Cost of power rises as shilling weakens to new record lows

Electricity consumers will be forced to dig deeper into their pockets this month as the cost of power goes up again on account of a weak shilling.

The foreign exchange adjustment component of the power bill nearly doubled in just one month, rising to Sh1.07 per unit of power consumed in October from Sh0.57 per unit or kilowatt hour (kWh) in September.

The component, which cushions power industry players from a weak shilling, has been rising since the beginning of this year. It is now approaching levels seen more than two years ago as the local currency posts record lows against the dollar.

“Notice is given that all prices for electrical energy… will be liable to a foreign exchange fluctuation adjustment of plus 107.31 cents per kWh for all metre readings taken in October 2020,” said the Energy and Petroleum Regulatory Authority (Epra) on Friday in a public notice.

At Sh1.07 per unit, the forex adjustment cost is at its highest in about two years – having last been at these levels in July 2018 when it was at Sh1.22 per unit.

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It has been on the rise since early this year, having been at negative Sh0.01 in February and negative Sh0.11 in March due to a stronger shilling then. Being negative meant that power consumers were credited with a few free power units when they bought electricity tokens.

The forex component is among the key determinants of power prices with the others being fuel cost charge (FCC), inflation adjustment, water charge, value added tax, among other levies.

The forex and water charges are reviewed monthly, while the inflation adjustment is reviewed every six months.

The forex charge cushions power sector players from the volatility of the shilling when incurring costs denominated in foreign currency such as loan repayments, a substantial chunk of them in dollars, Euros and Japanese Yen.

There has also been the push to increase the amount of shilling denominated debt to the power sector as well as shift to base the Power Purchase Agreements (PPAs) signed between electricity generators and Kenya Power into local currency, which is expected to cushion power consumers from currency volatility.

In September, the shilling hit a record low of Sh108.6 to the dollar, from Sh106.44 at the beginning of June, Sh101.16 at the start of March and Sh100.9 at the beginning of the year.

The forex charge has stayed relatively low since the new power tariffs were announced in August 2018, when it went from Sh1.22 in July 2018 to five cents, a 95 per cent drop.

In the gazette notice last Friday, Epra also hiked the fuel cost charge to Sh2.56 per unit for readings taken in October, up from Sh2.43 per unit in September.

The fuel charge is also a pass through cost which is used to compensate thermal power producers the cost they incur in acquiring fuel for electricity production.

This category of power producers is usually engaged when renewable power production sources, which are also cheaper, are not available. FCC has slightly reduced since January when it was at Sh2.65 per unit.

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