Kenya’s electricity sector continues to be under the spotlight for the high cost of power, which is hurting domestic and commercial users.
The binding Power Purchase Agreements (PPAs) between power producers and Kenya Power have been criticised for their lengthy nature and in many instances skewed in favour of the former.
This came to the fore when President Uhuru Kenyatta ordered a review of all power contracts with thermal power producers, with a view of bringing down electricity costs.
One such agreement involves American firm Ormat Technologies.
The firm’s PPA with Kenya Power has raised eyebrows over its lucrative nature, especially when compared with other power producers using the same energy source.
Ormat’s lucrative deal attracted the attention of the Organisation for Economic Co-operation and Development (OECD). According to reports, the costly power that it sells to Kenya Power informed the probe commissioned by OECD.
Ormat, through its subsidiary Orpower 4 Inc, operates a 150 megawatt (MW) geothermal power plant at Olkaria.
According to the PPA between Orpower and Kenya Power, which the mother company filed with US authorities, the power producer is paid an energy charge of Sh15 ($0.0156) per unit (kilowatt hour – kWh) of electricity supplied to Kenya Power.
This pricing is costly when compared to wind energy, with producers getting about Sh9.8 per unit and solar averaging Sh12 per unit. However, the government owned Garissa Solar plant pockets Sh5.5 per unit.
While cheaper than what thermal producers charge, with some of them being as high as Sh30 per unit, it is expensive when compared with what other geothermal power plants are paid for their power at about Sh8 per unit.
The Paris-based news outlet Africa Intelligence reported that the US Department of State has been asked by the OECD’s Anti-Bribery Convention to open an administrative inquiry into Ormat’s contract with Kenya Power.
Owing to the preference for geothermal power, which is cheaper than sources such as thermal plants, the company is among those that see almost all the electricity it produces taken up by Kenya Power.
It is the second-highest-paid power producer after KenGen, which reported revenues of Sh49.56 billion.
Almost all the revenue was from the sale of power generated by its fleet of geothermal, hydro, wind and thermal power plants with a combined electricity generating capacity of 1 631MW.
In the year to December last year, for instance, the company was paid $121.66 million (Sh13.13 billion) by Kenya Power for the power supplied to the grid, accounting for a substantial chunk of its revenues.
Kenya, the firm notes, remains a key market despite having plants in major markets, including back at home in the US.
“In 2019, KPLC (Kenya Power) accounted for 16.3 per cent of our total revenues,” said Ormat in its annual report.
“We consider Kenya an important location for our future growth, and we are pursuing geothermal and solar opportunities in the country.”
It is not the first time that Ormat Technologies’ dealings in Kenya have been under scrutiny, having been probed for price-fixing in 2017.
It was investigated by the Ethics and Anti-Corruption Commission and the Energy and Petroleum Regulatory Authority (Epra) for allegedly overstating the amount of electricity it sells to Kenya Power.
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The 2017 investigations, however, cleared the firm, but there were concerns raised by the regulator on the nature of communication between the National Control Centre and Orpower’s power complex at Olkaria.
EACC had in a letter to Epra requested the regulator to look into possible malpractice by the management of OrPower 4 Inc in relation to power purchase transactions with Kenya Power.
The anti-corruption agency was working on a tip-off from an informant, who claimed that the company had over the past years been misreporting its capacity to Kenya Power, resulting in over payment, contrary to the provisions of the PPA between the two companies.
In its investigation that saw Epra look at the power production by Ormat and uptake by Kenya Power, the regulator said there were no anomalies but highlighted certain issues that the two companies needed to work to improve transparency in their transactions.
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