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.
GDC has so far drilled eight wells in Menengai, five of which are generating 40MW.
Africa Geothermal International Limited (AGIL), WalAm Geopower Inc and Marine Power Generation were licensed to exploit a combined 210 MW on confirmed Longonot, Suswa and Akiira Ranch sites but only AGIL is currently planning to drill.
Last month, the government cancelled the licence for WalAm, which had been licensed in September 2007 and repossessed the fields over non-performance.
“There have been no tangible results. They also failed to undertake an EIA (environmental impact assessment) report as required by law,” Energy Permanent Secretary Patrick Nyoike said.
In the contract, 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. They are also supposed to do preparatory work like environmental impact assessment, securing Nema licenses and carrying out feasibility studies.
“Going forward, investors must have properly defined engagements and the tariffs will be based on the quality of the steam source,” Dr Simiyu said.
He said investors would only build the power station at Menengai while GDC would pursue joint ventures in Bogoria and Silali.
“Investors can buy rigs while we help them with licensing, land compensation issues,” Dr Simiyu said.