Why you will pay more for electricity following EPRA's review

The cost of electricity is set to go up this month following a hike in the foreign exchange component of the electricity bill.

This is despite the shilling remaining stable against major global currencies for the last year.

In a public notice Friday, the Energy and Petroleum Regulatory Authority (Epra) increased the Foreign Exchange Rate Fluctuation Adjustment (Ferfa) to Sh1.014 per unit of electricity consumed over December.

It represents an increase of about 150 per cent from 69 cents in November. 

This is even as it lowered the Fuel Cost Charge (FCC) to Sh3.57 per unit from Sh3.72 in November. The drop was, however, not enough to offset the increase in the forex rate.

However, the overall increase in the cost of electricity is marginal, with consumers using over 100 units per month expected to pay about Sh28.8 per unit this month from Sh28.5 per unit in November.  

The forex charge cushions power sector players from currency volatility when repaying loans denominated in foreign currency or acquiring equipment.

The shilling has been stable when trading against the US dollar, resulting in a consistent decline of Ferfa.

The forex component had reached a high of Sh6.85 per unit in January this year as the shilling deteriorated and hit historical lows of Sh160 to the dollar. The shilling has, however, been stable and traded at about Sh130 to the dollar in recent months. 

Through Fuel Cost Charge, which is another variable component of the power bill,  consumers compensate thermal power producers for the costs they incur in acquiring heavy fuel oil that they use to generate electricity.

This cost goes up or down every month depending on how much thermal power is injected into the national electricity grid.

This is even as a consumer lobby raised concerns about the sustained high fuel cost charge. The charge fell from Sh4.33 in January to the current Sh3.57 per unit, but observers note this should have been more due to the heavy rains experienced this year, particularly between March and May.

Heavy rains usually result in increased hydropower generation, which ordinarily displaces expensive power from thermal power plants from the national electricity grid. 

Electricity Consumers Society of Kenya (Eclos) Executive Director Isaac Ndereva claimed that there is little goodwill in reducing the amount of electricity generated by thermal power producers despite the country having adequate supply from cheaper renewable energy sources.

The thermal power plants, which burn heavy fuel oil to generate electricity, tend to sell their electricity  at higher rates compared to plants that use sources such as geothermal and hydro, with the extra cost largely going to the purchase of the fuel oil. 

Eng Ndereva noted that efforts to feed the coastal region with cheap power from geothermal have always been slowed down due to delays in the completion and operationalisation of transmission infrastructure. The result is that the coast always relies on thermal power plants to meet electricity demand. 

“What really ails us is the coast region. We do not have adequate transmission lines that would take power generated at geothermal power plants to the region. There were plans for electricity transmission lines that were supposed to land at Mariakani for cheap power to be distributed in the area. This has never been achieved,” said Mr Ndereva, who was discussing issues surrounding the cost of power in the county on Speice FM’s popular breakfast show, the Situation Room. 

The coastal region has always relied on Kipevu I, II, and III owned by KenGen as well as privately owned Rabai power plants, all of them thermal, for stable power supply.

Kipevu I and II were, however, retired following the expiry of their Power Purchase Agreements (PPAs), which have seen the other two plants have to push more power to the grid.

Mr Ndereva noted that the two thermal plants Kipevu III and Rabai take 74 per cent of the money raised through the FCC at about Sh1.3 per month.