Kenya Power set to renegotiate sustainable deal with IPPs
Saturday December 04 2021
Kenya Power board chair Vivienne Yeda. She said Kplc was aware of the unsustainability of the terms and conditions of the existing PPA agreements saying that Kenyans are punished by the ever increasing cost of electricity including energy from their own natural resources; geothermal, and the wind and sun. FILE PHOTO | NMG
Kenya Power and Lighting Company (Kplc) on Friday held its 100th Annual General Meeting, during when the company promised to start renegotiating with Independent Power Producers (IPPs) on a sustainable engagement of Power Purchase Agreements (PPAs).
The company management said the board has agreed to start on a clean slate with the development of standards, specifications and procurement frameworks that will ensure the company gets the highest quality goods and services.
Speaking during the virtual AGM, the chairperson Vivienne Yeda said it was imperative to have an intensive review of the terms of existing PPAs, with a view, not only to reviewing the terms but also to putting together a structure for Kplc entering into future PPAs that would ensure the financial sustainability of Kplc and by extension, support Kenya’s economic development.
Ms Yeda said the recent recommendations on the report by the Presidential Taskforce on PPAs is currently being implemented since KPLC was already burdened by the current cost of power purchased from IPPs and the challenge the cost posed to the economy when passed on to consumers.
“KPLC’s future was imperiled both by the terms of existing PPAs with IPPs hence it was imperative to have an intensive review of the terms of existing PPAs, with a view, not only to reviewing these terms, but also to putting together a structure for Kplc entering into future PPAs that would ensure the financial sustainability of KPLC,” said the chairperson.
She added, “Let me make it clear that Kplc is not at war with IPPs but our concern is as it is, the company would not be able to on-sell additional power from new PPAs to Kenyans at viable prices.”
In September this year, Kenya's President Uhuru Kenyatta ordered the cancellation of all ongoing and incomplete power purchase agreements being negotiated.
Ms Yeda said Kplc was aware of the unsustainability of the terms and conditions of the existing PPA agreements saying that Kenyans are punished by the ever increasing cost of electricity including energy from their own natural resources; geothermal, and the wind and sun.
Consumers in the East African economy often complain of steep power bills, which are partially due to idle capacity charges that compensate power generators for electricity that is generated but never used.
Under a typical power purchase agreement, a power producer gets paid for any electricity produced, even if it is impossible for Kenya Power to sell it to consumers because of reasons including excess production.
The chairperson added that in the current framework, IPPs continue to record stellar profits and dividends while Kplc, the sole off-taker, and Kenyans are struggling to make ends meet.
“Even the global Covid-19 pandemic was not reason enough to review the terms of PPAs. The IPPs dollar and Euro denominated PPAs, with very high Internal Rate of Return (IRR) and Return on Equity (ROE), present an ever increasing liability as the Kenya shilling continues to depreciate and the FX risk is borne by power consumers through pass-throughs in the tariff.
Last month government invited IPPs to engage with the Ministry of Energy mid this month on how to bring down the cost of power to ensure the viability of the energy sector but Kplc management is worried the private companies might snub the invite.
“It would be a pity if IPPs did not take up this invitation, but it will not stop your Company’s determination to see that we arrive at a fair, win-win position in so far as PPA terms are concerned,” said Ms Yeda.
She added, “As you all know, it is a common practice among genuine business partners to adjust the terms of a contract from time to time in order to sustain a viable business relationship. It is time and we trust that we shall have fruitful engagements with our IPP partners.”
On performance, Ms Odour said the company increased revenue from electricity sales by 8.4 percent from $980 million to $1.25 billion. The increase was mainly driven by a 400 GWh growth in unit sales from 8,171 GWh the previous year to 8,571 GWh.
“The increase was as a result of increased connectivity, and the rebound of economic activity following the gradual easing of restrictions put in place to contain the spread of the pandemic,” she said.