Ministry Wants Reduced Cost of Power to Boost Industry

Kenya needs to reduce the cost of electricity by at least 50 percent to realise its industrialisation ambitions and encourage the uptake of clean energy, the Ministry of Energy has said in a draft Kenya Energy Sector White Paper.

“The cost of energy remains the biggest cross-cutting challenge to universal access, uptake, and per capita consumption in Kenya,” said the Ministry in the White Paper released on Friday.

Compared to other emerging economies, Kenya’s commercial energy costs are high at 16 US cents kWh. This is more than twice the average price of 1 kWh in South Africa, Vietnam, and China. Household rates are as high as 18 USD cents/kWh.

This would mean a reduction of household electricity costs to at least 9 US cents/kWh by 2040.

In March the government reduced power prices by 15 percent but failed to implement the second 15 percent cut as promised by President Uhuru Kenyatta due to lobbying by Independent Power Producers (IPPs).

The three major cost drivers of the electricity pricing structure are Base tariffs at 50 percent (12 USD cents/kWh) of the total cost, followed by Fuel Cost Charge (FCC) at 22 percent and Value Added Tax at 13 percent. 

Analysing the base tariff, the key cost contributors include Non-fuel Cost of Power Purchase that accounts for over 50 percent (5 US cents/kWh), transmission and distribution at 36 percent (3 US cents/kWh), and system losses at 16 per cent (2 US cents/kWh). 

A target reduction of at least 50 per cent would drive down Kenya’s electricity costs to 9 US cents/kWh.

Critical to reducing energy costs is the reduction in base tariffs and fuel cost charges (FCC), as this will account for 85 per cent of the targeted reduction in average consumer tariffs. 

A reduction in energy costs will require a multi-pronged intervention focused on each of the cost drivers but a reduction in base tariffs and FCC represents the biggest opportunity for effecting change. 

The Ministry of Energy expects base tariffs to decrease by 44 percent which will account for 50 percent of the total reduction in consumer tariffs.

 According to globalpetroleumprices.com, Kenya has the fourth highest power tariffs in Africa.