Between 1997 to date, the KPLC, one of the largest state corporations with multiple mandates - generating, transmitting and distributing electricity has undergone tremendous changes.
Unbundling, the technical term for splitting the corporation into smaller more specialized units with separate functions, has seen the erstwhile monolith whittled down in sheer size, in its capital base and the bravado that accompanied its erstwhile leadership.
KENGEN and new kids on the block, GDC (Geo-Thermal Development Corporation) have been vested the task of overseeing the development and generation of hydro and steam power plants. KETRACO is responsible for bulk power transmission while the Rural Electrification Authority (REA) and KPLC have been left the task of power distribution at the lower end of the spectrum.
KPLC even in its restructured form still has massive faults, and at present, still realizes power losses of upto 16% in its networks. That's unsustainable. Stakeholders are holding the wrong end of the stick when we simplify the woes of the power sector to distribution and by extension, merely to KPLC's limitations.
Reforms in the energy sector have essentially involved vertical separation and gradual deregulation of competitive segments from those that were deemed to have natural monopolistic characteristics. At the same time, the reforms were undertaken with a sense of hope, that subject to price, network access, service quality and entry regulations, the end consumer would be the ultimate beneficiary once reforms were complete.
The expectation was that the regulatory mechanisms would provide more powerful incentives for regulated firms to reduce costs, improve service quality, stimulate the introduction of new products and services and stimulate efficient investment in pricing of access to regulated infrastructure services. All these have not happened over the last ten years. Where attempts have been made, progress has been patchy and woefully inadequate.
Take power generation for instance. As at 2004, the country had an installed capacity of 1,155MW with an effective output of 1,067MW. By 2012, installed capacity had grown only by 32% while effective capacity. At this pace we will only have an installed capacity of just over 2,000MW over the next ten years. The slow growth and progress is a clear indicator of the mismatch between the talk about increasing generation and little action in real terms.
Most recently, the President launched a 280MW geothermal project in Olkaria that is expected to significantly reduce overdependence in hydropower. The country hopes to generate up to 3,750MW by 2018 and 15,000MW by 2030 in line with vision 2030. The current electricity demand is 1,227 MW with generation capacities from hydro, geothermal, bagasse (cogeneration) and wind are 52.1%, 13.2%, 1.8% and 0.4% respectively. Fossil fuel based thermal contributes 32.5 per cent. By 2015 alone, the peak load is projected to grow to about 2,500MW while current power generation including power imports from Ethiopia will only add less than 800MW.
The sad fact is that between 2004 and 2012, while our dependence on hydropower went down from 60% in 2004 to 52% today, we have increased our dependence on thermal sources from 21% to 31% and simultaneously reduced dependence on geo-thermal from 20% to the current levels of 13%. Our reliance on more expensive power sources has made it virtually impossible to move towards a more affordable energy secure future. In contrast, while power generation has been our worst area of performance, it has witnessed the highest number of reforms as a sub-sector with multiple institutions raising questions whether the pay off of such policy reforms have been worth it.
It is also important to note that the Wind Power Project in Turkana has suffered massive delays because of Treasury's incalcitrance and inability to offer the necessary credit guarantee letters for power evacuation while the Energy ministry has spent much of the last five years chasing around 5-50MW power generation projects that ultimately leaves the country worse prepared to meet our long term energy security. In Kenya's attempt to run quickly to attain Vision 2030, the country is now split into pursuing multiple energy security visions.
A plethora of top heavy parastatals have been put in place (and the number is growing), each developing its own small little plans from geothermal, to hydro, nuclear, wind, power imports to the much maligned well head tender problems in KENGEN. The policy environment is replete with up to seven parastatals coordinating the generation of just 1,500MW over the next five years and hopelessly off track even with the forecasts for 2020. Perhaps there is need for a rethink. The country should adopt a more realistic energy mix portfolio and concentrate on large power sources.
These could be geothermal, wind and hydro given the reserve potential of these sources with transboundary power purchase agreements to meet the balance. It is however pointless pumping billions of shillings into several little power options at this stage in Kenya, such as the little 5MW well heads in Olkaria . And even if the country was to focus on nuclear power, it does not make sense to plan for a 1,000MW plant to be commissioned in 2022. Given the long lead times and inefficiencies of our systems, a nuclear power plant in 2022 must have a much higher capacity because we will need another 10 years to put up the next one. That is imperative even if we add 1,000MW plant after another three or fours years after 2022.
Access to affordable energy is an essential prerequisite to achieving economic growth and poverty reduction in Kenya. And in keeping with the Millennium Development Goals, Kenya is committed to reducing by half the number of people who lack access to modern energy services by 2015 and reducing by half the number of people living in poverty. But currently, it costs approximately Sh35,000 (US$422 at an exchange rate of 83) to connect to the grid and about 15 US cents equivalent per kWh of electricity service. In addition, once connected, a modest amount of grid electricity (about 134 kWh per capita consumption) costs about 15 US cents equivalent per kWh. This is much higher than that of South Africa (US Cents 6.6 per KWh) and Egypt (US Cents 3 per KWh) who are Kenya's major competitor in trade and services in East and Southern Africa.
Yet, even with the prohibitive costs in Kenya, the consumer electricity tariff structure is such that there is cross-subsidy whereby the high electricity consumers subsidize the low consumers. The lifeline consumers utilize less than 50 Kwh/per months and pay the generation costs only. Not distribution. These costs are high because of the substantial investments needed to build new generation, transmission and distribution networks and systems. But most importantly, the heavy reliance on expensive energy sources especially thermal plants makes our long term goals look like pipe dreams. Where would county governments get the kind of resources necessary to purchase and install distribution networks? Where would the technical capacities come from?
Would such investments be expected to give returns when water supply infrastructure alone cannot pay for itself and has to rely on subsidies year on end? Would this be a priority in a country where people still can't read and write, and where upto 85 children die before they attain age five every year for every 1,000 live births? This high cost is a major obstacle to the expansion of electricity connection to low-income households. With a dismal power generation capacity and grossly expensive thermal power options, what county governments should know over the next few years, is that you cannot distribute or sell what is not there. But better still, it would be better to focus only on areas they could deliver on. Reducing infant mortality for example, would be a good point to start from.
The writer of this article is the CEO of Bridge Africa, a Policy Think Tank.