Hold your horses, KenGen told over power sale plans

The Kenya Electricity Generating Company #ticker:KENGEN is pushing its bid to start distributing part of its produced capacity in a move that may present a revenue headache for its only customer, Kenya Power #ticker:KPLC .

KenGen’s scheme will involve an initial supply of power to the upcoming industrial park in Olkaria, Naivasha. It will then scale up the plan in unnamed parts of the country in a strategy it has kept close to its chest owing to an expected backlash within the sector, especially for Kenya Power.

Smart Company has been following up with KenGen to delve deeper into the strategy, in vain, since the closest direct reference to it was made in the firm’s annual report for the year ending June 2018. From December 17, KenGen has been elusive with answers on how it plans to be a generator of power and then compete its buyer for customers.

After numerous promises to respond, KenGen acting chief communications officer Philip Mukusya asked for specific timelines to respond, a pledge he never honoured including response to any further follow up.

“Thank you for contacting us and your willingness to sought (sic) clarifications from us. We got your questions and we are finalising on them. You will get the responses by end of business on Wednesday,” Mr Mukusya wrote on Monday last week.

But even as it remained sketchy with details on what its strategy means, KenGen has been giving hints at its push to get an alternative buyer for its power in the recent past.

In November 2018 when it slapped Kenya Power with a Sh1 billion penalty for delaying payment beyond the 40-day window limit for settling debts owed to it, the firm termed the sale of its generated electric energy to a single off-taker a business risk. Kenya Power had owed it Sh21.8 billion.

Its chairman, Mr Joshua Chege, would later tell shareholders in December of an elaborate plan to diversify revenue starting this year.

“We expect an exciting year ahead as key decisions will be made on the company’s business, especially on the issue of diversification, to enable KenGen venture into non-power generation business in order to build resilience and sustainability,” Mr Chege told shareholders

Energy Cabinet Secretary Charles Keter told Smart Company that the move was not possible since KenGen has no distribution licence allowing it to sell power directly.

The CS said all power plants currently being set up and those already operated by KenGen started on the basis of a power purchase agreement with Kenya Power hence it would be hard for the firm to sell the same to another entity.

“Unless they have a new plant outside the existing power purchase agreements, I don’t think it is possible. Funding for a new plant, which has no PPA, will also be difficult since generation plants are expensive to run and they would have to get funding. KenGen is also a government-owned firm, so there is a limit to what they can do,” Mr Keter said.

In its annual report, the power producer announced plans to generate money from its Olkaria Industrial Park through ‘direct sale of electricity’, among other ways.

The plan by KenGen, which provides up to 75 per cent of electricity distributed by Kenya Power, may turn out to be a competition to the latter, whose performance since last year, has recorded a 63.7 per cent decline in net profit to Sh1.92 billion in the financial year ended June 2018 on account of higher costs.

Kenya Power General Manager for Infrastructure and Network Management David Mwaniki did not want to comment directly on the strategy crafted by KenGen, but said there was no problem with it as long as the scheme would not hurt KP’s revenue.

“That is just strategy, you know, and we are both government institutions, so as long as we ensure it does not cause any unfair competition to Kenya Power, then there is no problem. You know we still have a small customer base and we are the sole collector for money in the entire energy value chain,” Mr Mwaniki said. Even KP may go into solar power generation in future as part of business diversification, he added.

Energy Principal Secretary Joseph Njoroge said that only countries with huge power generation and consumption capacity can have alternative utility companies.

Regulated sector

He said that KP, which buys a mix of hydro, thermal, wind and geothermal-generated electricity from KenGen and independent producers for onward sale to homes and businesses, should remain the sole distributor to ensure fairness to customers and order in the energy sector.

“There is no way the government would compromise revenues of Kenya Power by allowing KenGen to be an electricity distributor. They are both owned by the government. This is a regulated sector and another distributor now will create a misnomer in the sector. If anything, they would first need a distribution licence,” Mr Njoroge said.

The Energy Regulatory Commission, which would be required to issue a licence for the generator to start selling its power to other buyers other than Kenya Power, however, sounded open to that option.

ERC Director-General Pavel Oimeke said the regulator would welcome KenGen’s application although it was yet to receive one.

“ERC hasn’t approved yet, although KenGen is free to apply to the regulator for consideration.

“However, the targeted plant should not have signed a power purchase agreement with any utility,” the DG said.

Sale of power earned KenGen some Sh29.2 billion in the year to June 2018 although the firm recorded a 12.3 per cent drop in net profit for same period to post Sh7.89 billion.

The company has been bent on a push for regulatory reform especially the enactment of the Energy Bill into law to give it an option of customers to sell to, a strategy captured in its annual report as some of the high hopes in the current financial year.

Allowing KenGen, leeway to sell its own power may, however, trigger more independent power producers to pursue a similar path in the wake of reduced signings of new PPAs by Kenya Power.

KP recently said that its current electricity supply had outstripped its customers’ demand.