the national grid.

At present, consumers have seen electricity bills surge by a margin of 60 per cent since March on the back of rising fuel costs charges, which has risen from Sh3.80 in March to Sh7.90 per unit -- the kilowatt hour -- this month.

The expensive power is coming at a time when the country is faced with a power crisis as power supply fails to match demand -- a move that forced the rollout of a two month of power rationing in August.

During the past five years, demand for electricity grew at annual average rate of 8 per cent as big consumers such as manufacturers expanded their intake to meet rising demand for their goods in a growing economy.

There has also been robust demand for power in rural Kenya where accelerated connection has brought on board thousands of new customers.

The country is looking at tapping into its vast geothermal sources -- estimated at 7000 megawatts -- to provide adequate and affordable power with a huge fraction of the investments expected from the private sector.

But the investors are asking the government to offer higher tariffs to allow them cover the huge investments required to develop geothermal plants.

For instance, its costs about Sh28 billion to develop a 80 mega watts geothermal power plant.

On Monday, however, the PS said the ministry plans to further woo the investors by reducing exploration costs and investment risks.

"Government will put more resources into geothermal assessment and wind data analysis. We also plan a feed-in-tariff for geothermal in order to reduce the high costs," he said.

Locally, it costs up to $3.6 billion to produce one megawatt of electricity , three times more than developing economies in Asia.

Funding opportunities

This is because the green alternatives are expensive unless they are backed by a state subsidy. Geothermal also has a lead time of five years.

Geothermal wells are expensive. It costs $6.5 million (about Sh455 million) to dig one well.

Overall, the country needs a total of $5 billion (about Sh325 billion) to transform the generation mix to include green projects in the next five years.

Funding opportunities to shift the generation mix from the traditional hydro-based and thermal -driven sources, geothermal projects amount to $1.5 billion, rural electrification ($1.1billion) as well as upgrading of the transmission system for $1.1 billion.

Others include $753 million for geothermal resources and $464 million for distribution of available electricity.

Kenya's total installed generation capacity stands at 1 210megawatts against current peak demand of about 1 076 megawatts while South Africa's total interconnected capacity is estimated at 5 000 such units of power.

The geothermal potential accounts for 7 000 megawatts while wind , whose estimated potential is at 2 000 megawatts, only 5.1 megawatts has been tapped.

"To green the energy mix, we need environmentally-friendly sources which are expensive. We need a subsidy to make the supply competitive," aid Mr Nyoike.

Under its five year plan dubbed: the Least Cost Power Development Programme (LCPDP), substantial contribution to the national grid will be drawn from the costly-diesel driven sources.

Next year, power generated from fuel will account for 150 megawatts

Energy sector players at the opening of an energy conference on green energy in Nairobi, challenged the ministry to thrash out more incentives to woo the investors.

Specifically , they want current a review of the energy regimes to help the country meet demand as well as protect the environment.

This is in sharp contrast to the position taken by the industrialists-under the banner of the Kenya Association of Manufacturers (KAM) who want a reduction in the fossil powered sources.

Ms Betty Maina, the KAM CEO, said current electricity regimes are unpredictable.

We want lower tariffs

"We want lower tariffs and a stable power supply system. There is need to shift to green energy alternative so minimize costs to users of electricity," Ms Maina told the two day meeting that ends Tuesday.

"We have resources and the will power, but we need the support of donors to exploit them," said Prime minister Raila Odinga who opened the two -day meeting.

Presently, Kenya is in talks with her neighbours in the Eastern Africa region that will see those countries with surplus power transfer surplus production to those with deficits.

Under the Eastern Africa Power Pool, that comprise Ethiopia, Burundi, Egypt, Rwanda , Sudan and the DRC, Kenya plans to interconnect her national grid with Ethiopia, Uganda and Tanzania as from next year.

"Interconnection will lead to larger power plants and lower electricity costs due to economies of scale," said Joseph Njoroge," KPLC's managing director and current chairman of the EAPP.