The renewables competition is not sleeping

From the newsletter

Prices for petrol and diesel across Kenya, South Africa and Nigeria dropped in May, according to the Renewables Rising price tracker. But the margins were too small to show a marked impact. This comes as global crude oil prices hit their lowest level since the post-Covid recovery. Fuel prices in Egypt remained unchanged after a hike in April.

• Diesel still plays a major role in Africa's energy sector. Price changes are often passed on to electricity consumers. 

• Kenya and Egypt provide special electricity tariffs for charging electric vehicles. This sector is gaining momentum, and power utility companies are targeting it to increase consumption and boost their revenues.

• Our take: With renewables now becoming cheaper than fossil fuels, their integration into the grid is expected to lower electricity prices… Read more (2 min)

More details

• Electricity prices in Kenya increased by a small margin of about a shilling for residential and commercial customers. This was mainly due to an increase in the fuel cost charge, a component of electricity bills that reflects fluctuations in the cost of fuel used for power generation. This is despite the decrease in fuel prices. Also, the foreign exchange charge slightly increased as the shilling lost some value in the same period.

• Electricity prices in Egypt, South Africa and Nigeria remained unchanged. South Africa's electricity tariffs, which are typically reviewed annually, saw new tariffs for Eskom, the national power utility, implemented in April, with a 12.7% increase. However, the 11.3% tariff increase for municipal customers is scheduled to take effect in July this year.

• Egypt's commercial and industrial customers enjoy less expensive tariffs, at about $0.04 per kilowatt, roughly 5 times cheaper than Kenya's. Egypt also has the cheapest residential tariffs, while Kenya's are the most expensive. However, the grids of these countries differ significantly. The Kenyan grid is powered by renewables at more than 90%, while the rest rely mainly on fossil fuels. South Africa generates more than 80% of its electricity from coal.

• Higher fuel and electricity costs affect many sectors of the economy. Companies directly feel the impact on production and transport costs. These costs are passed on to consumers whenever it becomes necessary for companies to maintain their profitability. For high energy-intensive industries like mining and steel manufacturing, energy costs can account for up to 40% of company expenses. Such heavy consumers have many more benefits if they switch to their own power generation.

• All four countries have ambitious plans to switch to renewables. Kenya, for instance, plans to achieve a 100% move to renewables by 2030. South Africa, Egypt and Nigeria want them to account for more than 50% of electricity generation by 2050. As renewables prices keep declining, with more adoption, this will potentially lower electricity prices.

Our take

• As the new financial year approaches, we expect countries like Egypt, which still subsidise their fuels, to review their budgets. There is already pressure from the IMF, their major lending partner, to cut fuel subsidies to qualify for loan arrangements. Fuel subsidy budgets will be revised downwards, and this will impact prices.

• The current US policy of promoting more drilling of oil will only serve to flood the market. This is expected to lower oil and eventually fuel prices.

• On electricity, the effect of declining renewable energy technology costs is being felt in recent power purchase agreements. Solar is now cheaper than fossil fuels. As more renewables are integrated into the grids, electricity prices will come down.