- April 16, 2022
- Posted by: kerea
- Categories: Costs, Reports
PRESS RELEASE KEREA ENERGY PRICE INDEX
Energy pricing is always a very contentious issue. There are three primary competing interests. The consumer wants it at the lowest possible cost. The investor wants to make the most possible profit. The government wants to collect the most tax while at the same time appearing to protect the consumer. Today, I do not want to talk about the formula for price controls but just on the understanding of what energy really costs. My pet peeve with the energy sector globally has been that almost every energy type is sold it its own unit of sale and almost all energy pricing methods do not use an actual energy unit for selling the energy. In Kenya, we buy charcoal in tins, firewood in bundles or meters cubed, LPG and coal in kg, petrol, diesel, kerosene and fuel oil in litres, biogas in meters cubed, solar and wind in watts, solar hot water in litres and grid electricity in Kwh. Only the grid electricity is sold in an actual unit of energy, which is kilowatt hours and that is the SI unit for energy in the metric system. The fact that all the others are not sold in energy terms, means that the consumer, investor and government are not able to see a price and immediately compare this to other energy sources. Therefore, it is probably a handful of experts who know how to do the conversions and see how much every type of energy costs relative to each other.
The Kenya Renewable Energy Association has developed the KEREA ENERGY PRICE INDEX to address this challenge and allow consumers to be able to see how much the energy they use compares to all the other energy types sold in the country. The first step done to be able to compare all primary energy costs on the same terms. The prices used are all collected from publicly available quotations and also from the petroleum pricing updates from the Energy and Petroleum Regulatory Authority as well as the latest electricity bills from utilities. There is always a perception that renewable energy is expensive and that is because the cost of generation is paid upfront. The way to compare energy generated from a solar powered system paid for upfront, say against the cost of petroleum is to first establish how much electricity that panel will generate over its lifetime, which is usually at least 20 years. Take for example a 1000-Watt solar panel. How much is this compared to the price of petroleum in Nairobi today at 144 Ksh for Petrol in Nairobi.
Assuming the panel gets an annual average of 6.9 hours of light per day , then in one year, it will generate one kilowatt for 6.9 hours a day giving 6.9 Kwh of electricity per day for 365 days a year for twenty years. The total electricity it will generate will be 56,666 Kwh. To calculate the cost of energy for a solar panel, you divide the cost of 1000W panel by the total electricity generated over its lifetime. The cheapest and highest efficiency solar panel in the Kenyan market today costs 41.85 Ksh per watt. So, the cost of the 1000 watts panel will be 41,850 Ksh and will generate 56,666 Kwh, so the levelized cost of solar electricity in the Kenyan market is 0.74 Ksh per Kwh. To compare this with the cost of petrol today in the same units, we need to convert the cost per litre to cost per Kwh. The calorific value of petrol is how much energy there is in one kg of petrol. The value is 12.89 Kwh per kg. The density of petroleum is 0.737 Kg per litre. One litre of petrol is 0.737 kg of Petrol which contains 0.737 x 12.89 = 9.499 Kwh per litre. If the cost per litre is 144 Ksh and it buys 9.499 Kwh of petrol, then the price of petrol in Ksh per kwh is 15.22 Ksh per Kwh compared with solar which is at 0.74 Ksh per kwh. Put differently, 0.74 Ksh per Kwh is the equivalent of paying for petrol at 7.4 Ksh per litre. So, if you are a consumer and paying 144 Ksh per litre, your solar equivalent would be 7.4 Ksh per litre. Granted when you factor in system losses and operations and maintenance costs, then the price of solar will go up to 2.4 Ksh per Kwh or the equivalent of paying 23 Ksh per Litre of petrol. In order to make good consumer, business or policy decisions, it is very useful to be able to see the alternatives in similar terms and therefore be able to make a rational and informed decision. The KEREA ENERGY Index summarizes the actual costs of all energy types sold in Kenya and creates a dynamic guide that is updated anytime there is movement or change in the energy pricing in Kenya. The Energy Index also generates summary of the renewable sources of energy, fossil fuels energy and grid electricity costs into rolling averages that are updated any time there is a change in prices.
Highlights of the April 2022 KEREA ENERGY PRICE INDEX
• The average cost of all the renewable sources of energy sold in Kenya is 5.09 Ksh per kwh
• The average cost of the grid electricity tariffs is 15.30 Ksh per Kwh
• The average cost of fossil fuels sold in Kenya is 15.52 Ksh per kwh
• The cheapest energy source sold in Kenya today is biogas using cereal as the feedstock, which is at a levelized cost of 0.13 ksh per kwh and the most expensive energy sold is electricity on the Interruptible tariff at 25.4 Ksh per Kwh.
• It is cheaper to cook with grid electricity for domestic and small commercial users than to use the 3K LPG cylinder.
• It is cheaper to use the 1st 100 units of electricity on domestic tariff for cooking than to use LPG in the 6,13,22.5 or even 50 kg cylinder.
• By Introducing a time-of-day tariff for domestic consumers, people can be encouraged to cook during off peak hours using electricity and they can reduce their costs while increasing sales for the utility by increasing off peak sales to domestic market.
• The cheapest source of electricity is daytime Solar Power produced in direct current (that can charge an electric car battery) at 2.4 Ksh per Kwh or the equivalent of paying 23 Ksh per litre of petrol.
Chief Executive Officer
Kenya Renewable Energy Association