Thursday, 11 September 2014

Kenya leads Africa in geothermal power generation

KENYA  is now the leader in geothermal power generation in Africa. Her capacity now stands at 400 MW and will  rise to 680 MW by the end of this year when KenGen, the state owned power generator commissions all 280 MW from its Ol karia wells.

 Such an increase will stamp further Kenya's position as the runaway leader in geothermal electricity generation in Africa. Since the new capacity will be used to retire the expensive thermal capacity, the cost of electricity is expected to decline by up to 47 per cent before the end of this year.

 This has raised expectations of a general price decrease come 2015. Already, the price of electricity is down 9 per cent on last month's prices following the commissioning of 140Mw geothermal power in July. The decline is expected to pick momentum after the commissioning of another 280MW of geothermal power later this month.

This will increase the supply of geothermal power to 680MW from 260MW just two months ago. Of these KenGen, the state owned power generating company owns 570MW and the rest 110 W are owned by OR power. The commissioning of the two plants will make geothermal the second largest source of power after Hydro which produces and estimated 786MW.

The government has indicated that it is targeting a 40 per cent price decline. While the 40 per cent decline may not be reached in the next two months due to technical issues, it will be felt in December, when the new geothermal capacity is expected to be fully deployed. The price of a KWH unit is expected to shrink from US$0.15 to US$0.09.
According to the World Bank, High electricity prices push the productions costs up thus also pushing up the consumer prices. Consequently, it stymies domestic demand and economic growth. Generally, Thermal power is expensive because it is driven by the price of crude oil in the world market.

Crude oil prices have remained above US$100 a barrel for hence the cost of diesel generated power is high. Thermal power is used to bridge shortfalls in hydro power which is subject to vagaries of weather.

Hydro power as a source of electricity is dwindling because the source has its limits. Rivers are not expanding to meet the growing demand. Consequently, new sources have to be brought on stream.

High prices stymie economic growth because it pushes consumer prices up and slows down domestic demand. The worst-affected industries are construction and mining and the quarrying sub-sectors which are heavy users of electric power.

Every Megawatt of Geothermal power produced, retires a megawatt of diesel powered electricity leading to price declines since fuel charge is a major component of in electricity prices. Currently for every dollar worth of expenditure on power, the cost of fossil fuel used to generate thermal power takes 35 per cent, energy consumption stands at 52.7 per cent, forex charge 5 per cent taxes take 2.7 per cent other charges take 2.8 per cent.

From this analysis, fuel index is a large contributor to power costs in the country. In fact, at 35 per cent, it is very low. Depending on the cost of crude in the world market, Fuel index sometimes rises up to 70 per cent of the total bill. Geothermal power will eliminate Fuels cost index from consumer's bills leading to low stable prices.

Low prices buoy economic activity as low prices encourage domestic demand. The low price of electricity, say economists, will be a shot in the arm for economic growth as it will push inflation down that sustaining domestic demand at high levels. Although the Economists do not expect to see a large fall in the price of manufactures this year, they expect the prices to start inching lower from the first quarter of next years.

Consequently many expect economic growth to exceed five per cent in 2015.

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