23 November 2009
Nairobi — An ambitious investment programme by the Kenya Electricity Generating Company could, in less than five years, end the East African powerhouse's reliance on expensive fossil-fuel based power from independent power producers.
These producers are said to have cost consumers anywhere between $1 billion to $2 billion over the past decade.
That investment plan received a shot in the arm when KenGen said its $200 million Public Infrastructure Bond Offer, which had concluded on September 29, had been oversubscribed by 77 per cent.
This enabled the company to take up an additional Ksh10 billion ($133 million) through a greenshoe option -- a provision that allows an issuer to scale up an offer in the event of higher-than-expected demand.
KenGen says the new funds will enable it to generate an additional 500MW of electricity from geothermal sources by 2013, or just four years' time.
When it comes online, the new KenGen power will probably enable Kenya to retire all of its private fossil-fuel based IPPs, whose electricity is priced according to the prevailing global oil prices.
Currently, consumers are paying a "fuel charge" almost as high as that of their monthly electricity consumption.
Analysts say this is making Kenya an unattractive business destination.
The additional power KenGen wants to inject into the national grid will be nearly a third of the current generation capacity of slightly over 1,300MW.
"In line with Vision 2030 and anticipated increased economic activities, consumption of electricity is expected to continue growing," KenGen said recently in its end-of-year accounts.
"We plan to increase generation capacity by 500MW by 2013 and another 1500MW by 2018, (with) the focus being on geothermal generation."
The emphasis on geothermal sources, the power utility says, will help cushion the company and the country against reliance on hydro-electricity, generated mainly from one river basin, the Tana.
Reliance on this basin, where drought saw dam levels fall to their lowest in 75 years, is what provoked a three-month power rationing regime that ended in early October.
The load shedding ended after three IPPs -- Iberafrica Power, Rabai Power and Mumias Sugar -- started injecting a total of 167MW of electricity into the national grid.
KenGen itself procured a 140MW emergency diesel power plant, which is supposed to stay in commission for one year.
According to KenGen's end-of-year report, the fall in power generated along the Tana, as well as in other hydro sources, also saw the units of electricity sold by the company fall from 4,818 million kilowatt hours in 2008 to 4,339 million kilowatt hours in the year ending June 30.
"In spite of this, earnings in 2009 were impacted favourably by the implementation of a new power purchase agreement with distributor Kenya Power & Lighting Company, which gives a higher average yield of Ksh2.42/kWh, compared with Ksh2.36/kWh in 2008," KenGen said in its statement.
Owing to the improved formula, KenGen's pre-tax profits for the year ended June 30 rose by 48 per cent from Ksh3.1 billion ($41 million) in 2007/2008 to Ksh4.55 billion ($60.7 million).Analysts contend that the growth trajectory of the power generator is likely to continue, given Kenya's rising demand for electricity.
The demand is driven partly by more domestic connections and, also, by an expanding economy.
The demand is estimated to be expanding at 8 per cent per annum.
According to government estimates, Kenya must invest about $5 billion in power generation and distribution in the next decade to meet growing demand, of which 46 per cent will be raised by the government.
By 2014, when KenGen's new projects come online, demand is projected to rise to 2029MW.