Lawmakers have revived a push to compel big power producers to lower the wholesale prices at which they sell electricity to Kenya Power in a bid to ease the pressure on consumers. This comes amid questions over the viability of the quest.
The Energy Committee of the National Assembly directed the Cabinet Secretary for Energy and Petroleum, Opiyo Wandayi, to develop a policy to guide the government’s plan to renegotiate with major power producers.
A reduction in the wholesale prices is key to affording Kenya Power legroom to lower the cost of electricity on consumers, without sinking into losses in its electricity sales.
“The Cabinet Secretary for Energy and Petroleum shall, within twelve (12) months of the adoption of this Report, revise the Policy to provide a clear framework for least-cost power procurement, periodic review of Power Purchase Agreements, and competitive procurement of electricity generation,” the committee says in the report tabled on June 2.
“The framework shall promote transparency, affordability, and value for money, while supporting the Government’s ongoing efforts to reduce the cost of electricity through the renegotiation of legacy PPAs, without compromising security of supply, contractual obligations, or investor confidence.”
However, there are questions on the viability of the directive from lawmakers, given that the existing Power Purchase Agreements (PPAs) are legally binding and any forced review could trigger lawsuits against the government.
Electricity prices have dropped in the past 12 months, a momentum that the government is keen to sustain and ease public outrage over the cost of living, ahead of the General Elections next year.
For example, 200 kilowatt-hours (kWh) cost an average of Sh5,476.34 last month compared to Sh5,738.52 a year ago, according to official data.
In the past, big independent power producers (IPPs) have rejected the government’s push to unilaterally lower the wholesale tariffs, saying any review would hit their books.
The government had in 2022 attempted to unilaterally force the IPPs to lower their wholesale tariffs in a bid to allow Kenya Power to reduce electricity prices by 15 percent. However, IPPs rejected the attempts.
Major IPPs like Lake Turkana Wind Power (LTWP) ruled out renegotiation of the wholesale prices, saying this would significantly hit their earnings.
Early this year, the American-owned Ormat Technologies echoed LTWP’s sentiments, highlighting the herculean task facing the government in its quest to lower the wholesale tariffs of electricity.
“In addition, KPLC recently requested more favourable rates on its existing PPAs with it. Any change in KPLC’s financial condition or the terms of our agreement with KPLC, may adversely affect us,” Ormat said early this year when it released its latest financial report.
LTWP is the third biggest supplier of electricity to the national grid, accounting for 10 percent of the total electricity that Kenya Power buys annually while Ormat is the second biggest source of geothermal electricity.
Parliament’s move to lower the wholesale prices of electricity comes less than a month after the government froze a proposed review of retail tariffs amid fears that the review could have triggered a public backlash and further driven up the cost of living.
The government cited the need to contain the soaring cost of living as key in the decision to halt the plan to review electricity prices. The new tariffs were to come into force from the start of this month.
