Friday, 20 July 2018

Why electricity costs will remain high in Kenya

Men at work: KPLC employees
 The cost of power in Kenya is unlikely to come down any time soon. And this places Kenya Power and Lighting Company between a rock and a hard place.
And it is likely to remain sandwiched in that unenviable position for a long time. The bone of contention with its customers is high electricity cost.

This is a paradox: Kenyans are protesting high electricity bills at a time when more Green energy is coming live on the national grid in droves.
The total combined output of Hydro and geothermal power is expected to rise to 2,339.9 MW in a country whose peak demand is 1775 MW. So where is the problem?

Is it taxes, corruption, inefficiency, or the billing policy?

 It could be a bit of all these plus the Power Purchase Agreements signed with thermal energy producers. The IPPs signed a 20 year Power Purchase Agreements with KPLC. Three of the IPPs with a total capacity of 225MW  have relatively new PPAs, being less than 10 years old. In the contracts, there is a clause that requires KPLC to pay for idle capacity. That means the power consumers will still pay for it through enhanced bills.
 The PPAs were not a scam as many would like us to believe. The intention of signing the PPAs was good: Hydro generation was lagging behind demand resulting in frequent blackouts. During droughts, the bad situation aggravated, hence the need for emergency power producers.  Green technologies such as Windpower were unknown in these parts of the world then, and Geothermal was taking ages to develop.
 That is how and why thermal power producers came into being. But they are expensive because they use diesel which is expensive. Last year, they were paid a whopping US$22 million out of KPLC’s total income of US$90million. This was a 174 percent increase over the previous year when they pocketed US$12million.
 This is why the government is now calling for a change in billing policy for fossil fuels generators so that all billing is in Kenya shillings in a bid to lower electricity prices.
A Hydro dam in Kenya
But will the change in pricing policy significantly reduce electricity bills in the country? Perhaps they will reduce the fuel charge or even eliminate it. But idle capacity will still be paid for. That is why cheap power may not be coming into the foreseeable future.  
Apart from the two Diesel Power Plants owned by Ken-Gen, the rest are foreign-owned. Rabai power with a capacity of 90 MW is owned by a consortium of German and British companies. Thika power plant, with a capacity of 87 MW is also foreign owned and so is Tsavo power plant with a capacity of 75MW. This means that all these will be billing KPLC in foreign currency.
Kenya's electricity generating capacity is broken under; Hydro 821MW; Geothermal 700MW; Thermal 466MW; and Wind 25.5 MW. Wind power’s capacity is set to rise to 336 MW come September when Lake Turkana wind power is expected to come of stream. It will add 310 MW into the national grid raising the share of wind to 336 MW or 13 percent of the total generating capacity which in turn, will rise to 2650MW.
 This increase will lower the percentage shares of each source as follows; Hydro 32 percent, Geothermal 27 percent, wind 13 percent, Fossil fuels 18 percent.  Thermal generators may be grounded once wind power comes live. But they will have to be paid for idle capacity. Whether the decline in electricity costs will be sufficient to make our manufacturing sector competitive and assuage the domestic consumer remains to be seen.
This is what places KPLC between a rock and a hard place. The entry of new technologies such wind in the energy sector and the rapid growth of geothermal power have left KPLC –and by extension the electricity consumer-stuck with contracts they do not need. Therefore somebody has to foot the bill.
Ol karia Geothermal Station

KPLC’s power mix comprises of geothermal 47 percent Geothermal; hydro 39 percent; Thermal 13 percent in 2018. Wind power forms only one percent of its purchases until Lake Turkana wind power comes live. That will change the equation pushing Thermal further down.
The geothermal capacity has risen to 700 MW  catapulting Kenya to the top perch in Africa and ninth globally in geothermal power generating capacity.

Wind and geothermal are rapidly growing as sources of power generation in the country.
More Geothermal capacity is expected next year as Ken-Gen, the power producer in the country, completes its Olkaria VI Power plant. The plant is expected to bring in another 160MW making Thermal power irrelevant. The question then  becomes how to decommission the Diesel plants.

Both wind power and geothermal generation have attracted the private sector. In fact, the largest output in wind generation is driven by the private sector. Geothermal and wind are preferable energy sources due to low emissions compared to thermal sources. They are fast to build and commission and also cheaper compared to thermal power when used as an alternative to mitigate depressed hydro power generation due to drought.
Kenya has a target of 5GW geothermal capacity by the year 2030. Wind power capacity is said to be around 3GW which means the current capacity is just scraping the surface. And the private sector is warming up to these sectors. So far three companies are in the early stages of investing in geothermal generation.
They include; Quantum power, Sosian Power and Or4 which have been contracted to generate a total of 105 MW from Menengai fields owned by Geothermal Development Corporation, a state-owned enterprise.  There is also a proposed wind power plants in Lamu and Kipeto in Kajiado County.
The country will soon produce almost sufficient power to meet domestic demand from green energy sources with some capacity to spare. Will KenGen cut its production of Hydropower since it is the only source of power that can be stored?
Whatever action is taken, Kenya is stuck with expensive idle capacity in power generation. And the Kenyan consumer will have to bear the cost of honouring the PPA Contracts. We have become victims of rapid technology development which is rendering expensive power generation obsolete.

Tuesday, 3 July 2018

Kenya's economy headed for 6.0 percent growth this year

The PMI index up to may this year
The Kenyan economy is expected to hit 6.0 per cent growth this year, analysts say. The economy has posted a robust growth in the first quarter which is expected to continue in the second quarter. National GDP growth is expected to accelerate in the second -half of this year A Flurry of reviews on the Kenyan economy project an economy on the go.
Data on the first quarter review by KNBs shows that the economy posted a strong growth, in the region of 5.5-5.8 per cent. And the players in the private sector expect good tidings this year, says a survey by Central Bank of Kenya.
The barometer of industrial activity, the Purchasing Manager's Index (PMI) has been on the growth trajectory since last October when it hit rock bottom at 34.4. It closed last month at 55.1 down from the previous month’s 56.1. The April level was the highest in 16 months.
The PMI is a composite measure of economic performance month-on-month covering 400 firms in Kenya’s private sector. It measures weighted change in such variables as; New Orders which is weighted at  0.3, Output at 0.25, Employment at  0.2, Suppliers’ Delivery Times at  0.15, Stock of Items Purchased at  0.1 A reading above 50 shows growth in economic activity while a reading below 50 projects a decline.
The PMI does not project the future but its survey found some latent demand, an indication that the growth trajectory is here to stay. Even then, analysts say, that it points to a robust growth this year.
This has analysts, including the Central Bank of Kenya, see the economy posting a 6.2 growth this year. Going by the pace of the first quarter, analysts expect the economy to raise the tempo in the second half. The long rains were good and well distributed and this is expected to buoy agriculture output going forward. The sector grew by 5.1 percent in the first quarter. Consequently, many agree with the CBK that the economy could touch 6 percent.
 The turnaround has been caused by many factors, among them; good long rains, the end of prolonged political bickering, following swearing of President Kenyatta for his second term.  The handshake on March 9th removed major risk factor in the economy –Raila Odinga’s militancy and the risk of frequent riots and violence. This opened the purse-strings both in Kenya and overseas resulting in a rise in domestic and foreign demand for local goods.
These factors will be strengthened by low power bills that will become effective next week. The cost of electricity is likely to go down further once the 310MW Lake Turkana wind power comes on stream in September.
 The Windpower will raise the total generating capacity from renewable energy sources to 1967 MW which is 74 percent of the 2650 MW capacity. The availability of all these cheap sources is expected to lower demand for fossil fuels generated energy and lower prices.
But the goose that lays the golden egg is the agriculture sector. Expert reports show that Agriculture in generates 24 percent of the GDP directly, that is $18 billion at the current GDP estimated at US$75 billion. It also contributes another 27 percent indirectly to the GDP that is $20.25 billion.  In effect, the sector contributes, both directly and indirectly half of the national wealth that is, $39 billion.
 The sector produces 62 percent of our exports, employs 40 percent of the entire labour force and 70 percent of the rural folk. It also generates an estimated 45 percent of Government revenue. The sector also produces over 75% of industrial raw materials and more than 50% of the export earnings. The National Statistics Office says that the sector grew by 5.1 percent in the first quarter. And given the good rains in the second quarter, the sector is expected to drive robust growth this year.
 Experts say there is a positive correlation between productivity in the agricultural sector and other sectors. It thus drags others sectors out of the doldrums.
Given the conducive environment, all analysts expect the economic growth to accelerate in the second half. In January, all analysts including the projected a growth above five percent. The Economist Intelligence Unit, for instance, projects a growth of 5.3 percent this year which is in the range of projections by other analysts whose projection range from 5.7 to 6.2 percent. 
However, the favourable environment is likely to push the growth further, perhaps to six percent.
The ongoing construction of mega projects
is said to be one of the sectors driving growth in Kenya.  The expected turn around in the Kingpin of the economy, “agriculture supported by good rains, and an upturn in investment should bump up growth this year,” says the Economics Focus group, a view supported by the AFDB in its Kenya’s outlook which projects a 5.6 percent growth rate this year.

It expects the services sector to continue leading the growth because, Kenya is the hub of ICT, Financial and logistics services in East Africa. It states that the continued investment in Rail and roads and the construction of the second runway at Jomo Kenyatta International airport will be a shot in the arm for economic performance this year. The start of direct flights from Nairobi to New York expected in October is expected to open new markets for Kenyan produce in the US. Macadamia nuts are said to be pushing ahead with an export of US$52 million last year up from $72,000 ten years ago,