Kenya's higher electricity charges put more pressure on small businesses

Electricity is becoming another cost for Kenyan businesses to watch closely. The Energy and Petroleum Regulatory Authority (EPRA) has added KSh4.70 per kWh to electricity charges for August. The adjustment includes a KSh3.51 fuel energy charge, a KSh1.1777 foreign exchange adjustment and a KSh0.015 water resource management levy. For a small business, the impact depends on how much electricity it uses. A business using 500kWh in a month would pay about KSh2,350 more from these charges. A business using 1,000kWh would pay about KSh4,700 more. The final electricity bill will be higher once the other charges are included.

It will not hit every business the same way

A small office may not use enough electricity for the increase to make much difference. A restaurant is a different story. Its fridges and freezers need to run all day. Ovens, lights and other equipment also add to the bill. The same applies to laundries, salons, workshops, butcheries and small manufacturers. For these businesses, electricity is tied to the work they do every day. Using less power is not always straightforward. The August adjustment comes after another increase in July. EPRA added about KSh5.18 per kWh through fuel and foreign exchange charges that month. A business using 1,000kWh would therefore have faced almost KSh9,900 in additional charges across the two months, assuming the same usage. For an SME, that can affect more than the electricity budget. The extra money could have gone towards stock, wages, rent or other running costs.

Owners have a few choices

A business can absorb the increase. That means taking the hit on its profit. It can also raise prices, although that comes with its own risk. Customers may not accept higher prices, especially when they are already dealing with higher living costs. Another option is to reduce electricity use. That can work for some businesses. It is harder for a bakery, restaurant, workshop or cold-storage business where electricity is part of the operation. An owner may also look for savings elsewhere.

Why the charge changes each month

The KSh4.70 is not a new permanent tariff. It comes from charges that can change as certain costs change. The fuel charge is linked to the cost of generating and purchasing electricity. The foreign exchange adjustment reflects costs linked to payments made in foreign currencies. The water resource levy is linked to hydropower. This means the amount added to an electricity bill can move up or down from one month to the next. For businesses, that makes monthly budgeting more difficult.

The bill can affect prices

A business that cannot absorb the extra cost may eventually pass some of it on to customers. A bakery could adjust the price of its products. A restaurant could review menu prices. A small manufacturer could add some of the higher power cost to what it charges for its goods. But there is no guarantee that customers will accept the increase. Some owners may decide that keeping prices unchanged is better, even if it leaves them with less profit. That is the trade-off many small businesses face when operating costs rise. For Kenyan SMEs, the latest electricity adjustment is therefore another number to watch. The KSh4.70 per kWh may look small on paper. For a business using thousands of units each month, it becomes a much bigger number.