Consumers hit as electricity prices rise in August

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Electricity prices have risen in August, driven by tariff changes to two critical pricing components, piling pressure on homes and businesses already grappling with costly goods and services.

An analysis of the prices shows that Sh1,000 is now fetching 38.8 kilowatt-hours (kWh) in August compared with 40.2kWh for the same amount last month, while consumers are getting 19.4kWh for Sh500 compared to 19.5kWh in July.

The rise in electricity prices in in August is mainly driven by the Fuel Cost Charge (FCC), which rose to Sh3.51 per kWh this month from Sh3.20 for the same units last month, while the forex adjustment fell to Sh1.177 per kWh compared to Sh1.484 in the same period.

Costly electricity increases pressure on consumers already grappling with higher costs of services like transport and goods in the wake of expensive diesel and petrol.

Inflation—a measure of the cost of living—marginally eased to 6.4 percent last month from 6.5 percent in June, mainly on high fuel prices. Costly electricity will dim hopes of further easing the cost of goods and services, given that electricity prices are key in determining inflation.

Forex and FCC are the two biggest fluctuating components in the monthly prices of electricity. The biggest component is the base tariff, which is reviewed every three years and varies across different consumption bands.

FCC covers the cost of using heavy fuel oil and diesel to generate electricity by thermal power plants, while forex covers power purchase agreements and loans denominated in hard currencies like US dollars.

The other pass-through costs used in determining the monthly prices of electricity are inflation adjustment charge, energy regulatory levy, Rural Electrification Authority, a levy for the water regulatory agency and Value Added Tax.

Electricity prices have turned out to be a political nightmare for the government, adding to the headache of costly diesel and petrol.

The government was in June this year forced to freeze a planned rise in electricity prices amid fears of sparking outrage ahead of the elections.

Reporting originally appeared via Business Daily. Read the full source for additional context.