The Lake Turkana Wind Power (LTWP) firm has set a target to break even in 2024, about 10 years since the start of the project.
The 310-megawatt wind farm signed its first loan to kickstart construction in 2014.
Its power purchase agreement period with Kenya Power #ticker:KPLC ends 14 years after the break-even point, highlighting the lengthy investment horizon of mega energy projects.
Executive director Rizwan Fazal says the project, which started supplying electricity to Kenya Power in September 2018, will take one decade to break even due to the kind of work that had to be done before power evacuation started.
“We have to wait until 2024. Mega projects are designed for a long period of time. It is not about building in one year and selling in the next year to get your money. You need a long term horizon,” he said in an interview.
“That is five more years. If you think at when we drew our first debt in December 2014 that is about nine to 10 years before we actually break even.”
For the first six years, LTWP will sell the energy at 8.529 Euro cents (Sh9.89) per kilowatt hour (kWh) then start charging at 7.684 euro cents (Sh8.92) per kWh. The difference is to recover €81 million (Sh9.39 billion) balance as penalty on government for delaying construction of the transmission line.
The project was built through a complex financing arrangement. Out of total project cost of €630 million (Sh73 billion), debt comprises of €475 million (Sh55 billion) sourced from a consortium of senior and subordinated lenders.
According to Mr Fazal, the project will be paying the debt twice every year - in March and September - with the last payment expected in 2024. This amounts to about €75 million (Sh8.7 billion) repayment per year.
The project also signed a 15-year service agreement with Danish firm, Vestas, to design, manufacture, install, and service wind turbines. The firm takes about 18 percent of LTWP turnover, according to Mr Fazal.
“When you add €75 million debt repayment that is like 60 per cent of our turnover. The rest of costs is on paying 500 personnel, maintaining 208 kilometre road, and undertaking community projects,” said Mr Fazal.
According to information available on LTWP website, the technology is likely become obsolete after that and it may need to open negotiations with Kenya Power to extend the PPA, if necessary.