Energy bills for both domestic and industrial users remain high despite an increase in cheaper green sources.
A few weeks ago, oil prices set by the Energy and Petroleum Regulatory Authority remained the same much to my chagrin – note: oil prices had been declining at that point. Many wondered how every increment in landed cost is quickly matched with a pump price increment but not when the reverse happens?
I won’t go further than this but instead highlight an interesting relationship between oil prices and renewable energy. A recent study by the Organisation for Economic Cooperation and Development (OECD) on this link shows that: One, renewable energy can actually serve as a means of hedging against international oil prices.
Two, from an economic perspective, energy security can be improved by renewable expansion. Three, renewable energy can lead to the decarbonisation of the energy sector.
To speak on the renewable aspect, Kenya has had a lot going for itself. Over 85 percent of its electricity generation comes from the low carbon sources of geothermal (43.6 percent), hydro (24 perecnt), wind (16.9 percent), and solar power (three percent) according to the Kenya National Bureau of Statistics Economic Survey of 2023 – thermal energy, which is a non-renewable source, constitutes the balance of 12.5 perent.
The country boasts the highest electricity access rate in East Africa: total access stands at 75 perecnt both from grid and off-grid solutions. Some estimates show that at least 1.6 million people now have access to power in the country. All this tracks well considering Kenya’s commitment to reach 100 percent clean energy by 2030.
That said, the big question is; if renewable energy is cheaper than non-renewable energy, why are energy bills only going up? If the cost of generating power from wind and solar has tumbled over the past decade (40 percent according to some estimates) why are energy prices still being felt so strongly? Do not have answers only more questions. Is the grid not designed to rely on many sources of power than it was designed for.? Is the problem connecting renewable projects to the grid? Will increased competition in the energy market solve the problem? Do we need to bring back the subsidy? Blame the new tariffs? – the introduction of new tariffs in April 2023 coupled with the removal of subsidies has seen the price of power bills increase by 77 percent according to Kenya Institute of Public Policy Research and Analysis.
Have we ignored making investments in our energy infrastructure? Is it time we relook at the fuel cost adjustment in our pricing – a factor that has been fluctuating in recent years owing to high fuel costs globally?
Crude oil is a crucial component of the global economy, and its price fluctuations can significantly affect economic growth and individual welfare. When crude oil prices rise, disposable incomes decrease and this hinders economic growth. Policymakers should, therefore, treat access to affordable and efficient energy as urgent and crucial for economic growth and development in Kenya.
The Kenya Vision 2030 demands it as it identifies energy as an enabler to achieving the economic, social, and political pillars in the vision.
Mwanyasi is MD, Canaan Capital
