Be careful with clean energy hype

Where our energy sector is today, we cannot afford to be carried away by the climate change hysteria and postpone our plans for gas and coal. PHOTO | SHUTTERSTOCK

If you still receive the paper electricity bill, try tracking movements in the category ‘forex adjustment cost’ to appreciate the gravity of the suffering of the consumer as the Kenya shilling falls.

The depreciation of our currency hits the consumer in two ways. First, what is known in jargon as realised forex losses.

These are the losses that Kenya Power suffers when they have made foreign currency payments for actual foreign currency-denominated obligations such as power purchase costs, loans and interest on government-guaranteed foreign loans, and fuel from power plants using imported oil.

These costs are passed on to the consumer through the monthly forex adjustment costs using the Central Bank of Kenya’s mean exchange rate.

Secondly, the unrealised forex losses. These are not recovered from the customer until the actual payments are made. They refer to book losses that Kenya Power suffers when it has to restate its loans and other liabilities denominated in foreign currencies in Kenya shillings, the reporting currency of its financial statements.

I hold the view that our future, in terms of both affordable prices and security of supply, will depend on the investments we make in locally produced power, including in coal and gas.

Where our energy sector is today, we cannot afford to be carried away by the climate change hysteria and postpone our plans for gas and coal.

Why is it that we no longer talk too loudly about the large coal deposits we discovered a long time ago in Kitui? Why do I get the impression that plans to import natural gas from Tanzania are on the back burner?

If you closely followed the politics of COP28, the subliminal message was that countries like China, Brazil and India are not prepared to sacrifice their economic health at the altar of the climate change cause.

This is how an Indian diplomat put it: “We must have the right to dig coal just as the United States has a right to frack for gas”. He argued that Western countries that have taken their carbon space are leaving little space for countries from the developing world.

Expensive fuel

Thus, Kenya and Tanzania will not be out of place if they insist on pressing their right to produce natural gas and to convert some of the plants that use expensive imported fuel into using natural gas.

COP28 was happening against a backdrop of serious and urgent plans by Kenya to build a natural gas pipeline to run from Dar es Salaam to Mombasa.

This project will by far be the most significant game-changer in the efforts by the two countries to deliver cheap electricity to its citizens.

Already, Kenya Electricity Generating Company (KenGen) and the Kenya Ports Authority (KPA) had identified a suitable location for the building of both an LNG terminal and an LNG power plant in the Dongo Kundu, Mombasa.

Several years ago, Kenya — in anticipation of the proposed LNG pipeline from Dar es Salaam to Mombasa — came up with laws and regulations that oblige fuel power stations to convert from expensive fuel to cheaper natural gas as soon as the natural gas is available and is within reach.

The project will change the landscape and maths of power generation because, within the Mombasa region alone, Kenya has five power stations that will be obliged to do a fuel-for-natural gas swap when the Dar to Mombasa pipeline is completed.

Natural gas

The power plants which will have to implement fuel for natural swaps include Kipevu 1 with an installed capacity of 75MW, Kipevu 2 (74.5 MW) Kipevu GT (60MW), Rabai (90MW) and Kipevu 3 (120 MW).

The benefits from conversion to natural gas will be huge because based on current electricity prices, the estimates are that Kenya will experience an annual saving of Sh10 billion per year to electricity consumers.

With the public transport being the biggest cause of distributed air pollution, the conversion to gas will contribute to improved air quality.

The benefits to Tanzania will also be huge. The current estimates are that the country will earn $324 million in natural gas sales and a further $162 million in wheeling charges.

With the pipeline construction costs estimated at $700 million, the project constitutes one of the largest FDI inflows into Tanzania in recent years.

East Africa must resist the temptation of blindly joining the green lobby power by leaving their oil, gas, and coal in the ground in exchange of pledges for climate financing from the West.

The writer is a former managing editor of The EastAfrican.