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How Kenya Power paid billions to private energy companies

How Kenya Power paid billions to private energy companies
Energy Cabinet Secretary Opiyo Wandayi when he appeared before the Energy committee in the Senate. PHOTO/Kenna Claude

Kenya Power paid Ksh151.7 billion to Kenya Electricity Generating Company PLC (KenGen) and other Independent Power Producers (IPPs) in the 2023/24 financial year, Energy Cabinet Secretary Opiyo Wandayi has said.

The payment was for power consumed during the fiscal year and the idle power that was not utilised.

The highest paid IPPs between July 2022 and June 2024 were Gulf Power, which was paid Ksh4.4 billion ($34.1 million), Triumph Power Ksh6.2 billion ($48.2 million), Thika Power Ksh4.8 billion ($37.3 million), Ibeaafrica (EA) power Ksh4.21 billion ($32.6 million) while Rabai power was paid Ksh6.1 billion ($47.7 million).

During the period, KenGen plants, which include Olkaria II, IV, IAU, V and Olkaria I unit 6, were paid Ksh115.7 billion while major hydropower plants across the country were paid Ksh13.9 billion for power.

Appearing before the Senate Energy Committee, Wandayi disclosed that Kenya Power procures power from KenGen and IPPs with approvals from the Energy and Petroleum Regulatory Authority (EPRA) for the power purchase tariffs.

The power purchase tariff used to pay the power producers covers capacity charge (Capital recovery) and Energy charge (generated energy).

“The methodology for paying the public and independent power producers ensures that where a plant is not dispatched due to reduced demand, the generators are able to meet their capital recovery obligations and fixed operations and maintenance costs to ensure that the plant is available for dispatch at any given time when demand arises,” said Wandayi.

Idle capacity

Wandayi was responding to Nairobi Senator Edwin Sifuna, who had sought to know the payments being made by Kenya Power to Independent Power Producers under the take-or-pay contracts, in relation to electricity that is lost due to high idle capacity.

“What is the total amount paid by Kenya Power to Independent Power Producers over the last two financial years, including the volume of power purchased and the total cost incurred by the utility company?” posed Sifuna.

Wandayi explained to Siaya Senator Oburu Oginga led the committee that there are times when some plants may not be dispatched or utilised, yet they are required for backup to ensure reliable grid operation and continuity of power supply.

Wandayi maintained that a capacity charge is necessary to ensure that even with minimum dispatch or utilisation of the plant, the investment is paid for, including amortisation of capital costs, fixed operation and maintenance costs.

“Power capacity payments are fixed payments made to electricity providers for their available generating capacity, to ensure sufficient spare generation capacity to meet peak demand and prevent shortages,” said Wandayi.

According to the Energy CS, capacity payments are designed to incentivise investment in new power plants and ensure a reliable electricity supply by guaranteeing a return to electricity providers for their available generation capacity.

He further explained that the total fixed costs for the contracted power plants are calculated annually by the regulator and computed in the retail tariffs paid by customers and after collection by the retail entity, KPLC, payments are made to both KenGen and IPPs.

In his response to the committee, Wandayi further explained that the benefits of capacity payments in power generation compensation include guaranteed revenue, investment incentives and system reliability.

Asked about the mitigating measures in place to shield consumers from the cost of unused power, Wandayi said that there is an inclusion of a production threshold clause in the Power Purchase Agreements (PPAs), which is done by ensuring that beyond the expected cumulative generation expected per year, the customer does not pay additional costs.

Half-hourly capacity

“Contracted capacity is capped at not more than 110 per cent of the contracted capacity at the signature date on the PPA. Half-hourly capacity availability tracking and monitoring to derive the actual monthly availability,” said Wandayi.

He went on: “There is an expansion of transmission infrastructure. This is to ensure elimination of grid contingency situations arising from non-available or low capacity transmission capacity, thus necessitating the dispatch of generation for voltage support.”

In the 2022-23 financial year, Kenya Power paid a total of Ksh141.8 billion to KenGen and other IPPs for the power generated and used.

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