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September 24, 2018

Kenya to terminate deals with independent power producers

CS Energy Charles Keter during the handing over of the report at Intercontinental Hotel in Nairobi on August 15,2018.
Photo/HEPHZIBAR BUKASU.
CS Energy Charles Keter during the handing over of the report at Intercontinental Hotel in Nairobi on August 15,2018. Photo/HEPHZIBAR BUKASU.

The Energy Ministry will terminate expensive Power Purchase Agreements (PPAs) to help bring down the cost of power, Cabinet Secretary Charles Keter said yesterday.

This, he said follows recommendations by a task force set up to review Independent Power Producers and PPAs. The team noted that ending thr contracts will help bring down electricity tariffs.

Latest Kenya Power annual report shows that there are 12 Independent Power Producers in the country, one Emergency Power Producer and three import firms with 3,029 MW of installed power capacity as at June 2017.

This is more than Kenya Electricity Generating Company- KENGENs installed capacity of 1,610 MW within the same period.

The firms are Iberafrica Power, Tsavo Power, Thika Power, BioJuole Kenya Limited, Mumias-Cogeneration and OrPower 4.

Others are Rabai Power, Imenti Tea Factory Hydro, Gikira Hydro, Triumph Power, Gulf Power, and Regen-Terem Hydro.

Most of the PPAs are foreign funded and their tariffs are denominated on the dollar which pushes up the cost of electricity.

Receiving the report, Keter said the recommendations will be implemented after pr ratification by the Cabinet.

The task-force was formed following a directive by President Uhuru Kenyatta in June 2016. It was to review all contracts between the IPPs and the government and point out the most expensive ones for termination.

“Some of these thermal power plant PPAs have financial and legal implications and we will not renew their contracts, those with a short term period to expiry will be terminated by mutual agreement between the developer and KPLC,” Keter said.

Plans are underway to adopt a local currency based tariff for PPAs to help do away with the high forex charges.

In June, the Energy Regulatory Commission said the local currency tariff will be adopted in the next 12 to 18 months. Currently consumers pay Sh1.22 per KW as foreign exchange rate fluctuation adjustment. The fee is up from Sh0.37 charged 10 years ago when the shilling was trading at Sh75.84.

Negotiations are ongoing between the Ministry of Energy and Treasury to remove double taxation on fuel cost charge.

Currently, FCC is taxed as an independent component and Value Added Tax is also imposed on it.

Other recommendations made by the task-force include introduction of renewable energy auction system for solar and wind power plants.

This will include a reduction of solar tarrif to US cents 7.49 and for wind tarrif be reduced to US cents 7.01. The investors will receive a net return of about 12.5 per cent.

Last month, ERC scrapped standing charges which was Sh150, and cut the cost of electricity from Sh17.77 per kilowatt hour to Sh16.64 cents per kilowatt, an overall reduction of six per cent.

Under the domestic Lifeline tariff, ERC said more than 3.6 million Kenya Power customers who use less than 10 units per billing cycle or over 1000 units, will now pay between 36 and 82 percent less for electricity

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