The Energy Regulatory Commission has hinted on the possibilities to denominate power purchase agreements using the Kenyan shilling in small capacities from this year.
The move aimed at reducing the cost of power on the consumer end will see foreign investors inject cash into local power generation projects using the Kenyan Shilling.This means that despite a rise or fall in the value of the dollar to the shilling the Foreign Exchange fee will not be affected.
This is opposed to foreign currency which upon fluctuation ends up hiking electricity prices.
"For instance, if the dollar moves from trading at Sh90 to Sh105 then it will translate to a 15 per cent rise in payments which is often passed to consumers," GuarantCo chief executive Samuel Chasia said.This comes five months after the regulator commissioned a study on local currency tarrif for Kenya Power Purchase Agreements.
Currently, the tariffs are denominated in US dollars, a situation that has led to consumers paying more for power.
According to the implementer's of the study- GuarantCo, use of local currency financing will lead to productive recycling of savings within a country rather than increasing the country’s external debt burden.
Chasia said use of local currency is also aimed at promoting local financing that will lead to reduction of power cost to consumers.
Consumers are currently paying Sh1.25 per kilowatt as Foreign Exchange Rate Fluctuation Adjustment fee up from Sh0.83 charged 10 years ago when the shilling was trading at Sh75.26.
This means that Kenyans are forced to pay higher power tariffs to repay mostly foreign investors who pump money in the sector when the shilling is more stable against the dollar.
In 2017, the shilling traded at an average 103.41 against the dollar.
“We are looking at a situation where we can denominate small capacities of power purchase agreements to have a component of Kenya shillings. We are hoping that this is going to be done next year where we will start with small capacities and also test and see the challenges that come with it,” Energy Regulatory Commission director general Pavel Oimeke said.
Apart from looking at lowering the cost of power for consumers, this move, if successful, will encourage locals to participate in long term infrastructure financing that attracts high returns on investments.