The Kenya Energy Cartel Which is Keeping Your Electricity Bill Very High

One of the key promises of the Jubilee administration after assuming power is that the cost of electiciry MUST GO DOWN. The Deputy President led this chant promising to ensure that connection and monthly bill were low enough to support domestic production and spur innovation and economic growth.

This might not happen as a cartel of five Independent Power Producers (IPPs) are so determined to ensure that the cost remains high that they are not only influencing the production but also the Jubilee leadership. The promised 30% glide path from 2013 each year to 2015 would have seen a total of 90% reduction in energy cost. This will not happen.

The cartel which is composed of individuals with connections from the Moi and Kibaki government have spread their tentacles that they are now promising to cripple the Kenyan economy with very expensive energy cost. The beneficiaries of the existing energy business structure would go tooth and nail to scuttle any moves to tap alternative green power.

A silent titanic battle has been going on for 3 years within the energy industry pitting the cartel determined to protect the existing arrangement against those determined to adopt green energy like geothermal and solar.

Over the last 10 years, the cartel behind theIndependent Power Producers – IPPs gang of a mercenary has ensured that they are paid 76% of electricity cost every for producing just 30% of energy through diesel. A case example is the 2013/2014 financial year when the government paid KSh 57 billion of its electricity budget to the IPPs.

The remaining 24% of the government electricity spending goes to state backed production which accounts for 70% of Kenya’s electricity generation. Is the mathematics just not wrong?

While most analysts believe the Uhuru administration is serious in seeking to reverse this 30%-70% (generation) Versus 76%-24% (Cost) ratio, there is doubt whether Jubilee can implement its energy manifesto fast enough and antagonise the masters of diesel power generation who are losing money since increasingly they will have to generate less electricity.

But this goes beyond the IPPs. There is a group of speculative investors who have no interest in generating electricity for the consumer market. They are interested in sitting on the resources with the intention of driving the cost up for the country. The same idea of draining the hydroelectricity dams so that the IPPs can be paid more to produce electricity through diesel.

President Uhuru Kenyatta’s statement in 2013 that Kenya will henceforth bank on geothermal to reduce the cost of electricity has set the battle lines between technocrats with interests in power generation as it put billions of dollars of business at risk for an arrangement entrenched during the KANU regime.

Geothermal activity in Kenya is abundant, so it makes very good sense to develop more geothermal power here. The question is: why is the journey towards more use of geothermal slow?

A World Bank Business Plan developed by Geothermics (USA) and PWC consultants in 2007 mooted development of a special purpose geothermal company. This is what led to the formation Geothermal Development Company (GDC) in 2009 with the sole mandate of accelerating the development of geothermal resources in Kenya

Global consulting firm McKinsey & Co had years before produced a report that clearly said  “geothermal energy, despite carrying a high capital cost, is the cheapest and most sustainable energy option for Kenya”.

The report took into context geothermal steam power cost of KSh 5.60 per kilowatt hour (pkh) which is cheaper that the price of hydro-power (KSh 9.10 pkh) to the extreme KSh 35 pkh charged by Diesel Thermal IPPs companies.

However moves to reduce the diesel power baron’s stranglehold on our electricity was bound to be fought. They have their roots in the industry for years, wealthy and well connected to energy bureaucrats some of whom are shareholders in the IPPs.

The introduction of diesel IPPs in the 1990s was initially intentioned to cushion decreased hydro power output due to drought, but this arrangement was cunningly hijacked.

Between 1997 and 2003, diesel IPPs shielded by powerful KANU power brokers and energy bureaucrats minted billions as hydro power plants were frequently “shut down for maintenance”. The government was “forced” to deploy “emergency power”, which is four times more expensive at KSh 35 per kilowatt hour (sometimes as high as KSh 44 pkh) as compared to the average power price at KSh 9.10 per kilowatt hour.

The original plan was to employ Diesel Plants at an average a price of KSh 20 pkh only feeding 13% of their output to the national grid. Instead the power plants have continuously operated 30% of the time.

The formation of GDC in 2009 under the coalition government of President Mwai Kibaki and Raila Odinga focused on making geothermal the ultimate solution to the runaway electricity cost now blamed for scaring away investors as well as escalating the cost of living.

Prior to the formation of GDC, geothermal development pace was deliberately slowed down by the decision makers with a strange “policy” that emphasised drilling steam without conversion to electricity. This led to an accumulation of steam without converting it to power. This wasteful “model” which lasted two decades was deliberately designed to safeguard the billions being earned by diesel generation.

What Kenyans have never known is that this “slow drill to completion to connection” model that took 16 to 27 years per project was deliberately created to protect those electricity to the government through diesel generation.

Hard Facts: The recently commissioned 280MW geothermal plant took 16 years.  Drilling started in 1998 and lasted until 2014/15 for the 280MW Olkaria power plant to be completed and commissioned.  The 105MW Olkaria Olkaria II Power plant took 23 years from drilling to commissioning while the 45MW Olkaria I power plant took 28 years! Even the recent 110MW Olkaria III IPP power plant took 27 years from commencement of drilling to the time full 110MW of power got connected to the national grid.

The recent fast tracked drill to conversion to connection by GDC’s 105MW  Menengai project is possibly the best effort by UhuRuto’s Jubilee who last year demanded that energy bureaucrats reduce total diesel-generated power dispatched to the national grid from 38% to 10%.

Menengai is expected to be connected to the national grid in a record 5 years since drilling started in 2011! The success of this specific project will be a good indicator whether the 50% reduction in electricity bills can happen.

However whether they can win the war depends on how they deal with companies that will experience drastic loss of a business worth over KSh 1 trillion shillings in the last 15 years. The leading diesel IPPs consist of Agreco, Tsavo, Ibera Africa, Thika Power and Rabai.

The next group likely to oppose the fight for cheaper power would be little discussed Geothermal Independent Power Producers (IPPs) who won concessions to exploit geothermal energy under Sen Kiraitu Murungi when he was Energy Minister under the Kibaki regime.

What these IPPs perfected was the art of securing geothermal fields for speculative purposes with zero capacity or intention to develop them.  They would then scout for people to come and invest with the hope of selling off the concessions for a kill.  In 2009 a cabinet paper placed all Geothermal resources under the GDC but strangely only Suswa’s (Wallam) license has been revoked after sitting on the resource for 5 years without drilling a single well.

The other two Longonot (AGIL) and Akiira (Marine Power) have not drilled a single well since 2009, and yet nobody seems to take notice or raise eyebrows.

Yet within the same time GDC has already drilled 400MW (Steam) in Olkaria being sold to KenGen for the 280MW generation and 135MW (Steam) in Menengai to be converted by IPP’s.

The current bad publicity and incessant power struggles to control the GDC is widely perceived to emanate from players (again connected to diesel power barons) who want to get into geothermal sector using the old style. The plan is simple. These companies tender for billion shilling drilling contracts and when the steam is found, it’s never converted to electricity.  This way, they reap from both drilling contracts and continue selling diesel based power. And electricity remains expensive as geothermal steam to be added to the grid remains sabotaged.

Few people took notice of the 3 year old Maasai “conflict over land” that stopped Ketraco’s construction of an expanded power line to connect Ol Karia and the coast province. The unrest was politically and cartel instigated to stop more than 70MW of cheap geothermal power from being wheeled to Mombasa. It remains unused at Olkaria.

While this “war between elephants” goes on, the proverbial grass is suffering. In last five years alone, the Kenyan economy has lost Kshs. 220 billion on fuel cost charges (FCC) alone, an amount which can be straight away eliminated by going 100 percent geothermal.

Jubilee has an uphill task to drastically reduce the influence of these established cartels who will lose billions of shillings since expansion of geothermal power will mean they are generating less and less electricity.

Failing to reign in the greed by “power barons” risks turning the “cheaper electricity” pledge by Jubilee into another dogged laptop fiasco.

Already, cost of electricity connection has jumped from Ksh 35,000 to Ksh 105,000. The power barons have won round one but Kenyans must wake up and decide wether they really want the cost of consumer goods to go down or we are still going to remain complaining while we are not addressing the root cause of the problem.

What do you think, comment below.