The Effects of electricity cost on the overall production cost: the case of manufacturing companies in Nairobi
Electricity as a source of power for production is a key aspect in the growth and development of the manufacturing sector. The availability of electric power and its costs directly affects the quality, quantity and cost of production. However, there lacks substantive studies on the contribution of proportionate costs of mains electricity in determining the overall production cost from the manufacturing companies in Nairobi. Thus, this study evaluated the role of mains electricity as an input of production in determining the cost of production in the manufacturing companies in Kenya. The specific objectives of the study were; determining the effect of mains electricity availability on the overall production cost; ascertain the effect of mains electricity fluctuations on the overall production cost and finally, establish how the cost of mains electricity affects the cost of production. A descriptive cross-sectional design was utilised in the methodology employing a mixed method of survey. Non-probabilistic sampling was utilised to acquire the study population. A total of 1072 manufacturing companies registered with Kenya Association of Manufacturers (KAM) were targeted. A survey questionnaire was administered to the sampled 92 respondents involving employees of manufacturing companies. Further, key in-depth interviews were conducted to 14 production managers from the same sampled companies. Study findings showed electricity availability, electricity fluctuation and electricity cost have a direct positive impact on the overall production cost. Regression analysis showed that availability of electricity with relation to extent of blackout and outage, backup generator, frequency of electricity fluctuation and number of employees was found to have significant relationship to overall production cost. It was found that higher the production cost of companies, the higher the impact of electricity fluctuation. For the companies having production cost of over 3 billion, fluctuation was significant at 1%which implies that a unit increase in fluctuation resulted in 1.684 increase in overall production cost. The increased proportion of availability and fluctuation was attributed to the use of power backups like generators to supplement insufficient power. Further, the use of power stabilisers and maintenance due to fluctuation affecting machine efficiency increasingly contributed to high effect on the production cost. Further, manufacturers should consider installing renewable energies like solar where applicable to supplement insufficient supply of power. This also contributes towards green energy initiative aimed at reducing global warning. The study therefore recommends the government to continue easing of electricity access, fair pricing and incentives to foster alternative sources installation like solar energy for industries. To address fluctuation, utility provider should ensure efficient transmission lines to industries and stabilising power for them.