Independent Power Producers Operation Cost and Electricity Tariffs in Kenya

Abstract

While electricity supply and demand is affected by various exogenous variables such as amount of power generated, number of customers connected to the grid and various policy regulations from the government, the burden of high electricity costs is a major concern to most stake holders. The study aimed at establishing a relationship between IPPs operation cost and the cost of electricity in Kenya. The objectives of the study were: to find out the relationship between operation cost of IPPs and electricity tariff in Kenya and to test the input output model in determining electricity tariff. The target population consisted of five licensed IPPs in Kenya. A census approach was used in the study where all the 5 licensed commercial IPPs were studied by the researcher. Descriptive survey design was used in obtaining data from five IPPs in Kenya namely Westmont, Iberafrica, OrPower4-Kenya, Tsavo Power Company (TPC) and Rabai. Questionnaires were administered to obtain primary data from the respondents. Secondary data was obtained from published annual reports from Energy Regulation, Kenya power and IPPs annual reports ranging from 2012 to 2015. Quantitative data analysis, regression and ANOVA were used to analyze data. Graphs and tables were used to present the results. It was found out, from the study, that operation costs of Independent Power Producers affect the cost of electricity in Kenya. The study recommended that the Energy Regulation Commission ought to review the pricing strategy for electricity and that Kenya Power ought to determine a favorable generation mix by IPPs and minimize system loses to reduce electricity tariffs paid by consumers.