How EPRA determines electricity prices in Kenya

The Energy and Petroleum Regulatory Authority (EPRA) plays a pivotal role in setting these prices, ensuring a balance between consumer interests and the sustainability of the electricity sector.

Let’s break down this complex process into simpler terms to understand how EPRA calculates electricity prices, ensuring it's clear even to our younger readers.

How EPRA determines electricity prices in Kenya

The Authority Behind the Numbers: EPRA

EPRA, under the Energy Act, 2019, has the task of setting, reviewing, and adjusting electricity tariffs.

They look into the costs involved in generating, transmitting, and distributing electricity, making sure that these costs are fair and only include necessary expenses.

Essentially, EPRA holds the scales, balancing the need for affordable electricity with the need to keep the lights on reliably.

The Components of Your Electricity Bill

The Base Tariff

The Base Tariff comprises of the cost of generation, transmission and distribution that the power companies incur in the provision of power.

They include;

Kenya Power and Lighting Company(KPLC)
Kenya Electricity Generating Company (KenGen)
Kenya Electricity Transmission Company (KETRACO)
Rural Electrification and Renewable Energy Corporation (REREC)
Geothermal Development Company (GDC)
Independent Power Producers (IPPs)

These costs are calculated based on the existing generation contracts, operation and maintenance contracts and the cost of finance associated with provision of these services.

A Kenya Power worker on site Pulse Live Kenya

Power generation costs for KenGen are mainly in Kenya shillings while a majority of IPPs are in foreign currency.

The Base tariff is therefore set at the prevailing exchange rate and a prevailing Consumer Price Index (CPI) that represents core inflation.

The Pass-through Costs

The Pass-through Costs are additional variable costs of providing generation, transmission and distribution to electricity sector customers.

These are costs that are not included in the Base Tariff but which form part of the cost of generation, transmission and distribution of electricity.

The costs are not set in advance but the actuals are computed and gazetted monthly, based on the following variable parameters;

The volume and cost of Heavy Fuel Oil (HFO) used to generate power from thermal power plants.
The difference between the prevailing exchange rate and the reference exchange rate used to set the Base Tariff.
The prevailing core Consumer Price Index Additional cost of generation for new Power Plants (KenGen and IPPs) incurred by KPLC, which were not included in the Base Tariff as at the time of approval in 2018.

Taxes and Levies

Taxes and levies also result in additional charges on top of the base tariff and pass-through costs.

READ: Meet Kenyan who sells cheap power to thousands, including neighbours, schools & SMEs

Menengai Geothermal Power Plant, Pulse Live Kenya

New power plants

In August 2018, the EPRA set a Base Tariff with subsequent amendments in November 2018.

This Base Tariff was applicable for one year pending re-submission of a revised application. Between the last tariff review to the current review effected in April 2023, several new power plants were commissioned with a total capacity of 502MW.

These include

Olkaria V (158MW)
Olkaria I Unit 6 (83MW)
Kipeto Wind Power (100MW)
Selenkei (40MW)
Cedate (40MW)
Malindi Solar (40MW)
Alten Solar (40MW)
Kianthumbi Small Hydro (0.5MW)

The revenue requirements of these plants did not form part of the base tariffs.

EPRA recovered these power purchase obligations through the pass-through mechanism, which saw a consequent increase in the fuel energy cost.

Without the recovery of these generation costs, the power plants would have inadequate revenues to operate resulting in payment defaults, shut downs and thus compromising security of power supply in the country.

Retired President Uhuru Kenyatta during a church service in Mwingi Retired President Uhuru Kenyatta during a church service in Mwingi Pulse Live Kenya

Uhuru-era power subsidy

Further, as a result of the implementation of the presidential directive made after he recommendations of the Presidential Taskforce to Review Power Purchase Agreements, EPRA effected a 15% tariff reduction on end user tariffs in January 2022.

To sustain this reduction, the pass-through costs remained unchanged from January 2022 to August 2022.

The total revenue requirement to sustain this reduction was Sh26.3 billion. The sector entities combined committed to provide Sh12.2 billion and the balance was to be paid through a subsidy of Sh14.1 billion by The National Treasury.

Termination of power subsidy & new tariff

The National Treasury honoured their commitment up to August 2022 and was unable to continue with the subsidy for the remaining four months on account of a shift in policy.

This meant that Treasury’s share of the reduction had to be paid by consumers through the pass-through mechanism.

Effective April 2023, there was a tariff review for the period 2023/2024, 2024/2025 and 2025/2026, which now included the aforementioned unfunded costs as well as the generation costs of the eight plants not included in the previous Base Tariff.

In effect, EPRA says there is no over-billing. The approved tariff now includes the costs of power plants commissioned between October 2019 to March 2023.

Even after approval of the new tariff, EPRA has the obligation to clear the outstanding unfunded subsidy, which continues to be recovered through the pass-through mechanism up to December 2024.

Check it out here!

How EPRA determines electricity prices in Kenya

Recommended articles