A year and half ago the Attorney-General, the government’s primary legal adviser, gave the go-ahead to terminate expensive power purchase agreements (PPAs) for three producers.
But they are still operating, raising questions about the latest push by officials to lower electricity prices.
In an “urgent” November 7, 2019 letter to Solicitor-General Ken Ogeto, the Energy principal secretary at the time, Joseph Njoroge, requested the AG’s legal opinion on whether PPAs could be terminated.
“The government has been exploring the feasibility of terminating PPAs with thermal generators. This is due to increased generation capacity from renewable energy sources, particularly geothermal and improved hydrology,” Dr Njoroge wrote.
“It is envisaged that having a grid predominantly fed from renewable energy sources will lead to more competitive tariffs, in addition to the attendant environmental benefits.”
Dr Njoroge sought advice on “the implications of terminating the thermal PPAs, if the same was to be effected from March 2020”.
Mr Ogeto, in May last year, gave the Ministry of Energy the go-ahead to terminate the few PPAs that had a break clause.
He advised that the 2014, 20-year PPA between Kenya Power and KenGen for the Kipevu III Diesel Generating Plant could be terminated if the government issued a 24-month notice.
“Clause 20.2 of the agreement makes provision for earlier termination in the following terms: ‘This agreement may be terminated by either party by service of a notice of twenty-four (24) months’,” he said.
“We therefore advise that the agreement can be terminated by issuance of a twenty-four months’ notice as provided for in the contract.”
Mr Ogeto also gave the same advice for the 2009, 15-year PPA between Kenya Power with KenGen for the Kipevu Diesel Generating Plant.
For the 25-year PPA between the two State entities for the Iberafrica Power (EA) Ltd plants signed on December 24, 2007, Mr Ogeto noted that the agreement allows KenGen to withdraw two units or retire the plant at any time after 10 and 15 years respectively.
Kenya Power, he said, could terminate the PPA by invoking the review provisions, which would allow them to agree on how to retire the plants.
But the government is yet to act on the advisory by invoking these break clauses and serving the notices, which would have paved the way for retiring the plants as early as next year and getting them off the power grid.
If the government invokes the exit clauses now, it would take a further two years for the thermal plants to be removed from the grid, dealing a blow to hopes for cheaper electricity for now.
To compound the misery of consumers, the three are the only PPAs for thermal power producers that can be terminated. The rest have no exit clauses and taxpayers will have to pay billions in damages if the agreements are ended.
Meanwhile, the government has formed a panel to implement proposals to review and terminate some of the PPAs signed by Kenya Power and independent power producers.
This is part of reforms aimed at restructuring the utility company and lowering the cost of power by a third by December.
But as the three power plants that use diesel to generate electricity continue to operate, they are selling some of the most expensive power to Kenyans as fuel prices are rising, hitting a record high last month.
The latest data from the Energy and Petroleum Regulatory Authority shows the Kipevu Diesel Generating Plant sold 14.41 million units of electricity to Kenya Power, Kipevu III Plant 20.7 million, and Iberafrica 5.15 million last month.
Data submitted by the Treasury to the National Assembly on Tuesday shows Kenyans shouldered Sh11.06 billion in their power bills in the year to June on the cost of fuel alone used by thermal power plants, and Sh42.86 billion on power they did not purchase, through capacity charges.
