United States (US)-based firm Orpower 4 Inc. has issued an ultimatum to Kenya demanding repayment of all outstanding debts amounting to Sh6.87 billion for it to enter any fresh renegotiation to reduce the cost of wholesale power.

This is one of the three conditions that the Independent Power Producer (IPP) wants fulfilled before any deliberations over slashing its power price from the current charge of $0.11 (Sh15.8) per Kilowatt hour (kWh).

The total $47.71million (Sh6.87 billion) demanded is default payments for power supplied to Kenya Power and Lighting Company (KPLC) for the past six months since January 2023 and should ideally be settled by the National Treasury in line with the signed power purchase agreement (PPA).

The agreement requires settlement of monthly arrears within 30 days, meaning the defaults have already attracted interests and penalties payable by either KPLC or Treasury, depending on who pays first.

All PPAs have letters of support from the exchequer compelling it to take over defaults and interests accruing by the time of payment. OrPower4 Inc. also wants future payment timetables maintained going forward without any delay.

“We have heard suggestions for extension of the PPA term and future reduction in tariff,” Orpower4 says in a document to the National Assembly’s Energy Committee. The documents are signed by Lynn Alster, the legal advisor to Ormat Technologies Inc., the parent company of OrPower4 Inc.

“Assuming KPLC will be stabilised, its outstanding debt paid in full to Orpower 4 immediately.… the company management has instructed that it would be open for our team to discuss these ideas with the authorised negotiation team members,” the firm adds.

After the flop of previous attempts to renegotiate power contracts, President William Ruto’s administration is now willing to extend the duration of the contracts beyond the current 20 to 25 years in exchange for lower costs per unit of bulk power. This is expected to create a margin that will allow KPLC to subsequently reduce the electricity bills on the consumers’ end.

The third condition by OrPower4 involves compelling the power distributor to take all the power it will generate regardless of whether there is low demand or the country taps cheaper alternatives from other IPPs.

KPLC often reduces the amount of electricity taken from some IPPs through a practice called curtailment policy to maintain the balance between supply and demand. The curtailment is also common when the utility is taking more power from wind and solar, which are cheaper but not available throughout.

This leaves IPPs with other types of energy operating below their contracted capacity but still get full compensation from KPLC through capacity charges, a cost transferred to end consumers and contributes significantly to higher electricity bills.

OrPower4 Inc. is concerned that the frequent curtailment practice has ballooned its investment costs in the past three full financial years. It says it has invested over $65.3 million between 2020 and 2022 in the Olkaria III plant inclusive of ongoing operation and maintenance costs.