Companies

Kenya Power in 70MW energy deal with Obama initiative-funded firm

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From left: Kenya Power MD Ben Chumo, Akiira Geothermal Ltd directors David Simbiki and Lars Tejlgard Jensen during the signing of a power purchase agreement at the Stanley Hotel in Nairobi yesterday. PHOTO | SALATON NJAU

Kenya Power has signed a 70-megawatt power purchase agreement (PPA) with a company that is partly funded by US President Barack Obama’s Power Africa initiative, boosting the country’s goal of adding 5,000MW to the installed capacity in the next two years.

Under a 25-year PPA, Kenya Power will buy electricity from Akiira Geothermal Ltd at Sh9.3 per unit (9.23 US cents), which is about half the current cost of thermal power.

The project is based in Akiira Valley, adjacent to Olkaria in Naivasha, and is partly owned by investment firm Centum.

“The 70 megawatts are expected to be added to the grid by December 2016 in line with our energy targets,” Kenya Power managing director Ben Chumo told a Press briefing yesterday.

The Akiira geothermal project received a $1 million (Sh101 million) grant last October from the US-based Overseas Private Investment Corporation (OPIC) to meet technical and legal expenses as part of President Obama’s policy initiative to light up the continent.

Akiira chief executive Robert Bunyi said that exploration and drilling of steam wells was ongoing.

Kenya is racing to cut reliance on expensive power from diesel-run generators with cheaper, renewable energy sources (hydro and geothermal) currently accounting for over 85 per cent of the energy mix.

The Uhuru administration in 2013 set a target of injecting an additional 5,000MW to the grid by 2017. Currently, the country has an installed capacity of 2,298MW compared to 1,708MW two years ago.

Kenya Power yesterday also signed a PPA with Kleen Energy, owned by local investors from Embu, to generate six megawatts of power by August next year at a feed-in-tariff of Sh9.2 per unit (9.20 US cents).

The electricity distributor’s PPA requires a firm to construct, own, operate and maintain the project, with Kenya Power acting as the buyer of the power generated. Centum owns a 37.5 per cent equity stake in Akiira, with the remaining 62.5 per cent owned by American firms — Ram Energy and Marine Power — and Danish Frontier Markets.

Expensive thermal generators

The Centum consortium is expected to contribute Sh9 billion or 30 per cent of the project’s cost of $300 million (Sh30.1 billion) while the rest will be funded through a commercial loan.

The geothermal power plant last week secured a risk cover from German re-insurer, Munich Re, to compensate investors in case the eight geothermal wells being drilled in the Olkaria belt do not produce enough power.

The actual construction of the power plant at Olkaria is contracted out to Ram Energy and Marine Power. Akiira also plans to add another 70MW plant by December 2018, bringing the total geothermal power it will add to the national grid to 140MW in the next three years.

At Sh9.3 per unit, Akiira’s geothermal electricity cost is slightly higher than what Kenya Electricity Generating Company (KenGen) sells to Kenya Power.

KenGen sells its geothermal energy at Sh7 per unit ($0.07) and hydropower at Sh3 per unit ($0.03) — the cheapest source. Thermal generators are the most expensive at Sh19.2 per unit ($0.19).

Centum is also involved in the construction of the Lamu coal plant which is expected to produce 960MW.

Overall, State-backed Kenya Power has inked 45 PPAs with power generators out of which 25 are operational while 20 are being implemented.