Money Markets

Geothermal firm makes first call for investor bids

A geothermal well at the floor of Menengai Crater. GDC has invited investors to bid for three wells. FILE
A geothermal well at the floor of Menengai Crater. GDC has invited investors to bid for three wells. FILE 

Government-owned Geothermal Development Company (GDC) has invited investors to bid for contracts to develop three wells with a combined production capacity of 90 megawatts, marking a major milestone for the corporation which was founded to exploit Kenya’s geothermal power potential.

The plants are to be set up at the Menengai field within the Rift Valley basin and estimated to have naturally occurring steam with the potential to produce about 10,000 megawatts of geothermal power.

Successful bidders will be expected to finance and install the plants by the end of next year.

“They will be required to commission, operate and maintain the plant on a 25-year build, own, operate basis at the Menengai field,” said GDC in a statement.

GDC was hived off KenGen in 2009 as a stand-alone State-owned corporation to spearhead exploration and drilling of geothermal wells for leasing to power production companies. This is the first time the firm is inviting for bids to develop geothermal plants on a large scale.

The Menengai project is expected to inject 400 megawatts of electricity into the national grid by 2017, which would boost current production by close to a third.

Geothermal plant equipment is estimated to generally have a lifespan of 25 years.

A geothermal reservoir, on the other hand, can however be sustained indefinitely if well managed and hence the increased emphasis on the shift to this source of naturally-occurring energy.

The investors will be assured of a ready market by signing a power-purchase-agreement with electricity distributor Kenya Power.

Developers are also paid a standing charge by Kenya Power regardless of whether it take up the energy produced, assuring the investors recoupment of their capital.

The costs associated with the development of geothermal projects depend on a variety of factors that include location, capacity, distance of the resource to the power infrastructure, and the type of geothermal resource, be it hot water or steam.

GDC has cut the time it takes to put the energy produced from the wells on the grid by ensuring each well has its own plant. The geothermal company is tasked with reducing investor exposure by exploring and drilling all fields before providing the steam to private players after confirmation of the well’s capacity.

The agency was introduced in 2009 after the government noted slow progression in geothermal development due to lack of private sector participation, which was attributed to the high exploration risks and enormous capital investment.

The African Development Bank has given Kenya a loan of Sh10.5 billion to develop the Menengai geothermal power plants. The agency has also received a funding of $25 million from the World Bank’s Climate Investment Funds Programme for Scaling Up Renewable Energy in Low Income Countries. Kenya currently suffers from low power supply relative to its demand.

“The interim injection of the 90 MW to the grid will offer a reprieve to the consumer who has had to make do with unstable and expensive power supply,” said the company.

Hydro and thermal powers have been the main sources of the country’s energy. Hydro is unreliable as it is affected by rainfall levels while generator power is expensive as diesel has to be imported, which also worsens the country’s balance of trade. 

Geothermal energy contributes 209 MW, which is about 22 per cent of the country’s production. The production activities will, however, have to be matched by Kenya Power’s distribution capacities.

Kenya Power is currently weighing options of raising Sh128.9 billion required to expand its transmission system after the government blocked plans to increase power tariffs.

There are also plans to upgrade the country’s grid which has been attributed to system losses of about Sh8 billion. System losses are revenue leaks brought about by inefficiency in the power flow system and meter tampering or outright theft.

KenGen is constructing two power plants to generate 280 megawatts and is engaging global energy firms to form joint ventures to generate a further 560 megawatts in the next four years.

Kenya’s huge geothermal resources have attracted international firms with US-based Africa Geothermal International signing a deal with Kenya Power three months ago.