Kenya’s Energy Regulatory Commission (ERC) decided against Kenya Power’s request for a 50% increase in electricity tariffs. Rather the ERC chose to reduce the tariff over the next two years, a move that could slash consumers’ power bills by about 11%. The cost per kWh of power would decrease to $0.18 before dropping to $0.16 in 2014 and $0.14 in 2015.
Leonardo Energy released a report that said the current return on capital is a solid 8.5%, and for Kenya Power to just “break-even” it would be possible to decrease the average tariffs by 6.2%. The organization said that for the utility to achieve an economic return on capital of 10%, the average tariffs would have to increase by 1.8%. Leonardo Energy said that while the demand growth in Kenya is at a high 7% with electrification standing below 20%, Kenya’s power sector seems “well organized with a favorable structure for attracting investment.”
ERC acting head Fredrick Nyang said that the tariff cuts were from the expected commissioning of new generation plants, mostly fueled by renewable energy. The new schemes to come online in the near future will use geothermal, cogeneration, coal, and LNG to generate a total of 1,250 MW of electricity.
"The key driver in this two-year period is geothermal," Nyang told Reuters by telephone, adding that 80% of the additional capacity would be generated from geothermal. The country’s geothermal sector is poised to beat out the US becoming the world’s geothermal leader with about 1 GW of geothermal energy currently underway. The Geothermal Energy Association said in a report, “If all projects are completed on time Kenya will lead the world with substantial additions to their geothermal infrastructure over the next decade and become a center of geothermal technology on the African continent.”
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