How far will tariffs fall as Kenya, Uganda move to share power?
Monday May 06 2019
Kenya and Uganda have signed a new power purchase agreement (PPA) that facilitates bilateral power trade and takes into account new dynamics in the energy sector, including increased generation capacity.
The agreement, which is designed to facilitate two-way electricity imports and exports between the two countries, marks the end of the previous pact that only focused on Kenya’s imports from Uganda, and limited supply to emergency situations.
The signing of the PPA last month was necessitated by investments by both countries in electricity generation facilities resulting in excess capacity, a development that has prompted a downward revision of tariffs.
“The new PPA that has been negotiated with Uganda is good for Kenya because the tariffs have come down drastically,” Jared Othieno, the acting managing director of Kenya Power, told The EastAfrican.
He added that under the new agreement, Kenya intends to import a maximum of 50MW from Uganda annually.
The agreement was signed by Kenya’s Energy and Petroleum Regulatory Authority and Uganda’s Electricity Regulatory Authority (ERA).
ERA chief executive Ziria Wako said the two countries still had the old agreements for sharing power when the Nalubaale Dam was commissioned in 1954.
“One of the conditions was that we share the surplus within the region, but first with Kenya. The limitation to emergency situations was because of power supply constraints at that time,” Ms Wako told The EastAfrican. A transmission line from Tororo in Uganda connects to Kenya, which enables bulk power transmission.
The Nalubaale dam was built by the colonial government to generate electricity for Uganda’s growing industry and for domestic use, but with limited export volumes.
Under the old regime, Uganda has imported electricity to Kenya, more during dry seasons and less when the country experiences good rainfall.
In recent years Kenya has invested in other energy sources, particularly geothermal and wind, to stabilise generation. The current installed capacity is 2,711MW, against a demand of 1,640MW. Geothermal has become the leading contributor of electricity, accounting for 47 per cent of the total generation, followed by hydro and thermal plants at 30 per cent and 20.6 per cent respectively.
Uganda also has excess capacity after the commissioning of the 183MW Isimba hydropower dam, pushing its power generation capacity to 1,179MW, way above its peak demand of 656MW.
The regional excess capacity has seen Kenya reduce its imports, with distributor Kenya Power’s financial results for the year ending June 2018 showing a $35.1 million bill from Uganda Electricity Transmission Company Ltd in 2017/18 down from $37.1 million in the previous financial year. During the period, the company purchased 168GWh from Uganda, a decrease from 180GWh the previous year.
Kenya paid $0.20 per unit of electricity imported from Uganda. Although both Kenyan and Ugandan officials declined to state the tariffs agreed in the new agreement, sources told The EastAfrican that the new tariffs will average $0.15, excluding forex fluctuation.
Uganda’s installed capacity is expected to rise to 2,000MW by 2020, when projects like the 600MW Karuma hydropower plant and the 800MW Ayago along the River Nile are connected to the grid. The country’s target is to achieve a generation capacity of 4,000MW.
“Power supply security is very good for this country. Isimba and Karuma are not enough. We need a lot of generation capacity to be able to extend power to all Ugandans and to fuel large industries and our neighbours under the regional interconnection project,” said Ms Wako.
The expected decline in electricity earnings from Kenya could force Uganda to explore the possibilities of increasing exports to Tanzania, where current exports stand at 14MW. With an installed capacity of 1,513 MW, Tanzania has a deficit of 485MW. Uganda’s exports to Tanzania are however being curtailed by the lack of a high-voltage interconnector.
Ms Wako said that Uganda is also in talks to supply 45MW to Rwanda, which has a deficit of 13MW.
Negotiations to supply power to the neighbours are part of Uganda’s strategy to meet regional requirements for interconnectivity. Due to differences in natural endowment in power generation resources, the connectivity is intended to mutually benefit countries. For example, during prolonged droughts that affect hydro sources, geothermal or solar generators can transmit power with countries in distress.
Additional reporting by Njiraini Muchira