Kenya Power posts $8.5m half-year net profit

From the newsletter

Kenya's national power utility company, Kenya Power, has reported an $8.5 million net profit for the 2024 financial year. This marks a continuation of its profit streak from 2023 when it reported a profit of $2.17 million after several years of loss-making. Electricity sales also increased by 5% as more customers were connected.

• The company made an $8.5 million loss in the half-year period ending December 2023 and a $7.3 million loss in 2021 as it faced challenges with debt and liquidity, which impacted its profitability.

• Kenya Power is expecting the lifting of the moratorium on power purchase agreements. This will pave the way for more renewable energy generation projects, allowing the injection of cheaper renewable electricity into the grid.

More details

• Many African countries face a significant challenge with electricity loss during transmission and distribution. While a handful of countries, such as Botswana, Lesotho, and Mauritius, have managed to keep these losses at or below 10%, the majority grapple with much higher rates. In 36 countries, losses range from 11% to 48%, placing immense financial strain on electricity providers.

• These inefficiencies, coupled with non-technical losses like unpaid bills from government agencies, create unsustainable debts. This debt, in turn, prevents much-needed investment in modernising the electricity infrastructure.

• As such, many utilities are stuck in a vicious cycle of loss-making. Many have been increasing electricity tariffs to escape the debt trap, but few have succeeded. One of Africa's largest utility companies, Eskom, has failed to make profit despite increasing electricity prices annually. In 2024, they made a loss of $3 billion after tax.

• Ghana and Nigeria's national utility companies also suffer from huge losses despite electricity tariff increases. Few, like those in Uganda and Tanzania, are making profits.

• The thing about the electricity market is that price increases alone won't solve the perennial losses. More investment is needed, especially in the old generation and transmission lines, which account for significant losses.

• In addition, most power purchase agreements are typically based on foreign currency, and exchange rate fluctuations significantly affect costs. This often pushes costs upward, as local currencies tend to depreciate against foreign currencies. For Kenya Power, the currency has been luckily stable over the past eight months which has reduced debt repayment costs.

• The integration of renewable energy projects, which are cheaper, is expected to stabilise electricity prices in Kenya in the future. However, the addition of these renewables will depend on the government's decision on the moratorium on PPAs and the review of tariffs which is set to begin in the first quarter of this year. It is expected to be lifted to allow more generation to meet the growing demand.

Our take

• Kenya Powers' recent profits signal recovery and are indicative of effective cost-cutting measures for the company. However for continued financial sustainability more needs to be done including addressing their ageing electric infrastructure and forging better tariff reforms.

• By focusing on renewable energy in its generation mix, Kenya Power can lower power purchase costs (since renewables are more affordable in the long run) while also helping Kenya reach its goal of 100% renewable energy in the electricity sector.

• With improved profitability, Kenya Power is in a better position to invest in modernising and expanding its grid infrastructure. This is critical for integrating more renewable energy sources, such as solar, wind, and geothermal, which are intermittent and require a robust and flexible grid.