Proposed coal plant in Lamu will cause electricity price to increase

DeCOALonize Resource Source

The price of Lamu coal plant electricity is determined most directly by the price of coal, the cost of building the plant and its infrastructure, and the operating capacity of the plant that is utilised. The Kenyan Government 1) cited historically low coal prices in its calculations, 2) excluded major necessary infrastructure costs (which the public would pay for), and thus 3) grossly underestimated the price of electricity to be produced from Lamu coal plant. The estimated price of electricity, based on which they sold the plant to the public, is far too low to be realistic.

The proposed coal plant in Lamu will cause the price of electricity to increase.

Using the real average price of coal and including the necessary infrastructure, the real cost of Lamu coal plant electricity rises to 9.5-11.5¢ per kWh. Even today, in Kenya, this is comparable to the costs of geothermal, solar, and wind renewable alternatives.

Amu Power based its estimated price of USD 7.5¢ per kilowatt hour on coal costing USD $50/tonne. That’s lower than its price at any point in the past decade and lower than the average for several decades.

• The price of coal fluctuates. The average price of coal is USD $78/ton and USD $83 delivered in Kenya, as of July 2017. In the past six years, the price of coal has been as high as USD $132/ton.
• The actual average price of 1 ton of Australian coal in 2014 (the year of the government calculation) was USD $81 ($86 delivered).
• At USD $86/ton (the actual average price in 2014), the cost of electricity is USD 9.5¢ per kilowatt hour. That’s 28.5% higher than the price Amu Power said Kenyans would pay for Lamu coal plant electricity.
• This does not include the cost of the public debt incurred in constructing the transmission line and railway.

Amu Power’s estimated USD 7.5¢/kWh does not include the marginal rate to repay the loans of the full cost of the plant.

• The cost of building transmission lines to get the electricity to people in Nairobi and an extended railway to get the coal from Kitui increases the cost of the plant and — in turn — the debt that needs be repaid by Kenyans’ purchases of electricity. Neither were included in Amu Power’s calculations of the price of electricity generated at the plant.
• Amu Power’s Environmental and Social Impact Assessment (ESIA) for the plant states that the railway extension to Kitui would cost USD $2.8 billion, while the former ERC head estimates the transmission line to Nairobi would cost USD $270 million.
• With these costs included, Lamu coal plant electricity will cost USD 11.5¢/kWh, using the formula of the former Chairman of Kenya’s Energy Regulatory Commission in his sworn testimony.
• 11.5¢/kWh (or $0.115/kWh) is 53% higher than the price of electricity that Amu Power used to sell the project to Kenya.
• If the price of coal goes up — or the construction costs for either the transmission line or the railway — the price of electricity will go up even higher.

The plant will not operate at a capacity to pay back the construction debt

• Amu Power based its price on the plant running at 85% capacity, and all its cost estimates are based off this projected efficiency level.
• The price of electricity is related to the Plant Load Factor, the percentage of a plant’s capacity that is used.
• The average utilization for a coal-fired plant in China is 49%; 55% in the United States; and 65% in India.
• If the proposed Lamu coal plant operates at the international average (56%), it will not generate enough electricity to pay back Amu Power’s debt, and rates will increase to cover the balance.

Kenya (citizens and government) will be contractually obligated to pay for a set amount of electricity, whether or not it is used.

• Public company and nationwide electricity provider Kenya Power (KPLC) would be obligated to pay Amu Power for the power produced by the Lamu coal plant for 25 years.
• According to those familiar with the power purchase agreement between the Government of Kenya and the contractor, that will cost USD $350 million per year, to be paid whether the electricity is used or not.

For additional information:

Background documents at deCOALonize.org.

More factsheets:

What is the story with the Lamu Plant?
Does Kenya need the plant to support economic growth?
Is burning coal that bad?
How does the proposed plant affect Lamu’s water?
Impact on World Heritage site: Lamu town is a UNESCO WH site