World News – UK – Kenya drops IPPs for KenGen to produce clean and cheap energy

KenGen could cede up to 70 percent of its shares in geothermal projects to strategic investors. PHOTO | FILE | NMG

Kenya has hired independent power generators as private project partners in geothermal generation because they found the government’s efforts to produce cleaner and cheaper energy to be « sluggish ».

Energy Cabinet Secretary Charles Keter told The EastAfrican that the government is instead working with state-owned power company KenGen in the second and third phases of 465 MW geothermal power generation on the geothermal fields of Menengai, about 185 kilometers northwest of the United States become the capital of Nairobi.

In the initial phase, 105 MW geothermal energy will be generated, while in the second and third phases 60 MW respectively. 300 MW of renewable energy are to be fed into the national grid.

The policy change comes after the African Development Bank (AfDB) released an assessment report this month on the status of the Menengai Geothermal Development energy project, which shows three IPPs (Orpower 22 Ltd, Quantum Power East Africa and Sosian Energy) have delayed the production of cheaper energy by more than two years.

« When it comes to the second phase of geothermal production in Menengai, we will have to deal with KenGen in exactly the same way as with the Olkaria (280 MW). . These IPPs are very slow. If it was KenGen, we would be done a long time ago. Yes, KenGen is coming because they know how to run the power plants and this is a model that we want to pursue, ”Keter said in an interview with The EastAfrican last week.

« KenGen is getting another equity investor who will invest in geothermal production. The new investor will raise some equity into these geothermal projects and bring in more capital to strengthen KenGen’s balance sheet so that they have sufficient funds to invest without relying heavily on credit. KenGen uses such steam at Olkaria to attract investors to geothermal power generation, ”he added.

Under the proposed agreement, KenGen could cede up to 70 percent of its stake in geothermal projects to strategic investors, while keeping 30 percent to add to the company’s balance sheet and ensure its investments in clean energy projects are sustainable.

« When a new investor provides funding for geothermal projects, KenGen’s share of equity can be 30 percent, while the new investor takes 70 percent, adding to KenGen’s balance sheet. This is the model we want to use in the future, ”said Keter.

The three IPPs failed to erect facilities to produce a total of 105 MW of clean energy, mainly due to the late fulfillment of previous conditions, including securing comfort letters, conducting feasibility studies on the availability of steam and failing to achieve financial closings with financiers in time.

The first IPP was originally supposed to lay the foundation stone for the first 35 MW geothermal energy in March 2018.

“The IPPs’ commencement of construction of power plants is delayed due to delays in meeting the conditions set by both the Geothermal Development Company and the IPPs. Construction is expected to start in the 2020/2021 financial year, ”said the final report of the AfDB project on the Menengai geothermal development from October.

In 2018, the government decided to withdraw the financial and risk guarantees offered under the PPP on the grounds that private investors had abused government support measures and exposed taxpayers to potential losses in the millions.

As the policy changes, it has become clear that the government is no longer automatically providing financial and risk guarantees to PPP projects so that private investors cannot mobilize funding from local or international lenders.

The National Treasury Department said it would only support projects that are considered strategic and in the public interest.

According to the AfDB, the delay in commercial operations of the 105 MW power plants by IPPs has influenced the government to replace expensive diesel power, which continues to cost the economy and affect the competitiveness of the industrial sector. The long-term financial viability of the Menengai Geothermal Power project depends on the physical completion and operation of the power plants to take steam from the Geothermal Development Company.

It is argued that a delay in the implementation of the IPP projects will result in higher capital costs on the part of the geothermal development company and the loss of benefits in order to achieve the intended project development goals.

« While the geothermal development company’s financial performance looks good, the company continues to rely on government grants and revenues from Olkaria Wells. A further delay in the implementation of the IPP projects should lead to an escalation in the demand for government grants. The geothermal development company continues to receive both income and capital grants, ”the report said.

These IPPs are expected to build three geothermal power plants with a capacity of 35 MW each and buy steam from the state-run geothermal development company to generate electricity.

This meant the geothermal development company had to drill and prove sufficient resources for the 105 MW project before the IPPs could secure funding and pay them off for construction.

However, the geothermal development company had a fully developed steam field (geothermal wells and steam collection system), but without electricity generation.

The Menengai geothermal project was key to overcoming acute electricity shortages in Kenya due to the unpredictability of hydropower generation, which forced the government to use expensive emergency heating in 2011 and 2012, which lasted until 2018. The project is expected to achieve its full goal after IPPs complete development of 105 MW power plants.

He expressed interest in partnering with Kenya on tackling climate change, assisting refugees and addressing problems. . .

Geothermal, Geothermal, Forecast, Geothermal Heat Pump, Industry