Taskforce starts probe on power purchase deals

The government has stopped the renewal of any Power Purchase Agreements.

In Summary

•The 15-member taskforce appointed by President Uhuru Kenyatta, effective March 29.

•It is mandated to undertake a comprehensive review and analysis of the Power Purchase Agreements (PPAs) entered into by Kenya Power.

John Ngumi, chairman taskforce on the review of power purchase agreements/FILE
John Ngumi, chairman taskforce on the review of power purchase agreements/FILE

A presidential taskforce reviewing power purchase agreements is seeking public and stakeholder input, as it starts to probe Kenya's power deals.

Industry players and individuals have until May 28, to give their input on what will shape the future of power deals in the country.

Currently,  exorbitant agreements are said to be crippling loss-making  firm–Kenya Power.

The 15-member taskforce appointed by President Uhuru Kenyatta on March 29, is tasked with undertaking a comprehensive review and analysis of the Power Purchase Agreements (PPAs) entered into by Kenya Power.

These involves Independent Power Producers (IPPs) whose foreign currency-denominated agreements have seen Kenya power pay 15 times more for a unit of electricity, than that of Kenya Electricity Generating Company (KenGen).

While KenGen’s hydropower can go for as low as Sh2.4 per kilowatt hour, with geothermal averaging Sh9 per kilowatt hour, according to the Energy and Petroleum Regulatory Authority data, some IPPs are charging Kenys Power up to Sh18 per kilowatt hour.

This is mainly on thermal generation. The government has since stopped the renewal of any PPAs.

The John Ngumi chaired team is looking into the compliance of the PPAs and all associated agreements with all applicable government policies, legislation and regulation.

It is tasked with reviewing the sustainability and viability of all independent power generation projects that have been proposed, under implementation, or in operation.

A further review of the allocation of risk between the independent power producers and KPLC under the PPAs will be undertaken, and that of the "take-or-pay" approach applied under the PPA structure.

Here, Kenya power is forced to pay for any electricity generated by the IPPs whether it is injected into the national grid or not.

“The current take-or-pay pricing model for Power Purchase Agreements factors in fixed capacity charges or deemed energy generation have been unfavourable to our business in the absence of anticipated demand growth,” Kenya Power notes in the financial statement for the year ended June 30, 2020.

The task force is expected to recommend a viable "pay-when-taken" (merchant plant) approach, or any other viable payment structure.

It will develop “a suitable strategy for engagement with the independent power producers and lenders , in order to achieve relief for electricity consumers and ensure the long-term viability and sustainability of the energy sector.”

With an initial six months term, the task force will also review the current methods for sourcing of IPPs and recommend appropriate alternative sourcing frameworks including energy actions, legislative , regulatory , policy or administrative interventions for the implementation of its report.

“The task force calls on all key stakeholders and members of the public to provide input on these and related issues by way of written memoranda,” Ngumi said in a public notice yesterday.

The former Kenya Pipeline chairman is also the chairman of the Industrial and Commercial Development Corporation–responsible for the management of the State’s investments in ports, rail and pipeline services.

The move puts about 27 Independent Power Producers (IPPs) on the radar in what is seen as a strategy by government to lockout expensive thermal power generators, some having contracts running up to 2032.

In 2018, Kenya Power spent Sh14.8 billion on only six IPPs.

The government has been keen to cut uptake of power from the IPPs, some of them being wealthy Kenyans and former state officials mainly in the energy ministry, with some still in government.

According to Energy CS Charles Keter , expiring licenses will not be renewed, as focus shifts to renewable energy to help cut the cost of electricity in the country.

First on the line was Iberafrica Power Plant whose 56MW contract expired in October 2019.

Others facing a shut down are Tsavo Power’s (74MW) whose license expires this September and 60MW-Kipevu Diesel whose contract ends in July 2023.

The biggest independent beneficiaries include Tsavo Power, Iberafrica Power, Gulf Power, Thika Power, Triumph, Rabai Power and Aggreko, all of which are now facing the cut-out.

In the wake of the pandemic, which affected power uptake, Kenya Power was forced to invoke ‘Force Majeure’ clauses in accordance with respective PPAs between the company and generators.

This is a common clause in agreements, covering unforeseeable circumstances that prevent someone from fulfilling a contract.

Management said the move was with a view of sharing the “arising cost burden due to drastic reduction in power demand caused by the pandemic.”