The first part of this story exposed a conflict of interest in the ownership of Triumph Power Generating Company, an IPP supplying electricity to Kenya Power. In this second part, through expert analysis and an insider interview, we explain the anatomy of a Kenyan electricity bill and World Bank guarantees, which protect private investments at the cost of consumers.
70% of Kenya’s electricity is generated from renewable energy sources like wind, geothermal, and hydroelectricity. Despite this diverse energy mix, Kenya has the third most expensive electricity in Africa, behind Cape Verde and Sierra Leone. Some have described the electricity bill in Kenya as a ‘multilayered cake’ with hidden costs.
Anatomy of a power bill
Each power bill has eight components: the token amount, Value Added Tax (VAT), Fuel charge, the Energy and Petroleum Regulatory Authority charge (EPRA), Water and Resources Management Authority (WARMA) charge, the Rural Electrification Programme (REP) charge and Inflation Adjustment.
The two prepaid electricity bills shown above were purchased a day apart, as per a breakdown on the myPower app by Kenya Power. For the above receipts, fuel costs from diesel generators accounted for between 14% and 19.6% of the total cost. Forex charge is an amount that covers any foreign currency exchange charges incurred by Kenya Power and Independent Power Producers, whose contracts are all in US Dollars or euros. IPP diesel generators directly affect the consumer’s fuel energy charge and token amount, depending on the energy supplied to the grid and even the undispatched power due to low demand by Kenya Power.
“If you get rid of those IPPs that are being paid in forex and you get rid of those using fuel to generate, you are going to get rid of around 44% of our cost,” said Isaac Ndereva, the executive director of the Electricity Consumer Society of Kenya. “Those IPPs are not affecting Kenya Power, but they are affecting us because of those fluctuations.”
Financial pressure resulting from these foreign currency-denominated contracts “has a high negative impact on the consumers,” the Presidential Taskforce on the Review of PPAs noted. In addition, it stated that Kenya Power had entered into 30 PPAs denominated in US Dollars or Euros, further devaluing the Kenyan shilling. Kenya Power’s contract with TPGC is in US Dollars, and all financing was done in the same currency.
The Small Print
The World Bank Group (WBG) funded four IPP projects– one geothermal and three thermal plants. With backing from the multinational bank, the WBG stated that procurement complied with its guidelines of “industry-wide standards of economy, efficiency and transparency for this scale and timing of procurement”. Thus, all successful bidders will be qualified for an IDA Partial Risk and MIGA Termination guarantee.
Among the clauses inside the PPAs is the take-or-pay clause, which dictates that Kenya Power will pay IPPs for available capacity even if it isn’t dispatched to the grid. Ndereva noted the effects of the take-or-pay clause, which affects the token charge through contractual obligations. “For those people (IPPs) being on standby, they are paid,” he said.
George Aluru, CEO of the Electricity Sector Association of Kenya (ESAK), defends the clause, terming it a ‘reflection of the market’ and a result of poor projection, which led to overgeneration. “We need to depoliticise planning. We need to trust the experts,” Aluru explained, “It is not a failure by the guy who was invited by the state, and went through the process.
Marisa Lourenço, a risk consultant in the energy sector with experience analysing infrastructure projects across Africa, explained the effects of the take-or-pay clause to both the consumer and developer. “For governments, it can be good because sometimes they need investment for infrastructure and they cannot do that,” Lourenço explained. The inverse would be take-and-pay, under which payments are made on demand. Although this was recommended by the presidential taskforce, Marisa states that it could be a bad signal to investors. “If it starts to renegotiate, then investors become nervous,” she said.
While some of the questions are answered, the price of one unit of electricity from IPPs, Kshs 29.9, begs more questions than answers. “It is not that IPPs are charging an exorbitant price to get a profit, that is the true value of doing that kind of business in this country,” Aluru said, “Including the financing costs, the costs of the delays and perceived risks of the country, all these build up to a cost.” However, the risks IPPs are exposed to are mitigated in the guarantees offered within the contracts with Kenya Power, some of them offered through the World Bank.
The World Bank offered Partial Risk Guarantees to the IPPs, backstopping their loans from commercial banks on top of instruments like letters of support. While this boosted investor confidence and secured their profits throughout the project’s lifetime, it tied consumers to expensive contracts which, if breached due to a change of law or political events, and even termination from inquests like the ones in recent years, may result in huge payouts to the companies or public debt. Although these guarantees placed a yoke on KPLC and consumers, Marisa explains that these guarantees were necessary as Kenya was still recovering from the 2007/2008 post-election violence.
One change of law, as described in the Force Majeure terms of the PPAs, could be Nairobi Senator Edwin Sifuna’s proposed amendment to the Energy Act. Sifuna’s bill makes compulsory the listing of all beneficial owners of IPPs and forces the prioritisation of dispatch from renewable sources. “People were given these PPAs and they are not even dispatched, and Kenya Power does not even use electricity from those plants,” Sifuna said, “Their electricity is most expensive because even though they are not being dispatched, we have to pay capacity charge.”
In addition, Senator Sifuna alleges corruption and hidden political interests in the fuel supply agreements of diesel IPPs, an allegation which was confirmed to some extent by a forensic audit by the auditor general into Fuel Supply Agreements. The audit found irregularities in contracts between fuel suppliers and IPPs and payments which resulted from intense lobbying by the private power producers. Although such legislation emerges as public outrage grows due to high electricity costs, the contracts and their binding clauses will still impact energy costs for the next 10 years.
Principal Secretary at the State Department for Energy, Alex Wachira, stated that there is considerable progress in lifting the moratorium on PPAs placed in 2023. This means more IPPs will join the grid. However, without reforms addressing the integrity issues and risks highlighted in this investigation, Kenya might be speeding towards new contracts which will further burden Kenyan households.
As we have highlighted, Kenya’s electricity landscape reveals a troubling contradiction: abundant renewable resources juxtaposed with some of Africa’s highest power costs. This investigation has shown that the price consumers pay is not simply a matter of generation or supply, but the product of opaque contracts, foreign currency exposure, politically entrenched interests, and donor-backed guarantees that prioritize investor returns over public affordability. Without bold reforms to improve transparency, enforce accountability in procurement, and align energy policy with public interest, Kenyans will continue to bear the weight of decisions made in boardrooms and behind closed doors—long after the lights are switched off.
The data for this story was provided by Finance Uncovered.
This story was produced with support from Code for Africa, and funded by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).
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