Why diesel plants drive up cost of electricity

Parliament has been urged to protect electricity consumers from high costs.

Electricity Consumers Society of Kenya (Elcos) Executive Director, Isaac Ndereva, cited lack of transparency and consumer involvement on contracted capacity on diesel plants as reasons for the high cost of power.

Ndereva told the National Assembly Departmental Committee on Energy that new diesel plants signed on the full capacity only run at about five per cent, yet, the contracted capacity should have been 25 per cent.

Ndereva said the diesel plants include, Iberafrica, Kipevu 2, Rabai Power, Thika Power, Gulf Power, Triumh Power, Kipevu 1, Kipevu 2 and Muhoroni Gt.

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The Elcos Executive Director also cited double taxation on fuel as another cause of high electricity.

He said that the price of fuel to the thermal stations is inclusive of VAT.

“Why tax fuel energy charge again on the electricity bills?” He posed.

Exorbitant pricing of fuel in thermal stations was also blamed for high electricity costs.

The executive director told the committee that while the price of fuel in Kipevu 3 in July 2024 was 94.43 kg it was 357.93/kg in Kiunga.

“Even the petroleum margins set based on regions due to transportation are not more than three times. Those who benefit are the oil marketing companies that get contracts to supply this fuel,” Ndereva said

He claimed that the issue of centralising the purchase of fuel is to get the corruption bargained at one point.

“The best way is to set a reasonable fuel pricing in those stations and get the bidders who need to supply at the cost but not taking the lowest bidder of cartels,” he said.

Ndereva blamed the high cost of electricity on using the gazetted fuel charge formula saying that up to Sh3.6 billion has been collected above the justifiable amount based on the formula.

“Excuses have been made that that is where the government collects the unrecovered cost which is unlawful,” he said.

The committee heard that unlawful recovery of fuel displacement cost on Kengen Geothermal plants illegally cost over Sh400 million monthly since the last tariff setting in April 2023.

“According to the Energy and Petroleum Regulatory Authority (Epra) response, any plant that existed before the tariff adjustment had its revenue requirement included in the tariff setting,” he said.

Intended dispatch of thermal generation even when there is enough power from the hydros was also cited as another cause of high electricity costs.

Ndereva claimed that in the second quarter of 2024, there was an intentional reduction in geothermal generation to pave the way for diesel generation.

“The rains had given enough water levels to the dams, the hydro generation increased by an average of 90 million kilowatts hours (kWh) but geothermal was reduced by an average of 74.4 million kWh monthly,” he said.