Kenya bets on steam power to drive industrial growth

The plan to create a special economic zone in Menengai, Nakuru, has started taking shape with the launch of projects that use direct heat from steam wells to power their operations.

The projects, which include milk and milk processing plants, a horticultural greenhouse, a laundry and a fish pond, will be powered by heat tapped and channelled through pipes from steam wells. Steam power also works well for apparel manufacturers.

The special economic zone plan aims to power industries at one-third of their energy costs. Plants located in the special economic zone will also benefit from water drawn from the wells. Kenya is ranked the world’s eighth-largest producer of geothermal energy and the first in Africa.

The government is betting on the lower operational costs and expected industrial agglomeration to attract investments, largely Greenfield, where firms break ground to set up new plants.

The steam technology is set to place Kenya in the same league as USA, New Zealand and Iceland which have diversified use of geothermal energy away from traditional electricity generation for growth.

“Direct use of geothermal energy is the next big thing for our country,” Energy principal secretary Joseph Njoroge said during the launch last weekend in the Menengai steam belt, Nakuru.

“It is a game changer in the manner in which our wealth, as an emerging mid-income industrial society, will be generated,” Mr Njoroge said.

The Menengai basin will be the country’s second geothermal energy-fed special economic zone after Olkaria in Naivasha from where 280 megawatts (MW) of steam power was injected to the grid last year, pushing the country up in the global ranking.

Preparations for the rollout of the special economic zones are in top gear and are expected to attract foreign direct investment and encourage export of value-added commodities — critical for job creation and improving the country’s current account.

The Menengai project will host both light and heavy industries, according to State-owned Geothermal Development Company (GDC), which is implementing the drive.

Heavy manufacturers will be supplied with subsidised electricity because of lower transmission costs from the plants to the industrial hubs.

The Kenya Association of Manufacturers (KAM) said the government should lay infrastructure like power, roads and sewerage and conduct an environmental impact assessment on the zones as required by National Environment Management Authority to expedite investment.

“We expect long-term (cheaper power) supply contract,” said KAM chairman Pradeep Paunrana, adding that the processing of required regulatory documentation should be at one place.

Manufacturers cite power outages and expensive electricity as factors that contribute to making Kenya uncompetitive.

Kenya’s geothermal fields and a planned free trade zone in Mombasa provide the shortest path to the country’s industrialisation, according to Industrialisation secretary Adan Mohamed.

This is in line with the government’s Vision 2030 economic blueprint which sees Kenya transforming into a mechanised economy.

Kenya’s manufacturing sector has stagnated, averaging 10 per cent of the gross domestic product (GDP) in the past 10 years while agriculture accounts for the bulk of the economy at slightly over a quarter of the GDP.

Currently, Kenya has an export processing zone in Athi River which has largely focused on apparel exports and is set to be replaced by the special economic zones to widen scope.

President Uhuru Kenyatta in May said that the standard gauge railway, which is under construction, will extend to Naivasha to link Olkaria’a special zones to Nairobi and the port city of Mombasa from 2017 to enable smooth flow of goods and inputs.

Kenya’s installed steam power capacity stands at 579 MW behind Iceland (664 MW) which taps steam heat to warm homes and offices and generates foreign exchange from tourists looking to bathe in its Blue Lagoon geothermal spa.

The Kenya Electricity Generating Company (KenGen) has a natural spa in Olkaria whose therapeutic properties attract tourists.

READ: KenGen to set up zones for cheaper industrial power

The US is the world’s top geothermal producer with an installed capacity of 3,389 MW, followed by the Philippines, Indonesia, Mexico, Italy and New Zealand.

But analysts say the government will have to do more, beyond energy incentives, to enable firms scale.

“Investors don’t need to be next to a power plant to succeed,” said Bitange Ndemo, an associate professor at the University of Nairobi’s Business School.

Dr Ndemo said that the government should be cautious to avoid turning the project into another white elephant since a lot of capital outlay will be needed for laying infrastructure in the poorly accessible geothermal fields.

“Transport is key when locating an export processing zone. Most zones in the world are located near an airport or seaport or a highway,” said Dr Ndemo, adding that Kenya was better off focusing on developing special economic zones in Mombasa, Nairobi and Kisumu which have the infrastructure and still accord investors lower power costs.

Dr Ndemo, however, said that the linking of the geothermal fields to the Mombasa port via the railway might work in Kenya’s favour.

The additional injection of geothermal power between August and December last year helped to lower power bills by about a third by displacing expensive thermal power.

The fuel cost charge in electricity bills fell to an all-time low of Sh2.51 per unit February from a high of Sh7.22 per unit in August last year.

Kenya has the potential to produce about 10,000MW of geothermal power from the Rift Valley basin, studies by the Ministry of Energy show.

KenGen’s Sh134.6 billion ($1.3 billion) Olkaria project is billed Africa’s largest steam development, consisting of four power plants each generating 70MW.

Special economic zones offer tax concessions and are built to make Kenya’s manufacturing sector competitive in the regional market.