Controversial Long-Term Power Deals Considered to Spur Kenyan Industrial Growth

by | May 13, 2023 | Business, News | 0 comments

Despite parliamentary objections, Kenyan government officials are considering long-term Power Purchase Agreements (PPAs) exceeding 25 years with Independent Power Producers (IPPs). The Cabinet recently lifted a ban on new IPP deals, and officials assert that the extended agreements could lead to lower energy costs and stimulate industrialization in Kenya.

The Ministry of Energy suggests these new deals may be key to combatting the current rise in power costs. IPPs provide a quarter of the power distributed by Kenya Power, the country’s sole electricity distributor, and make up 47% of its power purchase costs.

Energy Principal Secretary Alex Wachira highlighted the potential benefits of longer PPAs during a tour of Paka Hills, where Geothermal Development Company has drilled 14 geothermal wells generating 50 megawatts of power. He compared the proposal to the existing 25-year PPAs for Menengai and Ol Karia wells, asserting that extended agreements could reduce the cost of evacuating geothermal power.

Wachira noted that longer PPAs would allow investors to recoup their investments over an extended period, potentially leading to more flexibility in pricing. He cited a goal of generating geothermal power at a rate below $0.07 per kilowatt-hour, achievable with PPAs lasting 30, 40, or even 45 years.

The proposal comes after former President Uhuru Kenyatta suspended new PPA deals between Kenya Power and IPPs in March 2021. A task force, led by investment banker John Ngumi, was appointed to investigate contracts and find ways to reduce power costs. Last month, Parliament passed a motion preventing the Energy Ministry and Kenya Power from signing new contracts with IPPs until an inquiry into the high cost of power is completed.

Both the National Assembly Energy Committee and the Senate Energy Committee are currently investigating the high cost of electricity, with the former focusing on Kenya Power’s operations, over-reliance on IPPs, and other factors affecting power costs. The committee will submit a report to the House within 120 days.

Members of Parliament have called for the Energy Ministry to work with IPPs to identify strategies for lowering power costs, with Laikipia Woman Representative Jane Kagiri sponsoring a motion emphasizing the need for suitable strategies and long-term sustainability in the energy sector.

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