The government has lifted a temporary ban on the Power Purchase Agreements (PPAs) that had limited Kenya Power from issuing new thermal power supply deals to avert shortages linked to reduced hydropower generation.

Kenya always reverts to thermal power supplied by Independent Power Producers (IPPs) to bridge shortages caused by reduced hydropower generation during severe droughts like the current situation. 

The previous Jubilee government froze procurement of new IPPs following a taskforce report in September 2021 that recommended a review of the PPAs that have always been blamed for expensive power tariffs sold to end consumers.

The report found that some IPPs supplied power at an inflated rate of Sh23 per unit compared to just Sh0.5 charge by Kenya Electricity Generating Company (KenGen), the main supplier to Kenya Power. 

While ordering cancellation of all ongoing and incomplete power purchase agreements being negotiated with Kenya Power, retired President Uhuru Kenyatta  said future power purchase agreements with the government would have to be in line with its Least Cost Power Development Plan, which emphasises the use of renewable energy sources.

Consumers had complained of steep power bills, which are partially due to idle capacity charges that compensate power generators for electricity that is generated but never used.

With the take-or-pay clause contained in PPAs with IPPs still active, Kenya Power is currently compelled to buy the agreed amount of power regardless of need.

Power quality

 The lifting of the freeze now is aimed at allowing more investment in private power generation in the country to improve power quality and supply.

“Cabinet approved the lifting of the moratorium on Power Purchase Agreements as a way of enhancing our nation’s energy security through opening up the energy sector for continued investments,” reads an official statement by the cabinet.

The cabinet has also approved a framework for the transparent engagement of IPPs in keeping with the Renewable Energy Auction Policy. The policy allows producers to bid supply of clean energy at prevailing market prices.

New power suppliers will now get a chance to join major producers like the Lake Turkana Wind Power, Kipeto Energy Plc, and Rabai Power Ltd which currently have active power purchase agreement with Kenya Power.

Electricity cost

Last April, the government was to renegotiate existing PPAs with some 77 IPPs as part of wide-ranging reforms to keep the cost of electricity low, but the plan flopped.

“In regards to the energy sector and in particular the IPPs, a comprehensive status or annex has not been provided and there is a need for the same to be submitted for scrutiny and oversight,” the parliamentary budget office said in February 2023 in a presentation to the Vincent Musyoka-led departmental Energy Committee.

Kenya’s peak power demand has lately been increasing, hitting 2149MW last month amid reduced generation and increased economic activity.