Two months after the Cabinet lifted a ban on new deals with Independent Power Producers (IPPs), the government is contemplating agreements longer than 25 years against Parliament’s resolution.
Officials are exploring the new Power Purchase Agreements (PPAs) they say will cut the cost of power in the country, although MPs have blamed existing long-term agreements for runaway power costs and warned the government against new deals.
The Ministry of Energy now says this may present a way out of the present bout of escalating power costs. IPPs supply 25 percent of the power off-taken by sole electricity distributor, Kenya Power, and account for 47 percent of the distributor’s power purchase costs.
Touring Paka Hills where Geothermal Development Company has drilled 14 geothermal wells generating 50 megawatts of power, Energy Principal Secretary Alex Wachira said that unlike the Menengai and Ol Karia wells where the PPAs are tenured for 25 years, the government is now looking to enter into longer PPAs to help trim the cost of evacuating geothermal power.
“This is going to be one of the areas where we are likely to give a power purchase agreement that is longer than 25 years and we are going to talk with the financing partners so that they allow us to prolong such agreements.
“That way, we can have lower cost of power and that is what is going to spur industrialisation in Kenya,” Eng. Wachira said.
Longer-tenured PPAs allow the investor to recoup their investment over a longer period. Therefore, they are expected to create more flexibility around the cost charged.
“We are looking at generating geothermal at less than $0.07 at the moment and if we prolong the power purchase agreements as we have seen with the Ol Karia I and put up power purchase agreements for 30, 40 or 45 years, then the cost of power should be much lower than what we are talking about at $0.07,” Eng. Wachira added.
Former President Uhuru Kenyatta suspended entry into new PPAs between Kenya Power and IPPs in March 2021 as he set up a taskforce, led by investment banker John Ngumi, to look into the contracts entered into to lower the cost of power.
Last month, Members of Parliament passed a motion barring the Energy ministry and Kenya Power from signing new contracts with IPPs until they complete an inquiry into the high cost of power.
Following the passage, the National Assembly Energy committee will now probe Kenya Power’s operations in relation to deals with IPPs, factors behind the cost of electricity, including over-reliance on IPPs against available renewable and other energy sources, and measures to reduce it. It will then submit a report to the House within 120 days.
Currently, the Senate Energy committee is also investigating the high cost of electricity. MPs also want the Energy ministry to engage with the IPPs to find ways of reducing the cost of power.
“The ministry and Kenya Power should develop suitable strategies for engagements with the IPPs to provide relief for electricity consumers and ensure the long-term viability and sustainability of the energy sector,” read the motion sponsored by Laikipia Woman Representative Jane Kagiri. “Kenya Power has, in the past, procured a larger quantity of power from the IPPs at a greater cost, rather than from KenGen, leading to higher cost of power”
