One of the cardinal functions of various governments world over is to provide a conducive environment for commercial businesses to thrive. This in turn leads to employment creation, generation of wealth, tax and overall development of the people.
Among the critical infrastructural facilities these governments provide in order to achieve the goal above is electricity. Electricity is literally the heartbeat of an economy and just like the human body cannot function without the heart, so is an economy.
Electricity generation, transmission and eventual distribution is capital intensive and it may not be feasible to fully provide it on commercial terms without having to raise the final cost that is borne by the consumer. To mitigate this, governments have had to shoulder some of the initial costs to ensure the final cost is bearable to the consumers and the economy. Indeed, this is even more crucial to businesses for them to be competitive; both at the domestic and international markets.
In the case of our country, the government has been active in providing resources to enhance generation especially from renewable sources such as geothermal. Similarly, transmission and distribution have also been funded to ensure power is evacuated and supplied across the country.
Twenty four hour economy
The need to spur a 24–hour economy is gaining momentum as the country seeks to leverage on the availability of stable and quality electricity. To encourage this drive, the introduction of “Time of Use” (ToU) tariff is expected to see commercial businesses, especially in the manufacturing sector, increase their operations during the night.
Simply put, ‘Time of Use” tariff implies that manufacturers who increase their night production will benefit from much lower power tariff, leading to lower electricity bills hence improving the competitiveness of their products in the market.
As a company, we started implementing this initiative in December last year. In January, 850 large power customers benefited from the ToU tariff compared to 804 in December. As a result of the discounted tariff, these companies have realized a reduction in their power bills. Such savings are expected to grow as more companies come on board and extend their hours of operations.
For Kenya Power, our power consumption in the night has increased thereby improving our overall sales. For instance, in the month of December, an additional 21.8 GWh was consumed. With more companies expected to increase their night operations by taking advantage of the lower night tariff, we are looking forward to a robust growth of our top line. This will be net sales that we were not realizing before the implementation of the ToU.
During a recent visit by the Cabinet Minister for Energy, Hon. Charles Keter to Bamburi Cement factory in Athi River, we were informed that the company will be taking up an additional load of 150 MW for its new processing plant. Things are bound to get better through creation of additional jobs, expected reduction in shelf prices for the goods, and hence a trickle down to the common mwananchi. Other companies which have adopted the ToU tariff have indicated that they intend to employ more people to manage the increase in the night shift.
The aim of the new tariff is not to have customers shift their production to off-peak hours but it is designed to stimulate demand by providing an incentive to increase production. The discounted rates will therefore be applicable on energy consumed during defined off-peak hours above each customer’s daily consumption during such periods.
As a condition, the benefiting customers will therefore be required to meet their monthly energy consumption threshold. Any units consumed over and above that threshold are billed at the discounted rate of 50% for energy consumed at off-peak hours. The threshold will be determined from the monthly energy consumption of the previous six consecutive months. This means that the customer will have to not only maintain normal production, but will also increase it. Consequently, any production above what the customer carries out at off-peak benefits from the discount.
Large commercial and industrial customers already operating at normal production capacity levels during both on-peak and off-peak hours will benefit from a 5% discount for their off-peak consumption.
Whereas large power consumers will benefit from decreased production costs, the 50% reduction of tariffs during off-peak hours will also help in efficient utilisation of power generated during low energy demand periods.
Ken Tarus, PhD is the Managing Director and CEO of Kenya Power