Inflation adjustment to keep power prices up

Inflation has over the last six months remained low, falling to 3.18 in March but has now risen to 4.28 per cent in June. [Photo: Courtesy]

A marginal decline in costs associated with thermal power producers has been eroded by a rise in charges aimed at cushioning power industry players from the high cost of buying equipment.

The fuel cost component of the monthly power bill has been reduced to Sh4.60 per unit for power to be consumed in July compared to Sh4.75 in June.

This marginal reduction will, however, be eroded by the increase in Inflation Adjustment, which the Energy Regulatory Commission (ERC) has pushed up to 52 cents per unit for the next six months starting July.

This is in comparison to 42 cents per unit charge over the last six months. Inflation adjustment, which ERC revises every six months, is aimed at cushioning power industry players from local or international inflation when acquiring materials and equipment.

Inflation has over the last six months remained low, falling to 3.18 in March but has risen over the last three months to 4.28 per cent in June.

Also up marginally is the Foreign Exchange Adjustment to Sh1.22 per unit for power consumed in July, compared to Sh1.11 in June. The component protects power industry players from volatility in the local currency when incurring expenditure denominated in foreign currency including repayment of loans.

The new charges in the power bill were gazetted by ERC Friday.

Earlier this week, ERC Director General Pavel Oimeke said in an interview that power costs would drop substantially over the next two months as the fuel cost charge further comes down. The country is heavily relying on power produced from hydropower dams and geothermal plants and less on costly thermal plants.

“There should be a sustained reduction over the next two months. By September it will have substantially come down,” he said.

Following the recent rains, the amount of power being fed to the grid from the thermal power plants has reduced from a high of 249 million kilowatt hours (KWh) at the start of this year to 138 million KWh in April, according to the latest data from the Kenya National Bureau of Statistics (KNBS).

“Hydro generation grew markedly in March 2018 supported by heavy rains that prevailed during that month and consequently led to scaling down of thermal generation...,” said KNBS.

“The growth in the generation of electricity using thermal sources slowed down from a more than two-fold increase in the first quarter of 2017 to 13.9 per cent in the period under review.”