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Laureate’s key role in renewable energy use

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Do we need the proposed Lamu Coal plant? That is an answer we owe the newly announced Nobel laurate William Nordhaus. FILE PHOTO | NMG

The Sveriges Riksbank prize in economic sciences – commonly referred to as the Nobel Prize for economics was last week awarded to Paul Romer (former World Bank chief economist) of New York University and William Nordhaus of Yale University. I may not be a bad gambler because my bet last year was on Paul Romer but it went to Richard H Thaler for his contribution to behavioural economics.

Romer is seen as the prime mover behind the endogenous growth theory - a notion that countries can improve their underlying performance if they concentrate on research and development, innovation and skills. Nordhaus is one of the pioneers of environmental economics, he made his name in the 1970’s pushing much financial literature about climate change when very few saw global warming coming.

He was the first person to create a quantitative model that described the connection between global temperature and economic growth, therefore, advocating for the use of carbon tax as the best estimate to put the true cost on the use of burning fossil fuels and so reducing greenhouse gas

It is Nordhaus work that heavily incentivized the use and adoption of renewable energy around the world and in 1979 German and Danish manufacturers Vestas, Nordtank and Bonus ushered in the mass production of large modern wind power turbines since no fuel was required to generate electricity. Today, wind power is the top renewable energy displacing fossil-based electricity and has become an important source of electricity generation around the world.

Now, it was a great coincidence that the Nobel economics prize was being awarded to Nordhaus at a time when Kenya has started evacuating green energy from the largest wind park project in Africa this month, the Lake Turkana Wind Power which is expected to change renewable power in Kenya by generating 310MW, a capacity that can power one million homes.

More interesting is that the contractor deployed to set up the Lake Turkana wind turbines is Vestas, one of the wind power turbine manufacturers motivated by Nordhaus work in the 1970’s. But one of the commendable thing about the Lake Turkana Wind Power project is how well-structured it is analyzing from a consumer-friendly perspective. First, wind power capacity factor globally is around 30 percent but the LTWP has an exceptional capacity factor of 60per cent - meaning there is much economic sense in the project if we are to talk about efficiency in its generation, a cost which is always passed to the electricity consumer. Second, Kenya Power will buy the electricity from LTWP at a fixed price of $0.086 per kwh in a 20-year deal.

Now, power generation cost of wind varies across regions on the globe, in Africa the weighted average is $0.9 per kwh. So, in terms of pricing we are within average range of other countries relying on wind power like Libya, Ethiopia and Egypt.

This is rare thing to come across in energy projects in Kenya, many are inflated when it comes to pricing. Also, compared to the other renewable sources, wind power is generally the cheapest renewable power generation option. LTWP generation cost is cheaper than solar energy from the Garissa project generated at a cost of $0.12 per kwh and geothermal which averages $0.09 per kwh.

So, thanks to Nordhaus who incentivized the aggressive use of renewable energy, Kenya’s installed capacity of renewable power today stands at more than 75 percent, compared to the world average of 25 percent - a very rare achievement.

Apart from the 310MW wind power from LTWP, a further 900MW wind power is being developed. Now, this anecdote brings us to the biggest debate in Kenya’s energy space; looking at our current power system set up, do we need the proposed Lamu Coal plant? That is an answer we owe the newly announced Nobel laurate William Nordhaus.