How too much energy generation short-circuited Kenya Power

Sometimes in 2013, a plan was hatched to raise Kenya’s installed generation capacity to 6,762 megawatts in just 40 months.

As to who would consume the power and whether the ultimate goal would end up with cheaper electricity to consumers, was not given much thought and seven years later, the scheme has short circuited Kenya’s single off-taker for electricity-Kenya Power

The Jubilee Administration’s plans to add 5,000MW to the country’s electricity generation was one of the most criticised ambitions but it pushed on anyway.

The argument then was that Kenya was going to grow industries, have an electric train on the standard gauge railway line, build resort cities and establish several special economic zones with huge demand for power.

With the ambitious projections in place, the government went on a deal signing spree, bringing on board independent power producers, breaking ground for mega generation projects triggering trouble for it’s distributor, which is now stuck in a revenue and debt quagmire.

Kenya Power, which then had just 2.3 million customers, was pushed to hook more households to the grid, starting with every primary school. Lines expanded and customer numbers hit a high of 7.5 million as at June 2020.

The grid grew by over 20,000 kilometres, equivalent to building a line from Cairo to the bottom of the continent in Cape Town and back. The number of substations almost doubled and with that expansion, close to Sh200 billion was sunk.

Demand growth

By last month, Kenya had an installed capacity of 2,791.2MW and an effective generation capacity of 2,712.9MW and Kenya Power which is expected to take up the electricity and sell it has been struggling. Missing demand growth has come to haunt the 2013 ambition and the off-taker has been choked.

Power purchase agreements that are signed before generators start roaring compel Kenya Power to pay for the energy generated even if it has nowhere to sell it. The clauses known as take-or-pay in the PPAs make a sweet coating to the deals while seeking for financing and are at the centre of driving the pain of excess generation.

In the year to June 2020 alone, data shows that Kenya Power bought 11,462 gigawatt-hours (GWh) and managed to sell just 8,773GWh.

The excess power was still paid for either way and although Covid-19 may have added to the woes, analysts blame the underlining miscalculation that failed to link increased supply with real demand for the woes now bedevilling the utility firm.

“For every megawatt generated from a plant, you need 20 times in demand but Kenya missed that widely. It’s like hiring an expensive car which you are required to pay for per day and then failing to travel or just making short trips around the town. You will still pay the renting fees anyway. Another person who hires a smaller car, pays smaller rent fees and travels a longer distance gets value for money,” energy expert Jabal Hindapal told Smart Business.

Several confidential documents shared among energy stakeholders including the regulator, the Ministry of Energy and Kenya Power show that the government failed in the demand projection, which had been pegged on projects such as an electric train that never materialised and given that the deals to generate power were already signed, the elephant in the room is far from the exit.

Projections show that the total energy purchased is expected to grow by approximately 2.3 percent this year which is much lower compared to the historical 10-year average of 5.9 percent.

The prevailing economic conditions, which have constrained household income, increased grid defections which will continue hurting supply and improved cost of solar which is pushing many to the off -grid solutions are part of the reasons demand will remain depressed.

By 2026, the Energy and Petroleum Regulatory Authority, says demand supply gap is expected to rise from a deficit of 104MW in 2019 to 923MW, against the slow growth in peak demand from the current 1,926MW in 2019 to 2,766.

This will worsen matters for Kenya Power which will have to pay for the excess capacity and whose infrastructure remain underutilised from poor growth in demand after expanding the network over the years.

Generators who supply Kenya Power with electricity it is unable to sell, say they are not to blame since they only entered into energy provision deals after the government projected that the economy would need the huge levels of power they were asked to produce.

The Electricity Sector Association of Kenya (ESAK) which brings together independent power producers (IPPs), project developers and other stakeholders working across generation, transmission in Kenya says the government would have had a better projection on demand before it went on PPA signings which essentially tie both the power business no matter the situation.

Generate power

ESAK board member and solar firm, SOWITEC managing director George Aluru said the take-or-pay deals the generators signed with Kenya Power also compel producers to pay the utility firm when they fail to generate power hence it ‘cuts both ways.’

“One would expect that demand forecasting is best done by the government and which then informs Kenya Power on what level of commitment to make with the generators over a defined period of time because the government has more role to play in determining demand. Power generation is capital-intensive and takes time as well so probably it would have been worse had we been talking about deficits. The secret now though lies on how to increase demand,” Mr Aluru said.

Demand according to him should be able to meet projections the government had when it had envisioned the generation including the special economic zones, the industrial parks and the smart cities such Konza.

The government plan to generate over 5000MW in four years also pushed Kenya Power into short-term debt to finance its infrastructure expansion to be ready to distribute what is generated.

The firm’s debt stock has hit Sh102.6 billion and is required to meet a yearly debt service obligation of Sh2.4 billion. Kenya Power can hardly pay for the electricity supplied to it by the generators including the Kenya Electricity Generating Company (KenGen) which it now owes some Sh23.7 billion (some of which continue to accrue interest).

The off-taker spent some Sh123.2 billion in connecting more customers to the grid as the government sought to have more households supplied with electricity especially before the last General Elections.

To add insult to injury, the majority of ew connections involved those in rural areas where demand is low while the cost of maintenance is very high due to the extensive distribution lines.

The latest survey by the Kenya National Bureau of Statistics shows that revenues from rural electrification continue to decline even as the number of households connected rose.

“The number of customers connected under the rural electrification programme expanded by 5.8 percent to 1,409,256 in 2018/19 from 1,332,209 in the 2017/18, mainly drawn from domestic and small commercial categories. However, revenue realised declined by 9.1 percent from Sh11.84 billion in 2017/18 to Sh10.77 billion in 2018/19,” said the KNBS in the 2020 Economic Survey.

  77,047 customers

The report essentially shows that Kenya Power connected 77,047 more customers in rural areas during the year but collected Sh1.07 billion less.

Some rural and urban poor who are unable to meet the power costs resort to illegal connections that bypass the meters whenever they are disconnected for failing to purchase top ups-increasing non-technical losses for Kenya Power.

While the overall goal of the ambitious 2013 plan was to make power available and reduce the cost to consumers, it worked in reverse. Increasing technical losses due to underutilised infrastructure is now set to cost consumers some Sh6 billion every year as the government adjusted recoverable losses from 14.9 percent to 15.9 percent.

The government also left a huge transmission gap despite channeling lots of efforts to the generation, which essentially meant Kenya Power would not receive the energy it has signed to pay for due to lack of transmission lines.

On a live television debate on Thursday, Kenya Electricity Transmission Company Managing Director Fernandes Barasa said the Sh18 billion Olkaria-Lessos-Kisumu transmission line would now wait until 2021.

The project has been delayed for years and after a lengthy wayleave row with the Kedong Ranch management and owners of another parcel of land in Kisumu’s Mambo Leo, the ministry of Energy had estimated its completion date to be September 2020.

January was the sixth change of timeline for the project whose delay has starved western Kenya of adequate power supply from the cheaper geothermal power from Olkaria, resulting in a suppressed demand and denying Kenya power and opportunity to sell electricity.

The 300-kilometre Olkaria-Lessos-Kisumu line runs from Naivasha steam fields through Eldoret to the lakeside city of Kisumu and is expected to spur industrial growth in western parts of the country as well as stabilise supply in the region now reliant on the diesel run generator at Muhoroni and imports from Uganda.

The line was originally expected to be completed in February 2018, then it was pushed forward by a year to early 2019 due to funding and wayleave hurdles. By May 2019, the project was said to have been 80 percent complete as KETRACO changed its timeline to March 2020 and later to July 2020.

Western Kenya and parts of Nyanza homes and businesses experience frequent power outages due to reliance on the 65MW kerosene powered generator in Muhoroni.

The Japanese funded project (through JICA) comprising a 400, 220 and 132KV network has been the missing link between the region and the idle power at Olkaria.

Power demand

Western Kenya and the North Rift in 2018 recorded almost a double increase in power demand. South Nyanza in particular doubled its electricity demand for the domestic load from 51-Gigawatt hours (GWh) to 106GWh. Similar increases were recorded in the small commercial load (34-54GWh) and the large commercial and industrial load(35-49GWh).

More transmission lines would also give Kenya an opportunity to export power to other countries that may need it including South Africa whose deficit is now nearing 2000MW.

The lessons are yet to sink though if recent plans by the government are to go by. The Nuclear Power and Energy Agency last week submitted impact studies for a Sh500 billion power plant which is set to generate another 1000MW by 2035.

NuPEA said it was assessing technologies “to identify the ideal reactor for the country,” it said in the report submitted to the National Environmental Management Authority.

A 2000MW coal power plant was also recently frozen in court after the government pushed forward with the plan despite environmental concerns.

The continued drive to generate power without plans on how to sell it is expected to drive Kenya Power to the edge and with it, an entire economic engine since struggling Kenya power will not even be able to keep its customers on supply let alone meet new connections.

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