Commerce

Ministry wants cost of power cut by half to boost industry

Friday, August 5th, 2022 04:15 | By
Ministry wants cost of power cut by half to boost industry

Kenya needs to reduce the cost of electricity by at least 50 per cent to realise its industrialisation ambitions and encourage the uptake of clean energy, the Ministry of Energy has said in a draft Kenya Energy Sector White Paper.

“The cost of energy remains the biggest cross-cutting challenge to universal access, uptake, and per capita consumption in Kenya,” said the ministry in the white paper released on Friday.

Compared to other emerging economies, Kenya’s commercial energy costs are high at 16 US cents kWh. This is more than twice the average price of 1 kWh in South Africa, Vietnam, and China. Household rates are as high as 18 USD cents/kWh.

This would mean a reduction of household electricity costs to at least 9 US cents/kWh by 2040.

Power producers

The government in March reduced power prices by 15 per cent but failed to implement the second 15 per cent cut as promised by President Uhuru Kenyatta due to lobbying by Independent Power Producers (IPPs).

The three major cost drivers of the electricity pricing structure are Base tariffs at 50 per cent (12 USD cents/kWh) of the total cost, followed by Fuel Cost Charge at 22 per cent and VAT at 13 per cent. 

In analysing the base tariff, the key cost contributors include Non-fuel Cost of Power Purchase that accounts for over 50 per cent (5 US cents/kWh), transmission and distribution at 36 per cent (3 US cents/kWh), and system losses at 16 per cent (2 US cents/kWh). 

A target reduction of at least 50 per cent would drive down Kenya’s electricity costs to 9 US cents/kWh.

Critical to reducing energy costs is the reduction in base tariffs and fuel cost charges (FCC), as this will account for 85 per cent of the targeted reduction in average consumer tariffs. 

A reduction in energy costs will require a multi-pronged intervention focused on each of the cost drivers but a reduction in base tariffs and FCC represents the biggest opportunity for effecting change. 

The ministry expects base tariffs to decrease by 44 per cent which will account for 50 per cent of the total reduction in consumer tariffs.

 Kenya has the fourth highest power tariffs in Africa according to globalpetroleumprices.com.

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