After years of monopoly, Kenya Power now stares at blackout
Friday, December 4th, 2020
- The Kenya Power owns and operates most of the electricity transmission and distribution system in the country and sells electricity to more than 7.5 million as at end of June 2020.
- Kenya Power’s key mandate is to plan for sufficient electricity generation and transmission capacity to meet demand; build and maintain the power distribution and transmission network and retail electricity to its customers.
Constant outages and infuriating foot-dragging in restoring power. Grossly inflated electricity bills.
Taking ages to connect potential clients to the national grid. This is the sad story of Kenya Power Company.
After years of arrogance largely attributed to its monopoly, KP may as well be staring at its own long, maybe permanent, blackout.
Kenyans are no longer just contended with complaining and giving KP monikers such as “Kenya Paraffin and Candles Limited” or making jokes like Mpango Wa Candle when lights make their usual disappearing act.
Fed up with being treated shabbily and making huge losses because of KP’s inefficiencies and uneconomical cost of power, homes, companies and county governments have finally seen the light and are voting with their feet.
Add to the fact that the company is deep in debt and the future looks bleak and black for what was once one of the richest parastatals and sought after employers.
Solar is by far the biggest beneficiary of KP’s self-inflicted problems, as manufacturers, county governments and individual power consumers take steps to end their reliance on the giant electricity provider.
KP is also facing potential competition from KenGen after the Energy Act 2019 allowed the electricity generator to sell power directly to large consumers.
With enhanced efficiency by KenGen, it can easily gobble up a significant chunk of KP’s customer base who make up more than half its customer base.
Robert Kwena, a consultant based in Busia, says he is already considering switching to solar despite having been connected to the national grid just recently.
“When it drizzles, let alone rain heavily, power goes off and it may take up to three days to come back. When you go to Kenya Power offices in Busia, you find no service officer.
If it is a case of a transformer, you are told to go to Kisumu almost one and a half hours away.
I am seriously thinking of moving to solar since I need flawless access to power,” says Kwena.
Café Deli owner Obado Obadoh last week revealed that he is saving up to Sh140,000 a month after going solar.
According to Evans Magembe, an engineer with more than 15 years of experience in the energy sector, more than half of KP’s big clients have now resorted to alternative power sources, mainly solar.
“Kenya Power has realised that 54 per cent of its top clients, mainly big industries and multi-nationals like Bidco and Two Rivers Mall, are switching to solar.
These big corporates’ bills are down by 50 per cent. Kenya Power has been left in a tricky position where the firm has had to review its regulations and policies such as the net metering arrangement,” said Magembe.
The engineer foresees a scenario similar to what played out between Telkom Kenya, once the main communication entity for Kenya, and Safaricom.
He explains that if Kenya Power does not lower its electricity costs, or switch to cheaper sources of energy such as solar, then they will be out of business.
Another big consumer, Total Kenya, has connected 107 of its service stations to solar energy, making it one of the biggest firms to significantly reduce its reliance on Kenya Power.
The firm says it has installed some 3,390 solar panels and is planning to have an additional 41 stations migrate to solar energy by next year.
“The solar energy powers lights, pumps, fridges, air conditioning and coffee machines, reducing reliance on the grid,” Total Kenya said in a tweet.
The firm says the move is part of efforts to align its operations with the United Nations’ Sustainable Development Goal number 7, which focuses on provision of sustainable, affordable, reliable and modern energy for all.
“Total remains committed to the global ambition to be CO2 emissions Net Zero by 2050.
This is a step in the right direction as a broad energy major. And the solarisation of our network of stations is part of our contribution to this great objective,” the firm noted.
The energy dealer began this campaign towards the end of 2018, and for the past two years has been mounting solar panels on the rooftops of its buildings and convenience stores.
A Nairobi-based steel manufacturer, who preferred to remain anonymous, said he used to pay Sh50 million in power bills but after fixing a 1mw solar panel is now saving a significant amount of money. He is thinking of passing the benefits to his consumers.
Devolved governments are increasingly shifting to solar-powered streetlights to cut down on electricity bills.
Kiambu county is the latest to sign a Sh120 million deal with Rural Electrification and Renewable Energy Corporation (REREC), formerly Rural Electrification Authority, to install solar-powered street lights.
“We pay Kenya Power Sh10 million monthly, billed from street lights in Kiambu County.
The new partnership will save us a lot of money,” Governor James Nyoro said.
The shift to solar has been accelerated by the entry of REREC, which is working with counties to drive the adoption of renewable power.
REREC chief executive Peter Mbugua said the model would be replicated in other counties.
Laikipia County, which is investing Sh46 million in solar street lighting, says it spends Sh10,000 on electricity for one lighting mast.
Given that the county has installed 32 high-mast flood lights across the county, the maintenance cost becomes unsustainable.
“The county government will gradually phase out this expensive electricity from the national grid and direct the saved resources to other projects,” the county government says on its website.
In August, the Nyeri County government said it will install solar street lighting to reduce its electricity bills beginning this year and complete the project next year.
Homa Bay county was among the first counties to install solar street lights and spent another Sh10 millions to replace solar lights vandalised by fishermen.
“Solar panels from the first street lighting models will be installed on rooftops of the county headquarters and the assembly to generate electricity during the day,” the county said.
Mr Stephen Mutoro, the Secretary General for the Consumer Federation of Kenya (Cofek) said the organisation will oppose any moves to prevent Kenyans from accessing cheaper power from alternative sources.
“We need competition in the sector, which the new Act gives. Unless solar being produced is meant for the National Grid, they have no business regulating that but only maintain standards,” said Mutoro.
Questions abound how a monopoly like Kenya Power, got itself where it is, despite billions having been spent to power cheaper, greener and affordable power to the national grid.
KP chief executive Bernard Ngugi says the company has an historical short term loan portfolio of Sh45 billion and long term portfolio worth Sh65 billion borrowed between 2014 and 2019 to add an additional 5,000 MW to the National Grid.
Gerald Muriuki, a research analyst with Genghis Capital, an investment solutions provider in Kenya says the elephant in the room is the energy policy, which does not address the demand and supply of energy needs in the country.
Cost of power
Further, Muriuki questions the sustainability of operational efficiencies, issues that tend to increase cost of power, as it has to be passed onto customers.
“Overall, they should start with the National Energy Policy, which should be looked at afresh as there is a mismatch between demand and supply,” says Muriuki.
“The key contributor is the electrification programme involving the last mile connectivity, where the government has targeted to pre-connect everyone no matter whether it can meet the cost of installation and monthly bills,” he added.
Kenya installed energy capacity of 2,819.9 MW, against a demand of 1,944MW, as at June 2020.
Despite a surplus of 875.9 MW, electricity generator, KenGen will add an additional 83.3 MW next year with the commissioning of the Olkaria 1 Unit 6 geothermal power plant, a situation that will lead to more idle power whose production cost will be passed to the consumer.
What is the rationale of producing more power and on-boarding it to the National Grid?
“Ideally, the government should connect those who can afford, and for those who cannot, there is a cheaper way by using mini grids for areas that are not cost effective for the national grid,” he said.
Industry insiders say there is a big hole in both the customer side and another one in the supply chain side. Politics just contribute to the bigger hole draining the utility firm.
Those familiar with goings on in the sector blame the rising cost of electricity to operational inefficiencies and system losses, the latter having gone up to 23.6 per cent in June 2019, up from 21 per cent in the previous year according to latest available data.
Likening what is happening at KP to challenges that led to the collapse of Kenya Post and Telecommunication Corporation, the experts say the monopoly allowed looters to strip the utility to its core.
They say incidents of theft of electricity countrywide have seen conmen collude with staff to tap the National Grid, diverting payments into pockets of individuals. This is through system losses. The old and dilapidated infrastructure is also to blame.
Despite this being a publicly listed company, the firm still awaits political patronage to make critical decisions that affect its operations.
Experts are also wondering how KP is getting into debt and incurring heavy losses when its tariffs are based on cost analysis.
In its financial statement for the year ended June 2019, KP’s profit before tax reduced to Sh334 million down from Sh4.9 billion the previous year.
“They just have to justify the cost analysis to the [Energy and Petroleum Regulatory Authority] Epra and they are back on track. How do they make losses?” observed one expert who did not want to be named.
Dr Samwel Nyandemo, an economist and senior lecturer at University of Nairobi, suggested KP is stealing from Kenyans to seal loopholes.
“Remember they are not giving a breakdown of the tokens. This is a sign of corruption. There is a huge outcry from consumers.
Units are not commensurate with charges levelled to consumers,” said Dr Nyandemo.
“Kenyans should start looking for alternatives like solar or wind energy to push them (KP) to come to reality and charge bills at market rates,” he said.
As at June 30, 2020, the power distributor had been operating on an overdraft of Sh102.6 billion with an annual debt service obligations of Sh24 billion per year.
“That is expensive for the company and we cannot sustain it. We are now under negotiation with the World Bank and Treasury so that they can take over all these loans and give us a longer time period,” said Energy CS Charles Keter during a presentation to the Senate Standing Committee on Energy.
The utility firm is currently working with the World Bank to consolidate its short term Sh102.6 billion commercial debts into a 25-year repayment programme.
Keter says part of the reduction was due to delay in review of the retail tariff to cover the cost of electricity purchases, transmission and distribution.
However, Epra is set to meet stakeholders to discuss the tariff review on December 11 amid increasing agitation from consumers over the high cost of electricity.
Over the past few years, the contribution of renewable energy sources to the power grid has been growing significantly.
A recent United Nations Department of Economics and Social Affairs statistics indicate modern renewable sources of energy accounted for about 60 per cent of all new power-generation capacity by the year 2014.
This, and the poor reliability of the KP grid, has been a major setback for the national energy supplier.
New concepts like net metering, a regulation that was approved by Parliament to allow customers connected to the KPLC power grid to be in possession of their own solar grids, and thus pay lower power bills, have not helped matters for the energy supplier.
Many more people are likely to install solar panels so that, if for instance your electricity bill is Sh1,000, and your solar connection has generated enough energy to push back Sh800 to the grid, then you only pay Sh200.
Advancement in technology and lowering of tariffs on solar energy by almost 80 per cent have seen more businesses and individuals switch to solar.
This has forced Kenya Power to go back to the drawing board. It is expected that the firm may put together a team of engineers to review the concept, before implementing it afresh.