Businesses and households slowed down the purchase of electricity from the national grid last year, signalling flagging economic activity even as large companies gradually invest in small-scale power generation plants to cut their energy bills.
Kenya Power, the near-monopoly power distributor, sold nearly 10.32 billion kilowatt-hours (kWh) of electricity, a modest 3.12 per cent growth over 10.01 billion units in 2022, official data shows.
This came at a time when power bills shot up sharply, prompting homes and companies to buy more units to do the same work than last year.
Analysis of data collated by the Kenya National Bureau of Statistics indicates the rise in electricity sales from the grid was slowest in the post-pandemic period when forced shutdowns cut purchases by 0.88 per cent to 9.57 billion kWh.
The cost of electricity jumped by the highest margin in more than half a decade, making the essential utility among the main drivers of annual growth in prices of goods and services, technically known as inflation, last year.
Households and businesses, for instance, on average paid Sh7,447 to purchase 200kWh in January, a surge of 41.08 per cent over Sh5,278.44 in January 2023 and 70.29 per cent over Sh4,373.12 two years earlier in January 2022.
The budget burden was even heavier on low-income homes and micro traders using a maximum of 50 units of electricity monthly, with cost nearly doubling (98.16 per cent jump) to Sh1,579 on average last month from Sh796.83 in January 2022.
Waning purchase of electricity from the grid came in a year manufacturing of some key products declined compared with 2022. For instance, output of assembled vehicles fell 11.64 per cent in nine months through last September to 9,765 units, while cement production was flat, rising a measly 0.01 per cent to 7.33 million tonnes in the same period, according to KNBS data.
Electricity sales.
Photo credit: Pool
Processing of sugar plunged 40.65 per cent year-on-year to 472, 772 tonnes for 12 months ended December 2023, while soft drinks’ fell a modest 4.21 per cent to 396, 732 tonnes in nine months through last September.
Kenya has one of the costliest electricity for factories among its regional peers. Manufacturers, the biggest consumers of electricity, have, for example, estimated that on average they pay about $0.17 (Sh27) per unit. That is nearly five times more than the average $0.03 per unit in Egypt and Ethiopia, and also significantly higher than South Africa’s $0.07.
“While generation capacity and total electricity connections have increased considerably in recent years, electricity in the country remains expensive in comparison to other countries,” the Treasury wrote in the draft 2024 Budget Policy Statement (BPS). “To reduce electricity prices, the government has introduced a myriad of interventions to provide relief for electricity consumers while at the same time ensuring the long-term viability and sustainability of the energy sector.”
Some of the interventions to support President Willaim Ruto’s Bottom-Up Economic Transformation Agenda, the Treasury says, are Renewable Energy Feed-in Tariffs (REFIT), increased investment in geothermal energy, rural electrification, and engagement of independent power producers in line with Renewable Energy Auction Policy.
The Ruto administration also lifted a Uhuru Kenyatta-era ban on power purchase agreements, allowing Kenya Power to continue signing deals with private sector players to buy generated electricity.
Average cost of 50 units of power (Sh)
Photo credit: KNBS
The government dropped the 15 per cent cushion on power bills by the Kenyatta regime at the end of December 2022, three months after taking power.
The Energy and Petroleum Regulatory Authority (Epra) followed that up with an increase in base electricity costs from April 2023, the first review since 2018.
It raised the base tariff for households consuming over 100 kWh by 13.72 per cent to Sh31.75 per unit, while the charge for those buying 30-100 units went up 18.69 per cent to Sh26.10 per unit.
Besides the base charges, the power bills are also largely impacted by surcharges. These are largely fuel cost charges (FCC) remitted to power producers who burn diesel to generate electricity and the foreign exchange rate fluctuation adjustment (Ferfa) which helps Kenya Power cover repayment of foreign loans and power purchase costs in tandem with the shilling-dollar exchange rate.
The high cost of electricity has seen several large firms, including manufacturing firms, reduce reliance on the national grid by investing in small-scale electricity generation plants for internal use by tapping solar, while others are turning to captive power — waste heat which is a byproduct of machine operations.
Some of the large consumers that have either invested or announced to invest in mini-grids include Devki, Bamburi, East African Breweries Plc, Carbacid Investments, Africa Logistics Properties, M-Pesa Foundation Academy, and Kenchic.
The firms have cited the need to improve stability in power supply and cut electricity bills as the main factors pushing them to invest in their own generation plants and reduce reliance on the national grid.
“Our power costs are overly expensive on average than other countries that we are competing with. One of the major reasons is the arrangements that the Government of Kenya got into a long time ago in terms of thermal or emergency power,” Kenya Association of Manufacturers chief executive Antony Mwangi said in an earlier interview.
