Kenya invites bids for Sh68 billion geothermal plants
A geothermal well at Menengai Crater. Geothermal Development Corporation (GDC) is seeking a joint venture with four equity firms to fund the Menengai II project in which 120 wells will be drilled. Photo/File
Geothermal Development Corporation (GDC) has invited equity investors to fund the development of 800 megawatts of steam at a cost of $800 million (Sh68 billion) in what is set to reduce Kenya’s reliance on unreliable and expensive hydro and thermal power.
The state-owned firm is seeking a joint venture with four equity firms to fund the Menengai II project in which 120 wells will be drilled and their steam sold to power generators such as Kenya Electricity Generating Company (KenGen).
Under the deal, GDC will provide between 20 per cent and 40 per cent of the capital, with the investors contributing the rest. Each investor will, however, be required to raise at least Sh17 billion to be shortlisted.
“GDC intends to engage four equity investors who will each get the opportunity to jointly develop 200 megawatts of steam with GDC at its Menengai Phase II scheme,” the company said in a statement.
The parastatal has undertaken to bear the risk of failed wells and will also incur the cost of developing infrastructure like roads, besides acquiring all land rights.
The government will, however, not offer the investors sovereign guarantees, leaving them to seek private insurance or guarantees from the World Bank’s Multilateral Investment Guarantee Agency.
The corporation said it would shortlist bidders by year-end and pick the four winners by July 2013 and they will be expected to provide the funds within six months. The project would be commissioned between 2017 and 2021.
The government is betting on expanding geothermal power generation to diversify energy sources, creating opportunities for big-ticket investors in the energy sector.
Exponential growth of urban population coupled with increased manufacturing interest have seen demand for power outstrip supply, leading to occasional rationing.
Installed electricity capacity stands at 1,658 megawatts against peak demand of 1,221 megawatts. But a heavy reliance on hydro power generation often sees total production capacity fall below peak demand during dry seasons, forcing the injection of up to 120 megawatts of expensive thermal power.
Geothermal power now stands at 202 megawatts or 12 per cent of total annual capacity, with analysts estimating the potential for this source of energy at 7,000 megawatts.
Hydro-electricity now accounts for 44 per cent of annual capacity. Last year’s drought pushed the share of thermal production to above 42 per cent from less than a quarter in previous years.
Investors are set to gain from the government’s move to develop electricity generation from the cheap and clean sources.
In the Menengai II project, investors will recoup their investments by receiving regular payments from steam sales over a period of 20 years.
This project follows the rollout of the ongoing development of the 400 megawatts Menengai Phase I among other steam wells around the country.
The Menengai Phase I was funded by the African Development Bank, which issued a $124.5 million loan directly and another of $25 million through the Climate Investment Fund.
Development of the 400 megawatts steam field is set to be completed by 2016, with independent power producers expected to bid for power plant installation.
The government envisions electricity capacity to hit 17764 megawatts by 2030 to meet a projected peak demand of 15,066 megawatts by that time.
Analysts see the nascent wind and geothermal, which produces five megawatts, as the best bet to meet this target.
Kenya has the potential to generate 4,400 megawatts from wind besides coal and gas potential.
In the medium term, Kenya is set to get 300 megawatts from Lake Turkana Wind Power Project and another 635 megawatts from KenGen’s hydro and geothermal plants.
