Businesses will continue paying more for electricity in the coming months should the high cost of fuel, high taxes, and the fluctuations in the local currency against the dollar persist.
The revelation was made by Thika Power Limited and Iberafrica chairperson George Njenga who said that thermal plants run by independent power producers (IPPs) depend on high fuel oils (HFOs), which are expensive to purchase.
Njenga, who was speaking to the Energy committee on Monday, said the high fuel prices are passed to Kenya Power as part of contracts signed between the IPPs and the utility firm.
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The extra cost passed to KPLC is subsequently passed to the consumers in terms of power bills. According to Njenga, the high cost of HFOs used by thermal plants contributes 70 percent of the cost of production.
In addition, taxes contribute between 28 and 30 percent of the total cost of production. Other factors, such as drought, have also contributed to the surging cost of electricity.
When the country is experiencing drought, water levels in hydropower plants, which is Kenya’s cheapest source of electricity, fall, cutting hydropower output and triggering the use of expensive-diesel-generated electricity.
“I don’t think the high cost of electricity is because of IPPs. It is because of a number of factors but majorly the high cost of fuel which is passed to the consumer because of the nature of our contract with Kenya Power,”
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“Fuel is where the problem is. If we deal with this, then we will lower the cost of electricity. The alternative of going without electricity is even more expensive.” Said Njenga.
Njenga also pointed out that the contracts were done either in Euros or dollars to lower their risk premiums because their investments and the purchase of equipment and fuel are done in foreign currency.
