Kenya Power and Lighting Company (KPLC) has received approval from the government to start charging consumer bills in US dollars. The decision comes as a response to issues with fluctuations in foreign exchange rates. KPLC is setting up appropriate accounts to receive electricity payments in US dollars, euros, and sterling pounds [59136fc8].
The move to charge in US dollars is a result of the weakening Kenyan shilling and the high cost of power purchases. KPLC recorded a net loss of KSh 3.2 billion in the year ending June 2023, with operational costs more than doubling to KSh 15.02 billion, mainly due to fluctuations in the foreign exchange rate [59136fc8].
According to recent data from the Central Bank of Kenya (CBK), the Kenyan shilling regained value against the US dollar to trade at KSh 146, down from an all-time high of KSh 163. However, market analyst Rufas Kamau predicts continued shortages due to the recent move to allow Kenya Power to bill using dollars. The shilling is expected to report a fresh decline in the first quarter of 2024. The average exchange rate currently stands at KSh 146, down from a historic high of KSh 163. The government anticipates the dollar shortage problem to continue. The Kenyan shilling is expected to trade at 159.35 by the end of this quarter and at 160.40 in 12 months' time [c7c33dbe].
This change in billing currency may have implications for consumers, as they will now need to have access to US dollars to pay their electricity bills. It remains to be seen how this shift will impact consumers and whether it will lead to any changes in electricity consumption or payment behavior [59136fc8].
The Kenya National Bureau of Statistics (KNBS) reported a drop in the consumer price index (CPI), lowering inflation to 5.7% in March 2024. The Kenya shilling gained strength against the US dollar during the same period, lowering import costs. Prices of petroleum products, electricity, and other items dropped significantly on the strong shilling. Market analyst Rufas Kamau stated that the strong shilling brings a lot of benefits to the country. The current value of the Kenya shilling is KSh 131.8 per dollar. Items that reported reduced prices in March 2024 include unga (maize flour), sugar, electricity, petrol, diesel, and kerosene. However, prices of commodities such as onion, mangoes, potatoes, oranges, tomatoes, and beef increased in March 2024 compared to February 2024 [dc0eba5f].
Electricity imports between January and March 2024 hit an all-time high in Kenya, with 408.78 Gigawatt-hours (GWh) imported from Ethiopia and Uganda, a 41.7% increase from the same period last year. Power imports helped lower reliance on thermal plants, reducing costs and meeting rising demand. Power bills fell by an average of Sh1 per unit last month, and hydro generation is increasing due to heavy rains. Generation from dams picked up from November 2023 and is expected to continue rising. Electricity imports accounted for 12.01% of the available power, with geothermal being the highest at 40.1%, followed by hydro at 24.08% and wind at 14.62%. Kenya has a power exchange deal with Uganda and a deal to import electricity from Ethiopia starting in November 2022 [eda1130e].
In other news, electricity prices in Kenya have increased by an average of 2.8 percent or 86 cents per unit this month, marking the first increase since January. The Energy and Petroleum Regulatory Authority (Epra) raised the Fuel Energy Charge (FEC) to Sh3.59 per unit in June from Sh3.52 in May. The foreign exchange rate fluctuation adjustment (Ferfa) was also raised to Sh1.76 per unit from 97 cents in May. Independent power producers (IPPs) are paid in foreign currency, particularly in US dollars and euros. The increase means a customer in the Domestic Ordinary 2 category will pay Sh1,028 for electricity this month to get 32.9 units, marking an increase of about Sh28 from Sh1,000 to get the same quantity of power. The increase in electricity prices is set to exert pressure on the cost of living and comes at a time when inflation rose in May for the first time since January. Inflation averaged 5.1 percent in May, up from five percent in April, largely driven by food inflation due to supply disruptions caused by heavy rains and flooding. Fuel inflation, however, declined during the month, reflecting a downward adjustment in pump prices and lower electricity prices [4d7600c5].
Matthew Kandrach, president of Consumer Action for a Strong Economy, warns that power bills are expected to increase. Kandrach argues that government policies are driving up the cost of electricity and hurting consumers. He suggests that deregulation and market competition could help lower power bills [9d986f7b].