Kenya Power and Lighting Company (KPLC) will renew two of the three KenGen’s power supply contracts that had expired, in a move that offers a financial boost to the firm which has been instrumental in the country’s shift to renewable energy.

The Power Purchase Agreements (PPA) of KenGen’s diesel-powered 60 megawatts (MW) Muhoroni gas turbine (GT) expired in April 2023 while the 45MW Olkaria1 geothermal facility expired in February 2023. By the end of this month, KenGen’s 73.5MW Kipevu 1 thermal plant contract will also lapse.

KPLC managing director (MD) Joseph Siror disclosed last month that the agreements of both Muhoroni GT and Kipevu 1 were not up for renewal to cut reliance on costly thermal power while utilising cheap power import from Ethiopia that was tapped last year.

However, in a submission at a Parliamentary Energy Committee last week, the power utility revealed that it is negotiating for renewal of Muhoroni GT and Olkaria 1 contracts, meaning only Kipevu 1 plant will be retired.

The renewal of the Olkaria 1 plant contract, which is the firm’s oldest unit, has been initiated by the government and will run for additional four years. That of Muhoroni GT will have a two-year extension.
Rehabilitated plant.

“PPA expired 28th Feb 2023. Parties to negotiate a new PPA rehabilitated plant being developed by KenGen,” KPLC said in the submission signed by Siror.
Olkaria 1 has been on a shutdown to pave the way for rehabilitation, increasing the capacity from the current 45MW to 63MW.

KenGen sold 204.4 Gigawatts-hours (GWh) of electricity to Kenya Power from the Olkaria 1 plant in the financial year ending June 2022 while that from the Muhoroni GT plant was 40GWh.

The thermal Muhoroni GT plant is the most expensive PPA, with a unit of its wholesale electricity to KPLC costing Sh58.8 according to Energy Cabinet Secretary (CS) Davies Chirchir who told the committee last week that the recent doubling of value added tax (VAT) on fuel to 16 per cent is likely to have a huge impact on the Muhoroni plant since it uses the dual-purpose Kerosene.

Other thermal power plants with active PPA contracts use crude oil which was already subjected to 16 per cent VAT before the implementation of the Finance Act 2023.

By the end of this month, the total number of PPAs that will have lapsed within the past two years will be five. This follows the expiry of Tsavo Power’s contract in September 2021 and Iberafrica Power’s in June 2023.

The expiry of Kipevu 1, if not renewed, will allow the uptake of more renewable energy from hydro, geothermal and wind in the country. For instance, KPLC will issue a contract to Orpower 22 to supply 35MW of power from its Menengai Geothermal plant in Nakuru.  

Orpower is the only private geothermal producer in Kenya, will supply wholesale power to KPLC at a rate of $0.07 (Sh9.87) per unit.