IPPs accuse Kenya Power of ‘hiding behind’ Covid-19

Monday July 06 2020

A Kenya Power technician at work. Kenya Power issued notices to independent power producers (IPPs), stating its inability to buy power from them. PHOTO | FILE | NMG


Economic effects brought on by the coronavirus pandemic have caused a significant drop — about eight per cent per month — in electricity demand in Kenya.

This has forced Kenya Power into a tricky balancing scheme in the procurement of electricity, resulting in protests from independent power producers (IPPs), when it became clear that Kenya Power was planning to completely lock them out.

Last month, a consortium of six IPPs wrote to the Energy and Petroleum Regulatory Authority (EPRA) over the interpretation of a clause in the power purchase agreement (PPA) that allows a party to suspend or terminate the performance of its obligations when circumstances beyond their control arise.

At the centre of the dispute is an argument by the IPPs that the struggling utility has abused the force majeure provision by altering contracted power capacity and payments on grounds that national power consumption has fallen due to the Covid-19 pandemic.

The IPPs say Kenya Power has no unilateral right to alter the contracted capacity and capacity payments, arguing that the risk of a decline in the national demand for electricity under the PPAs is borne by Kenya Power and not IPPs.

"Whether the Covid-19 pandemic and its effects qualify as a force majeure under the PPAs, the risk of a decrease in the national demand for electricity is a risk that Kenya Power, and not the IPPs, should take under the PPAs," says their letter dated May 15, 2020 and signed by Gulf Power, Iberafrica, Tsavo Power, Triumph Power, Rabai Power, and Thika Power


"Without this fundamental principle, the PPAs are unbankable and would never have been financed in the first place. Regardless of whether a reduction in the demand for electricity has occurred due to force majeure or otherwise, Kenya Power does not have a unilateral right to adjust the contracted capacity or capacity payments under the PPA."

The EastAfrican has learnt that the national control centre (NCC), the facility that Kenya Power uses to match supply with consumption demand and allocates power to customers according to their daily, weekly or seasonal demands, has become a focal point of the IPPs pushing for uptake of their electricity.

"The pressure at the NCC is unprecedented because every producer wants Kenya Power to absorb their electricity. The situation is worsened by the fact that we have so much electricity in the country because the dams are full," a senior manager at Kenya Power told the The EastAfrican.

With Kenya having developed a mechanism of electricity uptake based on least cost generation mix to cushion consumers from high electricity prices, Kenya Power has opted to prioritise the procurement of electricity from cheap sources mainly geothermal, hydro, wind and solar.

To protect itself from lawsuits considering that it has bidding power purchase agreements (PPAs) with the IPPs, Kenya Power, which last month issued a profit alert, has opted to issue the IPPs with force majeure notices, effectively stating its inability to buy power from them.

However, in a protest letter addressed to the Energy and Petroleum Regulatory Authority, the IPPs have accused the company of hiding behind the Covid-19 pandemic to conceal its procurement system that had resulted in massive oversupply of electricity.

Lake Turkana Wind Power (LTWP), which operates the 310MW windfarm in Turkana, is among producers that have been forced to develop an operational work plan with Kenya Power that balances generation with uptake.

LTWP has a low-cost initial tariff of $0.095 per kilowatt hour (kWh) for the first six years of operations that would be adjusted downwards to 0.084 per kWh for the remaining 14 years of its 20-year PPA with Kenya Power.

The Kenya National Bureau of Statistics in its first quarter economic report paints the picture of the crisis facing the electricity sub-sector after supply recorded a decelerated growth of 6.3 per cent compared with a growth of 7.8 per cent in the first quarter of 2019.

During the period, generation from hydro expanded by 29.8 per cent compared with 22.7 per cent in 2019 while generation from geothermal grew by 10.6 per cent compared to a contraction of 2.3 per cent same period in 2019.

By end of last year, the country's installed capacity stood at 2,819 MW against a peak demand of 1,912 MW.

Geothermal remains the major source of electricity in Kenya accounting for 45 per cent of total generation

Despite the excess capacity amidst muted growth in demand, Kenya Power has continued to sign PPAs with new producers, further exposing the company to worsening financial performance.

In the financial year ended June 2018, the company posted a net profit of $17.6 million, from $48.3 million realized in 2017.

For the year ending June 2019, the company's performance continued on a downward trend, and posted a net profit of $2.4 million.

-Additional reporting by James Anyanzwa