House approves surety for KenGen steam power loans

Parliament has approved a Treasury guarantee for an international loan for public power generator KenGen paving the way for a geothermal project that could add 280 megawatts, a fifth of existing supply, to the national grid.

The $1.3 billion (about Sh130 billion) project in Olkaria, Naivasha, will be completed in mid 2014, raising the firm’s geothermal output to 315 megawatts.

On Monday, KenGen signed the construction contract with the winning consortium of Toyota Tsusho Corporation of Japan and Hyundai Engineering Company Ltd of Korea which submitted the lowest joint bid to beat three international engineering firms: Marubeni Corporation of Japan, JV of Mitsubishi Heavy Industries and Mitsubishi Corporation of Japan, and a consortium of Iberdlora and Alstom of Spain and Mexico. The lowest bidder offered to generate one megawatt of power at about $10 million (Sh800 million) from the previous rate of about $14.5 million for similar units. (READ: Toyota to build Sh40 billion geothermal power plants)

“We have an ambitious plant delivery schedule in 27 months. The second unit will be ready by May 2014,” said KenGen MD Eddy Njoroge during the signing ceremony.

The Government is financing the drilling of wells in the project that is co-funded by KenGen, the World Bank, the European Investment Bank, Japan International Corporation Agency, and the French Development Agency.

“The more than $300 million savings in the project’s cost is enough to build another power plant,” said Energy assistant minister Mohamed Mahamud. He asked the consortium to stick to the timeline and the project’s cost. Toshiba Corp will supply four 70 MW steam turbines and generators by Hyundai Engineering, the full turn-key contractor for the plant that is Africa’s largest. Two international lenders, the Japan International Co operation Agency (JICA) and German development bank KfW have been seeking sovereign guarantees against political risk for about Sh33 billion and Sh7.8 billion respectively before disbursing the loan amounting to Sh45.8 billion.

Financial closure for Olkaria I Geothermal Power Project, unit Four and Five that should add 140 megawatts of power to the national grid and double KenGen’s production of the efficient, reliable and eco-friendly energy source, was reached in June last year.

Completion of three thermal power plants with a combined capacity of 252 megawatts was pushed back last year after delays in securing similar insurance protection.

Electricity demand in Kenya is growing at eight per cent per year and a deficit of 20 per cent exists during peak demand.

Peak demand

At 62 per cent or 771 megawatts of the total installed capacity of 1,616 megawatts, erratic hydro sources have been the country’ base load sources but their vulnerability to weather patterns has demanded a shift at a funding rate of $1 billion (about Sh100 billion) a year.

Currently, there are 597 megawatts of thermal driven sources or nearly a third of the total mix.

Nearly 7,000 megawatts of unexploited vast resources of geothermal power sit on the floor of the Rift Valley with KenGen and American private power firm Or Power IV exploiting some 202 megawatts.

Energy PS Patrick Nyoike said the World Bank had agreed to underwrite the steam fields and boost investor interest in geothermal energy development and spur more projects in the country. Kenya is targeting to develop 5,000 megawatts of geothermal power by 2030.

zsambu@ke.nationmedia.com