1.0 Our attention has been drawn to the various news articles and public statements both in the electronic and print media regarding the magnitude of electricity bills for the Month of July 2008.
2.0 The Energy Regulatory Commission is empowered under Section 6(i) of the Energy Act, 2006 to," Set, review and adjust electric power tariffs and tariff structures, and investigate tariff charge, whether or not a specific application has been made for a tariff adjustment." In line with this mandate, the Energy Regulatory Commission (ERC) announced, on 26lh June 2008, new electric power tariffs and tariff structures which took effect on 1st July 2008.
3.0 The Kenya Power and Lighting Company (KPLC) and the Kenya Electricity Generating Company (KenGen) had submitted initialed Power Purchase Agreements (PPAs) seeking a review of KenGen bulk supply tariffs with effect from 1st July 2008 to the Energy Regulatory
Commission (ERC). At the same time KPLC had submitted to the Commission, an application for an upward adjustment of retail electricity tariffs with effect from the 1st July 2008.
4.0 In reviewing, approving and announcing the new tariffs and tariff structures, the Commission was guided by the following considerations:
- Electricity tariffs had not been revised since 1999. As a result, KPLC's cash flows have continually been eroded by inflation escalation clauses embedded in the Power Purchase Agreements (PPAs) for Independent Power Producers (IPPs).
- The need to provide sufficient revenues for new power generation and distribution projects to meet rising electricity demand projected at about 7% per annum.
- A 35 MW geothermal plant by (Orpower4) an IPP which is due to be commissioned in October 2008;
- 25 MW supply from a 34 MW cogeneration plant by Mumias Sugar Co. using baggasse, due to be commissioned in January 2009;
- An additional 50MW medium speed diesel plant by Iberafrica due to be commissioned in April 2009; and,
- A 90 MW medium speed diesel plant at Mombasa by Rabai Power due to be commissioned by September 2009.
- KenGen is also working on progressively increasing hydro generation by an additional 70 MW by December 2011.
- Further, Olkaria II additional unit of 35 MW geothermal plants is being developed to come on stream by May 2010.
7.0 With these considerations, ERC announced an average overall retail tariff increase of 24%. based on average 2007/08 fuel prices and generation mix.
8.0 Fuel Cost Charge refers to the cost of fuel oil used in electric power generation in a given month. The total fuel oil cost is divided by the total units (KWh) consumed in a particular month to get Fuel Cost Charge in Kenya cents/kWh that is passed on to all consumers. The fuel cost is
determined by two main factors - Generation Mix and Fuel Oil Prices.
(i) Generation mix: This refers to the percentage contribution of various power generation sources. Kenya's power supply system is from three main sources - Hydro, Geothermal and Thermal. In Hydro generation water is used to run turbines while in Geothermal underground steam is used to run steam turbines. Thermal generation uses imported fossil fuels to run power generation engines. The higher the percentage of thermal generation, the higher the Fuel Cost Charge and vice versa. Power generation in Kenya has been predominantly hydro based, but
the percentage contribution of thermal generation has lately risen steadily from 25% of total generation in January 2008 to 37% in June 2008.
Between May and June 2008, power generation from thermal power plants rose from 175 GWh to 196 GWh, an increase of about 12% in one month. This has happened mainly due to failure of the last long rains. Most of the hydro generation is from the Tana cascade. The water
inflows at Masinga and Kamburu dams have been very low compared to Long Term Average flows.
In addition, the country is generating a substantial portion of its electrical energy from Emergency Power Plants (EPPs) which use expensive Automotive Gas Oil (AGO). The normal thermal plants use lower cost Heavy Fuel Oil (HFO). The EPPs will be gradually phased out in the next 2 years as new regular plants are commissioned.
(ii) International Oil Prices: All petroleum requirements for Kenya are supplied through importation. Therefore any increases in the international prices of petroleum products are directly reflected in consumer prices. In the fifteen months to June 2008, the international price of Murban crude oil has increased from US$ 62.1 per barrel to US134.00 per barrel, an increase of115.8%. On July 11. 2008 the price of Brent crude hit a high US$ 147 per barrel, the highest ever.
9.0 The fuel cost charge has, therefore, rapidly increased over the last several months. The fuel cost adjustments were 284, 314 and 359 cents/kWh in March, April and May 2008 respectively. In June 2008, the Fuel Cost Charge was 649 cents/kWh reflecting the increases in both thermal generation and fuel prices.
10.0 It is anticipated that Fuel Cost Charge will decline as water levels in hydro dams improves. In addition the fuel cost charge is expected to decline further as the system incorporates on-coming lower cost generation plants and the EPP units are progressively retired.
11.0 The ERC will continually play its oversight responsibilities of ensuring that costs borne by electricity consumers are prudently incurred by the industry. ERC however encourages electricity consumers to adapt energy conservation measures such as switching to energy saving bulbs and practicing prudent energy-use habits.
Eng. Kaburu Mwirichia
Director General
Energy Regulatory Commission
First Floor, Integrity Centre
Miliman/ Valley Road
P.O. BOX 42681-00100
NAIROBI
Tel: +254-20- 2847000/200
Fax:+254-20-2717603
Email:info @ erc.go.ke
Website:www.erc.ao.ke
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