A geo-thermal well gushes steam at Menengai Crater; it has a capacity of producing 8 Mega Watts. Private investors are keen to invest in the energy sector. File
Private equity investors are showing increased interest in Kenya’s power sector as slower investments by the government in building new power plants make the sector the next frontier for private capital.
Lawyers and the Energy Regulatory Commission say that consortia led by private equity funds are making enquiries on the investment opportunities in what is tapped to be the sector that will generate Kenya’s next billionaires.
Locally Investment firms TransCentury and Centum have announced multi-billion shilling investment in the power sector with the focus on the clean geothermal energy while foreign PE’s such as Egypt’s Cidatel, UK’s CDC and Globeleq are keen to bet in Kenya’s electricity market.
The interest is informed by the increased demand for electricity in Kenya and the relatively high price structure—which is foreign currency denominated and one of the best structured bulk tariffs, according to Standard Bank analysts.
The country is targeting to add 800 megawatts of electricity to the national grid in the next five years at cost of Sh111 billion, but the government and power generator KenGen say it can only meet part of the cost, with the balance being met by private investors.
“We are getting more enquiries from PE (Private Equity) firms about investment in the power sector,” says Mr James Kamau, managing partner at Iseme, Kamau and Maema Advocates.
Normally, investors turn to lawyers for due diligence and guidance through the correct processes in acquiring the various licences and approvals required.
Joseph Njoroge, the managing director of Kenya Power, echoes the sentiments: “We are receiving a number of unsolicited enquiries from a wide range of investors including private equity players.”
The country pays up to nine shillings per unit of power and it compensates the electricity producers for inflation, foreign currency swings and fuel price adjustments as stipulated by the tenure of the bulk power purchase agreement with Kenya Power.
This, backed by the growing demand for power amid reduced supply has opened up fertile ground for private investors, including Kenya’s manufacturers such as Bidco Oil, Comcraft Group that is associated billionaire businessman Manu Chandaria and Athi River Mining Company.
“Kenya has the most attractive tariff in the region. It’s predictable and dollar denominated,” said Alastair Campbell, the head of power finance at Standard Bank, adding that this preposition is generating lots of interest even among lenders. It is this business environment that has caught the eye of investors such as TransCentury and Centum Investments—which previously have relied on the equities market for growth.
“The Geothermal Development Company has identified wells with huge potential which we have picked out and will be keen to invest in this year,” said James Mworia, Centum Investments’ CEO.
TransCentury has also put in a bid to generate 100 MW of geothermal power in Menengai, Nakuru, at a cost of about Sh8.1 billion.
Already, Transcentury is linked to Simba Energy, which is constructing a Sh7.5 billion ($100 million) electricity generating plant in Mombasa while Globeleq has a stake in the 75 megawatts Tsavo thermal plant.
The increased interest by private investors comes as the country is facing an energy crisis in the form of a power shortfall and expensive power.
Monthly demand for electricity rose by 20 per cent in March compared to a year ago as economic activity picked up from a two-year slump, exposing Kenya to the risk of a power shortfall.
Electricity distributor KP sold 635 million kilowatts hour (KWh) of electricity in March, compared to 527 million KWh in February last year, buoyed by increased demand from industrialists and connection of more homes.
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