Policy pronouncements defined by a move towards readiness to accelerate economic growth have been made in recent days. The government has lifted the electricity generation moratorium and pledged to increase generation above 10,000MW.
In the journey to enhance uptake and increased connectivity, we must maintain a variety of variables. This includes improved processes in the electricity value-chain,focusing on services and ensuring affordability.
There are two policy approaches while planning generation. One is whether the country should be guided by the principle of investments and economic growth preceding construction of new power generation plants. Some experts are of the view that construction of generation plants should lead, followed by investments and economic growth.
The challenge with the latter policy is that should the country succeed in adding 7000MW without commensurate increase in demand growth, there is the risk of costs associated with high margins of idle capacity .
Concurrent execution in new power generating projects is often a risk as they raise the idle capacity charge, which in turn leads to a huge reserve margin.
According to the Global Energy Alliance, the allowable reserve margin should be around 15 per cent. Reserve margins affect power prices.
Lower margins lead to higher and more volatile prices due to increased scarcity risks that may invite demand management interventions such as rationing. South Africa has fallen victim to this. Kenya has experienced pockets outages and load-shedding due to inadequate power supply .
Margins above the allowable reserves may invite high prices to consumers, given that tariff is charged regardless of weather that electricity capacity is used at any given time. This undermines affordability.
Several jurisdictions offer lessons on navigating this terrain. Many economies that have maintained low electricity prices have been those that had abundant natural resources – Venezuela, Russia, Indonesia, Mexico and China. Ethiopia, Zambia, Zimbabwe and Uganda have maintained low prices despite running high margins of reserve capacity.
Power generation in Ethiopia is unique. Funding of the 6000MW Grand Renaissance Ethiopian Dam was by infrastructure bonds. The public bond was tailored to fit the unique purpose of the project.
The bond does not have a specific maturity period and depends on when it was bought, with repayment tied to project milestones and completion dates.
Kenya should consider sequencing power generation. Here, one plant is completed before another starts.
There is need to speed up the development of the Energy Auctions Policy to be executed through a Public Private Partnership model. This helps lower the cost of energy since bids are offered competitively, with risk spread across the entire project time.