Industry

Geothermal wells spark turf war in power generation

GDC

The Geothermal Development Corporation (GDC) was formed to tap the country’s geothermal energy to reduce the country’s reliance on costly hydro-power sources. Photo/FILE

The Geothermal Development Company plans to start producing power for direct sale to Kenya Power and Lighting Company, setting the stage for a market share battle in the energy sector.

The company, which was formed to develop geothermal power resources and turn them over to KenGen, says it will produce 100MW in the next six months and an additional 100MW later in the year.

This new development appears to usurp the role of KenGen — the sole seller of geothermal power to KPLC.

“Our understanding is that GDC is supposed to explore the wells and hand them over for power production and not to engage in power production,” said Rebecca Miano, director of corporate affairs at KenGen, adding that KenGen had already tendered for a feasibility study on Olkaria IV.

Bruising battle

Efforts to seek clarification from the Energy ministry Permanent Secretary Peter Nyoike and the director general of the Energy Regulatory Commission (ERC) were fruitless as they were said to be in day long meetings.

Business Daily has learned that KenGen turned down an offer by the government to partner with it in forming the GDC.

KenGen decision’s was informed by its initial plans to push for exclusive rights to the development of geothermal wells in the country.

The move by GDC to supply KPLC with power directly sets the stage for a bruising battle in the energy sector as it effectively short circuits KenGen which had expected to be the sole seller of geothermal power to KPLC.

GDC plans to start producing 100 MW in the next six month and growing that initial capacity by 100 MW per annum.

The production will be done through an early generation strategy using modular containerised power plant.

The move by the state corporation is likely to cause anxiety to KenGen which currently contributes 80 per cent of the country’s power, the balance being supplied by Independent Power Producers (IPPs).

For KenGen, the entry of GDC into geothermal power production is likely to ruffle feathers as it is likely to result in a shift in the country’s power base load from hydro to geothermal.

Currently the country base load is dominated by hydro power which is considered unreliable, expensive and unable to meet growing demand from industries and households.

Such a shift will affect the bottom line of KenGen as Kenya Power and Lighting Company (KPLC), the main buyer of power, is likely to purchase more of the relatively cheaper geothermal power than hydro power.

The formation of GDC was informed by the need to rump up power production by tapping the country enormous geothermal source in order to lower the prohibitively high cost of power in the country and to provide a reliable energy source.

When KenGen turned down its offer to partner in the production of geothermal energy, the government went ahead to form the GDC.

At the same time the government also formed the Kenya Electricity Transmission Company (KETRACO) to take over the laying of transmission lines from KPLC.

The new arrangement was to see GDC develop the sources and sell the steam to KenGen for power production.

KENTRACO is expected to build the transmission infrastructure which KPLC will use to sell power to the consumer.

It is the decision to engage in power production that is set to give KenGen’s management sleepless nights as it effectively puts paid to its plans to tap geothermal energy as its main income driver.

This is expected to adversely affect its bottom line and may lead to inferior returns for shareholders.

The recently concluded KenGen Sh25 billion infrastructure bond which was successfully oversubscribed by 11 per cent was issued on the basis that the proceeds would be channeled toward increasing power production.

It is estimated that circa Sh273 billion is required to develop the country geothermal sources.

This investment is considered well worth its while as geothermal power is not only reliable but also relatively cheaper, with an estimated unit cost of Sh4.30.

Geothermal energy also has the added advantage of being renewable.

The country’s high dependence on hydro power has been blamed for the high cost of power and its unreliability.

Uncompetitive goods

Industrialists have complained about the high cost of power in Kenya which they claim has rendered locally manufactured goods uncompetitive in the region.

“The highest input cost is power which invariably affects the prices of cement in the market making our cement more expensive than from other countries such as Egypt, China and Pakistan”, said Pradeep Paurana the managing director of Athi River Mining.

The failure of rainfall, which has led to power rationing, has forced the country to scale up production from thermal sources, exposing the economy to the prevailing international crude prices.