Going green or coal? Kenya stuck at a crossroads on energy generation

The push for coal-fired electricity generation leaves Kenya’s quest to go green at a crossroads. This has created a stark contrast for a country thinking and actually going clean while at the same time sanctioning dirty sources.

The bid to put up the three-unit, 981-megawatt (MW) Lamu coal plant has received mixed signals with those criticising the venture pointing at its possible dent on Kenya’s path to clean energy as well as a costly move that may further complicate the country’s vision for cheaper power if allowed to sail through.

A recent report on the proposed coal plant by a US-energy think tank only adds to the confusion about which way for Kenya? Clean, dirty or what mix is suitable?

Projections from the Energy and Petroleum Regulatory Authority also paint a picture of a country going green with even the thermal plants, which are used to make interventions when other sources fail to meet demand being phased out.

EPRA actually estimates that renewable energy sources such as geothermal, wind and solar will comprise up to 90 per cent of Kenya’s generation mix, further complicating the place of the coal power plant and its need in the first place.

In fact, during the dry February month, Kenya Power is said to have purchased 87 per cent of power from renewable sources, cementing the robust sourcing from green energy.

“The electricity subsector is largely dominated by renewable energy sources, namely geothermal, hydro, solar and wind. These contributed about 87 per cent of the total energy purchased by Kenya Power in February. Renewable energy sources are projected to continue dominating the electricity sector, accounting for up to 90 per cent to the generation mix by the year 2025,” EPRA Director-General Pavel Oimeke wrote.

The regulator, which approved the coal-fired plant in Lamu in Feruary 2017 was, however, unavailable for comment on the raging controversy over the need for coal power in a generation mix that doesn’t seem to need it.

Amu Power Company Limited, a single-purpose entity 51 per cent owned by Centum Investment with the remainder held by Gulf Energy, already signed a construction contract for the plant with Power Construction Corporation of China and Sichuan Electric Design and Consulting Company in 2016, although construction is yet to start.

The Sh200 billion plant, which was first proposed in 2015, was part of a government initiative to build new base load capacity to replace ageing diesel-fired generation and serve planned future economic growth. The Institute for Energy Economics and Financial Analysis says adding the coal plant to the country’s generation mix would be a costly error, locking it into a 25-year power purchase agreement (PPA) that would force electricity consumers to pay more than Sh900 billion, even if the plant doesn’t generate any power, as long as it is available for dispatch.

According to the Washington DC-based energy think tank, the projections that were used to vouch for the project, including an ambitious growth in energy demand as well as the low cost of coal, have all been overtaken by events.

Financial viability

Lower than projected growth in energy demand and increasing price of imported coal will play against the plant’s financial viability, making it an expensive venture that the country should consider cancelling.

The 25-year power purchase agreement whose details were the subject of litigation to stop the plant’s construction, would force Kenya to pay at least Sh36 billion in annual capacity charges, even if no power is generated.

Power producers peg capacity charge calculations on the cost of financing the construction of the plants and operations cost, including payment of workers and sourcing for raw materials.

IEEFA estimates that the firm contracted to set up the plant used lower estimates to justify its viability, which put the cost of power produced from the plant at Sh7.7 (about 7.52 US cents) per unit.

The estimates are said to have left out costs for port upgrades that would be required to bring coal to plant and the construction of the transmission infrastructure needed to distribute the power.

“Using more realistic assumptions about future Lamu generation and coal costs, electricity from the plant could cost as much as US 75 cents (Sh76) per kilowatt-hour (KWh), on average, during the years 2024 to 2037 — more than 10 times what the plant’s proponents have claimed,” IEEFA director of resource planning analysis, David Schlissel, wrote in the report titled The Proposed Lamu Coal Plant: The Wrong Choice for Kenya.

“Amu Power had projected that coal for the plant could be imported at $50 per metric tonne (mt). In contrast, the government’s LCPDP expects imported coal costs to average $100/mt in 2020 and rise to $108/mt in 2040. In other words, Lamu’s fuel costs will be double what the company estimated in its 2014 proposal,” Mr Schlissel wrote.

Kenya’s energy regulator, through an elaborate Least Cost Power Development Plan in 2017 had projected little need for the coal power before 2029, leaving many puzzled as to whom is pushing the case for the Lamu plant and with what interests.

Clean energy sources

Mr Hindpal Jabbal, who previously chaired the energy regulator, believes the projection that Kenya’s electricity demand would grow at over 13 per cent against the actual annual growth of six per cent was the genesis of the error that has been used as the platform to justify the project.

EPRA projects the country’s total annual generation to grow from 15,472 GWh in 2020 to 23,347 GWh in 2025. This represents an annual growth rate of around eight per cent.

“Even with annual growth in electricity demand of 8.5 per cent, Kenya’s entire demand through 2030 will still be economically met by renewable energy resources, including hydro imports from Ethiopia, with a lot of geothermal and wind capacity still untapped,” Mr Jabbal said.

Kenya, which recently invested in the Sh70 billion wind power project and another Sh13 billion solar power plant, is also said to have a huge potential to beef up geothermal and other clean energy sources, which will keep off the dirty dent from the controversial coal power.

With the world increasingly focusing on renewable energy, the cost of such dirty sources has been on the decline. Between 2009 and 2017, solar photovoltaic and onshore wind turbine prices have dropped by 74 per cent and 34 per cent respectively. The prices are expected to continue falling due to economies of scale and improving efficiencies.

Energy Cabinet Secretary Charles Keter, however, believes there is still room for the coal power plant with the need to counter many intermittent sources in the grid with more base loads.

The CS says Kenya will still have the option of exporting the extra power to other countries, such as Ethiopia, once generated.

“We are also planning to become an exporter of energy in the region. Remember Ethiopia is now facing a 500MW power deficit and we are investing in transmission lines which will facilitate such possibilities of export,” Mr Keter said.

Kenya imports power from Uganda with a favourable tariff expected to be negotiated this November.

It also appears that the country may not get any significant market to export power in eastern Africa as its neighbours have embarked on major programmes to grow their renewable energy generating capacity.

Ethiopia, which may be experiencing deficits now, is implementing a plan to increase its power generation capacity from 4,180 MW in 2014/2015 to 17,208 MW by 2019/2020. This includes 13,817 MW planned for hydro, 1,224 MW wind, 300 MW solar, and 577 MW geothermal.

Tanzania, on the other hand, is planning to add a 2,115 MW hydro plant that would more than double the country’s generating capacity.

Kenya has failed to boost power demand due to its yawning transmission gap, which has created a paradox of power deficiency in abundant generation.

This has forced the country to continue relying on expensive power generation sources to meet demand in certain parts of the country locked out of green and cheaper sources.

By next month, the Ministry of Energy expects the country’s installed capacity to hit about 2900MW when the 168MW Olkaria geothermal power goes live.

The country’s peak demand has remained at 1,882MW as of this month, according to EPRA, meaning the difference of 1,000MW hangs on without consumers even as the producers get paid under the ‘take or pay’ Power Purchase Agreements that compels producers to be paid for power whether consumed or not.

With dwindling off-peak consumption (which dropped 28 per cent in 2018), it means consumers are left to share the heavy electricity burden coupled by the use of expensive power sources such as diesel-fired generators in some regions, which have no transmission to benefit from the cheaper power idling at the source.

The Kenya Electricity Transmission Company, which is the State agency tasked with evacuating power from sources, admits the existence of a transmission gap, blaming the many years of poor investment in power transmission.

This means that the consumer will wait longer to benefit from the country’s increasing investment in green and cheaper power.

“We are concerned that some projects are not completed on time due to the reasons we have enumerated, the biggest being wayleave acquisition challenges. Whereas huge strides were made in generation and distribution in the 40 years prior to KETRACOs establishment, not enough investments were made in transmission and hence we are playing catch-up,” KETRCAO managing director Fernandes Barasa told Smart Company.