ALURU: Why the next electricity tariff review is something you want to pay attention to

The electricity grid continues to witness increased demand with the country recording new peaks nearly bi-monthly in 2025. This is a sign that economic activity is steadily rising and perhaps with some tweaks, we could experience a much steeper rise.

The rise in demand at peak is driven mostly by households as they run TVs, showers, fridges, and ovens after a long day of work.

The way new power plants are planned largely follows the expectations of how this peak will progress. We always desire to ensure we have enough generation to meet the peak demand.

This generation is then contracted for the whole day every day for 20 years. During the peak, after all the base generation sources are run, the peaking plants are activated to ensure supply at the evening peak.

A combination of baseload power plants such as geothermal and hydro, varying renewables, such as wind and solar, and peaking plants such as heavy fuel oil plants, and imports (mainly hydropower) are required to meet the peak.

We then experience sharp reductions in demand after the peak from about 10pm. This is when households are going to bed and 2-shift industries close for the day.

This persists until 7 am when we get back to work. During the working day demand increases to a higher level but still below the peak. This is typical of a working day in Kenya. Weekends and public holidays have much longer periods of low demand.

Our challenge is that we have paid for power plants to avail the capacity equal to the peak even during the low demand periods. This is the current approach that allows us to finance and construct powerplants as it assures revenues that justify investment.

This investment is however not utilised to the fullest. Though this is a common phenomenon in many countries, it is important for us to take steps to improve the use of installed power capacity.

Today we have a peak demand of 2440MW. Demand drops to as low as 1100MW during the night and averages 1800MW during the working day.

This means that we have underutilised capacity that is already paid. This compared to the peak ranges between 600MW and 1300MW depending on the off-peak hour.

Time of Use (TOU) tariffs are used world over to overcome this challenge. They offer lower-priced electricity at off-peak times to encourage increased demand at these times.

This demand increase improves the efficiency of utilisation of existing infrastructure while allowing a discount for energy-intensive industries. TOU tariffs have been applied in Kenya since 2018.

The 2023/26 version offers half the price of the peak periods for small commercial and industrial consumers for off-peak consumption between 10 pm and 6 am on weekdays, all day Sundays and 2 pm to 6 am on Saturdays.

There is, however, a requirement that a consumer must first consume the equivalent of their average monthly consumption over the previous 6 months. Only the consumption above the six-month average qualifies for the discounted tariff. This average is also recalculated every other six months.

This has meant that consumers looking to benefit require continuous expansion. Consumers argue that this structure is a shot on one’s foot in the attempt to encourage consumption during off-peak. There are multiple factors affecting expansion and a state of constant expansion to qualify is a hard ask for businesses.

The good thing is that the regulator (EPRA) normally reviews consumer tariffs every three years and this quarter is another such opportunity to try and relook at what we can do to increase off-peak consumption. The level of discount and the conditions attached to the ToU discount will need to be reviewed.

This review should also consider what level of tariff is required to sustain the whole power production and sale sector. This consideration being balanced by what we can do to encourage expansion of industries (small, medium and large) through tariff incentives.

It is not an easy task, but it is one we must approach with pragmatism and a vision of where the country wants to go with industrialisation.

This is also the time for domestic consumers to take a keen interest on how their tariffs will develop over the next three years. To ignore this opportunity to influence tariffs is self-defeating.