The Lake Turkana Wind Power project (LTWP) faced multiple headwinds during its construction, including insecurity and legal challenges. Erection of the transmission line evacuating power from its Marsabit station to Suswa also delayed way past the original timelines, prompting a penalty charge on the Treasury.
The Business Daily spoke to Lake Turkana Wind Power director Rizwan Fazal on the state of the project and its expected impact on the supply of electricity in the country:
LTWP has lately been in the spotlight over queries of its capacity. Is LTWP a 310-megawatt (MW) plant?
There is a lot of confusion on terminologies. The Lake Turkana project comprises 365 wind turbine generators with a maximum generating capacity of 850kW each for a total installed capacity of 310.25MW.
That is the maximum that the wind farm can produce. Now, depending on the wind speeds and the consistency of the wind, the wind turbines will, according to the power curve, produce power ranging from 0MW if there is no wind, to 850kW if the wind speed is at 16.4m/s. At the maximum production of 850kW, the turbine is operating at a capacity factor or load factor of 100 per cent.
This is where it starts to get confusing; if you had a gas or other fuel-driven turbine, then you can maintain a constant output.
But a wind-powered turbine/plant is fully dependent on the wind and, wind cannot be guaranteed to be consistent all the time. On average, globally, wind farms operate at 30-40 per cent capacity factors but LTWP is blessed with some of the best (if not the best) wind speeds (and by extension capacity factors) in the world. This is why we are quoted as saying that on average, we will produce 62 per cent capacity factor.
From September 24 to October 27, 2018, LTWP has recorded an average of more than 80 per cent but that will change depending on weather patterns. We hope to be one of the most efficient wind farms in the world. There is nothing unusual or sinister about this capacity factor aspect and LTWP is in 100 per cent compliance with the PPA (power purchase agreement) and will hopefully exceed the power generation expectations that were envisaged with our performance. In summary, LTWP has not changed anything and has constructed and commissioned a wind farm with a maximum capacity of 310MW.
LTWP has been reporting that it has been ready since 2017 but was unable to generate and deliver power due to unavailability of the transmission line. The transmission line has been ready since September 24, 2018 but it appears that LTWP is still switching on the wind turbines in October. Can you explain this discrepancy?
The energisation of the double-circuit transmission line occurred on September 24.
This is when the wind farm is powered-up using electricity from the national grid; in this case from the Suswa sub-station, 428km from the wind farm.
Imagine putting a new battery in your car, you cannot start the car unless you charge the battery that is what energisation of the wind farm through the transmission interconnector entails. Once the TL was operational, LTWP commenced, hot commissioning of the wind turbine generators and the ancillary equipment that is the Statcoms and high-voltage 220kV transformers and 33kV collection grid.
LTWP was cold-commissioned in 2017, which is the carrying out of all tests possible without a live-connection. This is the date defined as first commercial operation.
It is important that the common misconception — that unless you are hot-commissioned, you are not ready, is debunked. LTWP was certified to be ready by independent engineers and would be generating power and evacuating that power into the grid if there was no hot-commissioning requirement. Hot-commissioning provides reassurances to all parties —LTWP, the manufacturer and the offtaker (KPLC) — that what was agreed to be installed and the specifications thereof has indeed been achieved.
There have been conflicting reports of whether LTWP was paid Sh5.7 billion or 46 million euros compensation for transmission line delays as well as deferred payment obligations of 81 million euros over a period of six years. Please clarify what the correct position is and why such a provision was catered for in the Power Purchase Agreement?
Firstly, let’s appreciate that LTWP is among the most complex project-financing [arrangements] ever undertaken not only in Kenya but in Africa for a renewable energy project. The debt comprises 475 million euros (Sh54.9 billion) out of a total project cost of 630 million euros (Sh72 billion). Secondly, like any project that borrows money from a lender, in our case 13 international DFIs, MLAs, ECA and banks, there has to be a source of repayment. For a wind farm, the principle of take-or-pay is universally acceptable, that is, LTWP will produce power that must either be taken or if not, for whatever reason, then LTWP gets paid. Without this underlying securitisation of receivables, you simply cannot borrow monies.
Thirdly, we borrowed the monies in 2014 and had a moratorium on repayment during the construction period. Subsequently, we have semi-annual repayments of 37 million euros (Sh4.27 billion), let’s be clear, that is 74 million euros or almost Sh8.6 billion per year. The first repayment was in September 2017. LTWP built the wind farm and was ready in accordance with the terms of our contractual arrangements starting from January 27, 2017.
In 2017, with the delay in the transmission line for various reasons outside of the Government of Kenya’s control, the parties agreed that for the period May 15, 2017 to May 31, 2018, instead of LTWP charging the government the full quantum of 127 million euros (Sh14.6 billion) that would have been the transmission line delay payment obligation, that LTWP would only receive 46 million euros, the much quoted Sh5.7 billion, and that LTWP would defer the collection of the balance of 81 million euros (Sh9.36 billion) over a period of six years with a minor tariff increase.
LTWP did this in the true spirit of the public-private partnership and used the 46 million euros to make repayments of our debt in September 2017 and March 2018. The balance was funded by shareholders even though there was no requirement to do so and LTWP could have claimed more from the Kenyan government.
These payment obligations by LTWP were important to make. LTWP is a showcase project not only for Kenya but sub-Saharan Africa. It is important that we are seen to honour contractual obligations and that investors and lenders can rely on the provisions of the contract, even in the unfortunate situation that some payment obligations needed to be made. We cannot attract foreign direct investment if these underlying contractual obligations are not respected.
Most of the lenders to LTWP are large lenders to other public and private projects in Kenya and a failure to honour the LTWP agreements would trigger cross-default clauses that would affect projects worth hundreds of millions of dollars. Kenya is not an island but a player in the global financial sector and everyone’s eyes were trained on how Kenya would respond to LTWP.
Kenyans have been bracing themselves for reduction in power costs with the coming online of LTWP whose tariffs are said to be among the cheapest of any independent power producer (IPP) in Kenya. What is the impact of LTWP on reduction of electricity costs and when can consumers expect to see such reductions?
LTWP is only one, albeit important player in the Kenyan energy sector. We have an installed capacity of approximately 17 per cent of the overall installed capacity in the country. There are many other IPPs and the offtaker and the Energy Regulatory Commission (ERC) have a delicate job of managing supply and demand and taking into account future plants and how long these will take to come on stream.
What does the successful implementation of this project mean for Kenya, the future of the power sector and other sectors of the economy?
In addition to the fact that Kenya now has a large part of its energy mix comprised of clean, renewable power and all the benefits that have been derived at the local level in terms of the project’s transformational nature, that is, roads, access to employment, enhanced security, improved social indicators, the largest non-tangible but unquantifiable benefit is demonstrating that large-scale complex infrastructure projects can be successfully implemented in Kenya. This is a huge vote of confidence in the country’s standing as a safe and reliable investment destination.
No country can grow in isolation and LTWP is testament that not only can projects be successfully implemented but that the government’s policies are pro-investor – without which ultimately, there is either no access to capital or it is costly to obtain. It has certainly not been a bed of roses, as is probably evident, and there are a myriad of lessons to learn from for all parties. But on the whole, LTWP is poised to play a leading role in facilitating the implementation of Vision 2030 and the Big Four agenda.
