National Energy Policy - Final Draft - 14 Nov 2013

(c)(d)(e)(f)(g)(h)Contribution from energy sector playerContribution from Treasury other than funds provided to public institutions for thedischarge of their mandates.Raising funds through the stock market (bonds and bills).Recovered assets from proceeds of corruption and economic crimes in the energy sector.Allocation from levies charged by various statutory bodies including TARDA, KVDA etc.Support from development partners3. The fund shall be managed by the proposed Energy Finance Corporation.8.5. ENERGY PRICING AND SOCIO-ECONOMIC ISSUESNet domestic sales and consumption of petroleum fuels by consumer category have witnesseda gradual increase in the last five years. The sales recorded an increase of 4.3 percentbetween 2009 and 2010. A similar trend was observed over the same period for electricity forwhich consumption grew by 6%.8.5.1 Energy PricingElectricity1. Electricity pricing is based on the principles of Long Run Marginal Cost (LRMC) of supply. TheEnd-User-Tariff incorporates all prudent costs in the value chain and a fair return to theinvestors. The bulk tariffs are negotiated between producers and the off-taker, however, thePower Purchase Agreement is subject to approval by the Commission. The retail tariffs areregulated by the Commission and may be subject to review at least every three years.2. Fuel costs and exchange rates gains/losses are pass-through costs in the current regime.These account for power cost variations in the event of fluctuation in the international crude oilprices as well as volatility for the Kenya shilling against foreign currencies, mainly the US dollar.3. Other fuel costs that affect electricity prices include steam charge, hydro water charges,regional development authorities’ charges.4. Thermal generation in 2011 accounted for 35% of power supply thus increasing the exposure ofpower price volatility due to the use of imported petroleum.5. The increase in cost of petroleum products also leads to an increase in the cost of electricity.Figure 8.1 shows the trend of total pass through costs of electricity tariffs mainly which are FuelCost Charge adjustment (FCC), Foreign Exchange Fluctuation Rate (FERFA) and Inflationadjustment. These are directly or indirectly affected by crude oil price fluctuation. The totalpass-through costs have often been above the non-fuel tariff which range between 2.00 and8.96 kshs/kwh. The increase in Fuel Cost Charge has been fuelled by the increase ininternational prices of petroleum products coupled with enhanced use of emergency power as aresult of poor hydrology which reduced hydro electric power capacity.118 NATIONAL ENERGY POLICY FINAL DRAFT NOVEMBER 2013