Politics and policy

GDC to drill wells at geothermal sites

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Olkaria geothermal plant. The Geothermal Development Company will henceforth take up drilling and development of the steam resource. Photo/FILE

Olkaria geothermal plant. The Geothermal Development Company will henceforth take up drilling and development of the steam resource. Photo/FILE  Nation Media Group

By Zeddy Sambu

Posted  Thursday, December 13  2012 at  20:53

In Summary

  • Investors will henceforth only be required to raise capital for building power stations.
  • GDC will henceforth carry out service exploration and exploitation of steam resource as well as drilling, leaving public sector power generator KenGen to compete with private investors for licences to build power stations.
  • Investors are supposed to start exploitation within two years of being awarded, drill three wells in three years and put up a power generating power plant within five years.

Investors in geothermal energy will be spared much of the upstream costs of production after the Geothermal Development Company (GDC) extended its role to drilling.

GDC Managing Director Silas Simiyu said investors will henceforth only be required to raise capital for building power stations, in a change of tack aimed at reducing the cost of exploiting steam as a source of energy.

GDC will henceforth carry out service exploration and exploitation of steam resource as well as drilling, leaving public sector power generator KenGen to compete with private investors for licences to build power stations.

“GDC is taking up drilling and  developing of the steam resource. Foreign developers will come in at a later stage to build the power plants,” Dr Simiyu said.

The change follows failure by licensed companies to drill and prove availability of steam as per contractual terms.

Dr Eric Aligula, head of infrastructure at Kippra, says the move by GDC was necessary to reduce upfront costs in exploitation.

“GDC can build capacity since they have been growing expertise. It can play a key role as the go-between,” said Dr Aligula on telephone.

GDC intends to reduce the overall cost of developing geothermal power by relying on credit from development finance institutions. The company has already received $600 million (Sh51 billion) in loans and grants from the African Development Bank and the French Development Agency.

The Suswa fields will be the first to be developed under the new model, with funding from the Germany Development Bank (KfW) and export import banks from India and the US.

The loans, with a grace period of 10 years and a tenure of 40 years, will translate to the investment per unit being lower, affording industries and households cheaper power.

“By doing so, GDC reduces the upfront costs for investors. This will eventually lead to cheaper electricity tariffs,” said Dr Aligula.

Following the change, licences held by KenGen for wells with a potential of 280MW in Olkaria will run on a revenue-sharing basis.

“We have an agreement with KenGen that GDC will receive 3.5 US cents per kilowatthour or 29 per cent of the tariff of 12 US cents per unit,” said Dr Simiyu.

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