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Lamu could be too expensive for Kenya

POLAND KENYA Power said in its annual report this This pressure from fossil fuel prices on tariffs
week that output at the country’s fossil fuel-fired will only get worse if the proposed Lamu coal-
thermal power plants (TPPs) fell 44% in the year fired power project is constructed, the Institute
to June 2019 as generation at the Lake Turkana for Energy Economics and Financial Analysis’
wind power project ramped up. (IEEFA) Simon Nicholas warned.
The results also noted that although thermal A key rationale for the Lamu project was the
power generation had shrunk by 44%, the fossil need to replace expensive diesel-fired power.
fuel cost in the power system had dropped by However, it is clear that new wind and solar
only 22%. plants are replacing diesel at a much lower cost,
What this means is the price of fossil fuels is Nicholas argued.
rising, while thermal output is falling as more Previous IEEFA research has warned that the
renewables capacity comes online in Kenya. Lamu project would lead to higher power tariffs
This is bad news for Kenya’s proposed coal- for Kenyan consumers.
fired Lamu coal plant, which is being funded by Lamu also poses a capacity risk, with Kenya
Kenyan and Chinese money. Power recently having raised concerns that too
Although construction has not begun much new power capacity has been approved,
because of legal challenges, the project could still with almost 2,000 MW of new capacity antic-
gain approval as court battles rumble on. ipated to come online over the next five years
Kenya Power’s results demonstrated the risk despite “lagging demand for electricity”.
for Kenya remaining dependent on fossil fuels – Overcapacity will put serious financial pres-
mainly diesel and potentially coal. sure on Kenya Power, as it is obliged to make
Kenya Power’s annual report also said that payments to generators whether their power is
the cost of fossil fuels, mainly diesel, that Kenya needed or not under ‘take-or-pay’ contracts.
Power has to pay as part of its wider purchases of Kenya Power will reportedly have a 20% tar-
fuel for power had risen. iff increase approved soon by the nation’s energy
The report said that the thermal power gen- regulator. This news comes as the utility prepares
eration of KenGen, which generates 72% of to report its first net loss in 17 years upon the
Kenya’s electricity that is then distributed by release of its financial results for the year ended
Kenya Power, dropped 15% in the year to June June 2020.
2019. However, its thermal power fuel charges – The African Development Bank (AfDB) has
mostly down to diesel – actually rose 5%. already withdrawn from the $2bn, 1,050-MW
As Kenya’s results showed, the price of gen- Lamu project, leaving Chinese support and local
erating fuel is included in power bills in Kenya. Kenyan business people to fight the project in the
This could mean that fossil fuel price volatility courts.
risks further burdening Kenyans with high Kenya’s environmental courts have held the
power costs, just as the country recovers from project up, and there has been little movement
the coronavirus (COVID-19) induced economic in recent months.™
slowdown.

Week 45 12•November•2020 www. NEWSBASE .com P9