MPs reject Energy Ministry’s plea to lift PPA ban and call for stronger safeguards first

MPs have rejected a proposal by the Ministry of Energy and Petroleum to lift the moratorium on power purchase agreements (PPAs), citing concerns over inadequate safeguards to protect taxpayers from possible exploitation by private investors.

The ministry had approached Parliament with a request to lift the moratorium specifically on coal-fired power stations, stressing the urgency of expanding energy sources to meet Kenya’s growing energy needs.

According to the ministry, the expected growth in electricity consumption necessitates a diversification of sources, with coal-fired power stations positioned as a stable and cost-effective complement to existing hydroelectric power stations.

However, MPs chairing key committees – including departmental, audit, appropriations and select committees – expressed strong objections to the ministry seeking the moratorium on power purchase agreements to be lifted.

The lawmakers urged that the ministry must first take strict measures to prevent projects from disproportionately benefiting investors at the expense of the public interest.

They also insisted that there should be no relaxation of the moratorium until sufficient protections are in place to ensure that taxpayer welfare and national interests are given priority in any new agreements.

The MPs spoke at the National Assembly leadership retreat with Minister of Energy and Petroleum, Opiyo Wandayi, Principal Secretary, Ministry of Energy, and Managing Director and CEO of Kenya Power, Dr. (Eng.) Joseph Siror at Enashipai Resort and Spa, Naivasha.

Led by Mwala MP Eng. Vincent Musyoka, Chairman of the National Assembly Departmental Committee on Energy, members expressed concern over the ministry’s inadequate safeguards, saying there is currently no substantive basis for lifting the moratorium on Power Purchase Agreements (PPAs).

Musyoka also stressed that Parliament, as the representative of the people, must be fully involved in decisions related to the PPA.

He cited the recent shifts in indicative tariffs as an example, noting that the indicative tariffs published in 2012 for wind energy were 12 Ksh/kWh.

Shortly afterwards, however, the Lake Turkana Wind Power project achieved a PPA of 16 Ksh/kWh over 20 years – higher than forecast rates intended to deliver long-term savings.

Recently, wind energy rates were published at 5.8 Ksh/kWh, illustrating that previous contracts could have been three times cheaper.

Musyoka further criticized the handling of the Lake Turkana Wind Project, envisioned as one of Kenya’s Vision 2030 flagship projects, revealing that 20 motions were initially filed to prevent power shortages through the initiative.

Musyoka confirmed to Parliament that the committee has completed its report.

“It was not without reason that Hon. Jane Kagiri has tabled a motion that should lead to a moratorium on new PPAs. The question is whether these initial concerns have been addressed. The answer is no,” he said.

The lawmaker proposed that if the moratorium is lifted, independent power producers (IPPs) with existing wind and solar installations should be required to add backup energy storage to utilize the excess energy produced during the day for peak demand .

Endebess MP Robert Pukose, chairman of the Departmental Committee on Health, added that before Parliament could consider lifting the moratorium on power purchase agreements (PPAs), the ministry must make the power purchase agreements public.

“We may want the ministry to first reveal how much they pay for power purchase from different power producers like KENGEN and the rest. How much do you pay per unit? Can you give us this so we can make an informed decision?” he asked.

Emuhaya MP Omboko Milemba further argued that the reason why the moratorium was imposed was because the Power Purchase Agreements (PPAs) were so bad and they made Kenyans pay more.

Milemba said the Ministry of Energy must clarify what strategies they have put in place to deter exploitation by PPAs, which he said Kenya Power does not want to deal with.

“How do you expect Parliament to lift this moratorium? Unless this deals with the power agreements, which have been seen as things that have never been clearly exposed. They are very expensive, they are hidden and not talked about. You have to demystify the entire force,” he said.

Dr. However, Siror, Managing Director and Chief Executive Officer of Kenya Power, said all new energy budget agreements, even those signed last, are the cheapest in terms of technology.

According to Dr. Siror is responsible for the cost of energy depending on the technology used. He clarified that the most expensive source of energy currently in use is thermal energy, with Kenya’s most expensive energy generated at the GT factory in Muhoroni. approximately 7 US cents per kilowatt hour (kWh).

“Interestingly, the cheapest thermal energy in Kenya, at 6.97 cents per kWh, is not Kenyan, but comes from geothermal energy, mainly from Olkaria. In this cost breakdown, 4.9 cents goes to the developer and 2 cents to the operational costs. Other Geothermal projects in Menengai also cost about 7 cents per kWh, with 5 cents for the developer and 2 cents for the operation,” explains Dr. Siror.

He also emphasized that price differences between technologies partly reflect changes in technology costs over time. For example, solar power plant construction costs a decade ago are significantly higher than today’s, due to lower equipment and installation costs.

To address these variations, the Director General has established updated cost guidelines per technology (geothermal, hydro or solar) to ensure standardized prices in the future.

“Once the moratorium is lifted, all new agreements will adhere to these guidelines, ensuring costs are controlled and aligned with current technological advancements,” the Kenya Power MD said.

Daniel Kiptoo Bargoria, Chief Executive Officer of Energy and Petroleum Regulatory Authority (EPRA), also announced that EPRA has published indicative rates per technology for the second time.

The initial issuance of these rates took place in December 2021 and was last updated on April 17, 2024.

These rates cover a range of energy sources, including small hydro, wind and renewable energy sources such as biomass, and provide structured guidance on cost expectations for different technologies.

“As regulators, we do not operate in a ‘black box’ when it comes to negotiations between utilities and independent power producers (IPPs),” Bargoria said.

“We are legally required to ensure that the agreements fully comply with legal standards and that the resulting rates are fair and reasonable for all stakeholders.”

The CEO confirmed that investors have continued to register in the sector because consumers do not have to pay for costs that are not actually incurred, and EPRA has matched these costs accordingly.

“As a regulator, we are responsible for thoroughly reviewing and analyzing financial budgets before proceeding with a draft Power Purchase Agreement (PPA). Equally important is monitoring from the signing of the PPA through to project construction, ensuring that project costs are aligned with actual commercial activities.

If certain costs, initially estimated based on international benchmarks, are not incurred during construction, these costs are deducted from the final costs, as demonstrated here,” he explains.

Energy CS Wandayi on his part assured MPs that the benefit the country is getting from the Energy Act 2019 is that EPRA as a regulator can publish indicative tariffs that may entail any negotiations between IPPs and Kenya Power.

However, Ruaraka MP Tom Kajwang said Parliament is committed to ensuring fair distribution of energy resources across the country and transparency in the terms of negotiations with independent power producers (IPPs).

According to Kajwang, recent discussions, such as the one involving the Adani group with Ketraco, underscore the need to scrutinize these agreements.

“We are determined to avoid adverse deals that could result from lifting the moratorium without proper oversight. Therefore, it is essential to thoroughly understand the arrangements between regulators and IPPs to ensure fairness and alignment of national interests,” Kajwang said.