Bank takes charge in wind power project funding

The African Development Bank (AfDB) is to set up a Sh32 billion fund for the construction of a power project in Turkana, giving a fresh impetus to the government’s efforts to bridge an energy deficit.

It will provide Sh11 billion of the targeted loan, which will be sourced from development finance institutions (DFI) and commercial sources.

The loan represents 70 per cent of the project cost.

“AfDB is the lead arranger for the loan, which has a DFI loan tenor of up to 12 years and nine years from commercial sources,” the bank said.

In the planned project, a group of private investors under the banner — Lake Turkana Wind Power consortium (LTWP)— is seeking to generate about 300 Mega Watts (MW) of electricity for sale through the national grid by June ,2011, an equivalent of 30 per cent of the country’s current installed power capacity.

LTWP plans to construct a “wind farm” consisting of 353 wind turbines, each with a capacity of 850 KW.

Projections show that Kenya needs to inject at least an additional 1,000MW to the national grid in the next five years and has been facing difficulties in accessing financing to build new power plants.

As a result, the country is likely to run short of power from 2012 if new power plants are not set up as demand for electricity is set to surpass supply.

But with the LTWP power project likely to come through in 2011, power consumers especially manufacturers should take comfort in the entry of the private sector into the power generation sector.

AfDB’s manager for Infrastructure Finance Division, Hela Cheikhrouhou said the project would greatly impact on Kenya’s economic fortunes by increasing the country’s installed capacity by 25 per cent, representing about 12.5 per cent of additional capacity needed by 2020.

“The project, which is a low-cost, clean and renewable energy venture, will help diversify Kenya’s energy source and substitute diesel-based generation.
It is a good demonstration of a public private partnership co-operation by concurrent development of the transmission line,” she added.

Mrs Cheikhrouhou said various financiers had already indicated their interest in the project and they would continue to hold bi-monthly DFI meetings to discuss project updates and financing terms.

Mr Christopher Staubo, an official of the company, said the project would be run as part of the least-cost development initiative fronted by the Energy ministry and the Kenya Power and Lighting Company (KPLC) to help attract private investments to the energy sector.

“We are currently in discussions for bilateral funding and we hope to have something on the table in two weeks. We also are looking to sign a deal with KPLC on transmission and related issues soon,” Mr Staubo told Business Daily in a interview last month.

Statistics show that the country’s current power reserve capacity — the difference between power demand and supply — has shrunk to record levels of 65MW or 5.6 per cent of the effective demand which is well below the reserve limit of 15 per cent, hence the push for additional generation by the government.

Rattled by this worrying scenario, the Ministry of Energy recently formulated a policy for wind, small hydro and biomass generated electricity with the aim of attracting private sector investments in power generation from renewable energy sources.

The diversification of the national power sources will enhance national energy security and create employment and income generation.

Power producers
The new policy allows power producers to sell and obligates the distributors to buy on a priority basis all renewable energy sources generated electricity (RES-E) at a pre-determined fixed tariff for a given period of time.

The policy further says tariffs for power grid interconnections shall apply for 15 years while the grid system operators, KPLC, shall connect plants generating electricity from renewable energy sources and guarantee priority purchase, transmission and distribution of all electricity from specified renewable energy sources.

KPLC shall also pay a tariff agreed upon between them and the power producer subject to the maximum tariffs and maximum capacities specified.
“Power producers and grid system operators may agree by contract to digress from the priority of purchases, if the plant can thus be better integrated into the grid system.

The parties shall seek approval for such variations from the Energy Regulatory Commission,” the ministry said.
LTWP last month invited proposals from bidders interested in constructing a 428km 400 kilovolts double circuit transmission line to support its North Rift based power project.

The successful bidders would also be required to put up sub-stations.
at Lake Turkana, Suswa, Rumuruti, and Maralal besides establishing a communication system between Lake Turkana, Suswa and the KPLC control centre.

According the project design, LTWP envisages to construct a wind farm consisting of 353 wind turbines, each with a capacity of 850 kilo watts (kw) with the total power generated in the initial phase of the project expected to reach 300 megawatts by July 2012.