Implication of cheap night electricity tariff on businesses

By Gabriel Onyango

Kenya’s private sector has been grappling with high energy costs for a while now, which have played a role in increasing the cost of production, especially in the manufacturing industry. However, 1st December marked a new dawn as businesses started enjoying a 50 percent electricity price cut, between 10 pm and 6 am. But what does this mean for businesses?

Effects on businesses

Before the new tariff, according to the Kenya Association of Manufacturers, manufacturers were paying an electricity tariff of $15 cents (sh15 ) per kilowatt hour, compared to Ethiopia’s $0.4 (sh4.14 ) per kilowatt hour. Electricity tariffs in Egypt and Uganda are $0.6 (sh6) and $12 (sh12) per kilowatt hour.

As a result of the off peak price cuts, tariff rates in Kenya will be sh5 and sh7 per kilowatt hour for commercial users, metered above 11 kilovolts and those between 450 and 11 kilovolts respectively.

In addition to high costs, electricity has also been erratic, forcing businesses to supplement their power with generators which are expensive to buy and maintain. This has been attributed to an excessive demand for power during the day but low demand during night hours.

“The introduction of the night tariffs will help promote commercial and industrial growth in Kenya, while maximizing on the surplus energy available at off-peak hours,” said Energy Regulatory Commission Director General Pavel Oimeke.

Kenya consumes less than half its peak demand (1,727 megawatts) between 12 pm and 5 am. As more businesses distribute their production around a 24-hour economy this surplus is likely to be effectively utilized.

For manufacturers like Savannah cement, who operate for 24 hours a day and whose energy spend; according to Managing Director Ronald Ndegwa, is between sh40 million and sh50 million a month, this translates to savings that could be used to boost other areas of the business and improve productivity.

Small and Medium Sized Enterprise (SME’s)

Small and Medium Sized Enterprises take the lions’ share of Kenyan businesses in terms of volume. As such, we would expect SME’s to be the biggest beneficiaries of the cheap night electricity tariffs. However, the opposite is true, the ship is sailing and SME’s are yet not on it.

For a company to benefit from the off-peak rates, Kenya Power and Lighting (KPLC) needs to be able to tell, at what times you are using power. This requires smart meters which most SME’s don’t have. An issue addressed by the Energy PS, Engineer Joseph Njoroge, at the Kenya Power annual General Meeting,

 “The only setback we have is the meters because for you to have off-peak and on-peak (tariffs), you must have a smart meter which is able to sense and register consumption and the time of that consumption.”

The new meters will be installed in three months thus SME’s should be on the lookout.

With the price cuts bringing us within striking distance, it is up to Kenyan businesses to intensify competition with other nations. By increasing their export quality, marketing and products accessibility, otherwise, the cheaper off-peak tariffs will be a move in futility.


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