Kenyan companies investing in carbon trading projects are set to tap a Sh500 million allocation by French sovereign fund PROPARCO that seeks to finance environmental initiatives.
The fund is set to invest an estimated Sh500 million in Kenya targeting projects aimed at cutting carbon emissions.
The investments, to be made in the medium term, will benefit firms engaging in a wide range of environmentally friendly projects, including electricity generation from biomass, solar, hydro, or wind sources.
PROPARCO, which is making the investment as part of a consortium involving Agence Française de Développement (AFD) and CDC Climat, says the move will boost more investments in emerging and frontier markets like Kenya that have high potential to expand environmentally friendly projects but are bogged down by inadequate capital outlays.
“This strategic decision reflects the intention to play the role of a catalyst for private investment in regions that have been overlooked by investors and have not had access to carbon finance in spite of a substantial potential for projects to reduce greenhouse gas emissions,” said Etienne Viard, PROPARCO’s managing director. Electricity producer KenGen and Mumias Sugar Company are among Kenyan firms to benefit from the nascent carbon credit market that is driven by Western and Asian companies’ need to offset their excess carbon emissions. Buying carbon credits allows the holder to emit carbon dioxide —-measured in tonnes—without facing regulatory sanctions under national or international agreements like the UN-led Kyoto Protocol.
The growth of capital targeting green energy projects is set to benefit firms that are rolling out such projects as part of their revenue diversification and cost-cutting strategies.
Unilever Tea, James Finlay, and Oserian Development Company are among seven firms licensed by the Energy Regulatory Commission to generate electricity from green sources for their own consumption, saving them millions in electricity bills.
Other firms are generating more electricity than they can consume and are selling the excess capacity to electricity distributor Kenya Power and Lighting Company.
Mumias Sugar, for instance, received a $35 million (Sh3 billion) soft loan from PROPARCO in 2008 to expand its electricity generation capacity from 3 mega watts (MW) to 35 MW, with over 60 per cent of the increased capacity being sold to KPLC.
In the six months to December last year, Mumias earned Sh161 million from electricity sales to KPLC and carbon credit sales to Japan Carbon Finance. Buoyed by the success of the cogeneration plant that uses bagasse, a by-product of sugarcane, Mumias is investing more than Sh400 million in new green projects, including an ethanol and water bottling plant that are expected to be fed from by-products of its sugar manufacturing processes.
The new capital will also target players in the low end green energy market by, for instance, subsidising the distribution of high efficiency cook stoves, solar lamps, and water filters that are expected to raise the living standards of low income groups living in rural areas and urban slums.
Renewable Renewable Energy Ventures, Green Planet and Natural Light, and Deutrex Trading are among Kenyan firms that have ventured into the solar devices market where demand is estimated at one million units per year, according to the international finance corporation (IFC).
The French investment in green energy projects comes at a time when sovereign funds are ramping up their investment in the Kenyan market, egged on by the country’s political stability and high economic growth that promises higher returns.
Last year alone, four sovereign funds – Norwegiain Norfund, German DEG, French Proparco, Netherland FMO, and British CDC-- bought big stakes in Kenyan companies and extended credit lines worth Sh25 billion, underlining increased investor confidence in the Kenyan economy where the funds typically seek to promote socio-economic development.
UK-based CDC last year announced it was making new investments in Kenya worth millions of dollars, raising its investments in the country from Sh7.4 billion.
Kenya’s economy is recovering from a two-year slowdown beginning in 2008 that was driven by the post-election violence and the spillover effects of the global economic meltdown. Last year, the economy expanded by 5.6 per cent, more than tripling the low of 1.7 per cent growth registered in 2008.