Power planning hitch as court freezes Sh200bn Lamu coal plant project

Wednesday’s cancellation of the licence granted for the construction of the 1,000-megawatt Lamu coal power plant has sent strategists back to the drawing board as the country begins another tricky episode in its energy planning.

While the National Environment Tribunal raised queries on how the National Environment Management Authority (Nema) issued the environmental impact assessment licence to set up the Sh200 billion plant, the headache of generating sufficient power to support Kenya’s industrialisation dream is bound to get worse amid growing demand for power.

Energy Cabinet Secretary Charles Keter told the Sunday Nation the country’s power planning is based on projected growth in consumption as well as the envisioned industrialisation and other demand drivers.

Although he was not reacting directly to the ruling by the tribunal, Mr Keter maintained that Kenya can only support its future power projects with “timely” planning for its energy generation to avoid past pitfalls.

“It is just like the building of roads, can you imagine what it would have been like if there were no bypasses and dual carriageways in Nairobi city by now? We would be at a standstill,” he said.

“We cannot wait until we face a demand crisis to start planning for generation. That is exactly how Kenya was forced into signing for several costly thermal power plants.”

The country has already started phasing out the thermal power plants, which account for about 700MW out of the 2,712MW installed capacity.

With no power purchase agreements (PPAs) being signed on, and the expiring ones not being renewed, the first planning headache is to find quick sources that replace the retired thermal power and still keep up with the demand currently projected to be growing at 8.2 per cent per year.

The dilemma further deepens with the current peak demand standing at 1,859MW, which means some 853MW stays idle most of the time, assuming installed capacity is met.

While this is fine since the rule of thumb is to have at least 30 per cent reserve margin between peak demand and installed capacity, the problem arises when the idle power crosses 1,000-megawatt mark, which happens during off-peak times.

This means consumers still pay for the unused power under the take-or-pay PPAs signed with the power producers.

Challenge

Geothermal presents another challenge in terms of planning. The country, which has one of the best generation mix with half of it being sourced from geothermal, is estimated to be able to generate up to 1,000MW from the underground steam.

Geothermal sources are, however, a heavy capital burden for the government, which was forced to create the Geothermal Development Company (GDC), a special purpose vehicle to absorb risks associated with drilling for steam, which takes time and a lot of money.

It takes between Sh300 million and Sh500 million to drill one well before factoring in the machinery required at the well ahead of generating power. At the moment, the closest expected on the grid from geothermal is 165MW from Olkaria later in the year.

GDC’s project pipeline does not offer any hopes either. The firm’s Menengai geothermal development projects, which started in 2010, will swallow some Sh115 billion in the next five years to be used in sinking some 58 wells that are expected to yield the steam needed to meet the 265MW generation targets for all the three phases of Menengai projects.

The first phase is only targeting 105MW by 2020. The second phase, which is supposed to yield 60MW in the next two years, is only 34 per cent underway, with Sh3.5 billion allocated out of the Sh15.9 billion budgets.

Overall, GDC would need Sh193 billion to see Kenya add some 565MW more into the grid by 2028.

Out of these, only Sh64 billion is feasible in the horizon, including all budgets and commitments, making geothermal the golden opportunity whose fate may have to be revised urgently.

The multibillion-shilling projects have so far taken in some Sh60 billion by end of last year, according to the GDC, with some Sh56.2 billion still pending for the projects that were also banking on Sh36 billion from foreign funders.

While the government was banking on the existence of modern technology that produces low emissions to set up the coal plant, anti-coal activists dismissed the plan as costly and unnecessary.
The project was also faulted for omitting engineering plans and key facts of the project from public participation.

“We are now old, but we inherited a clean and healthy environment from our fathers, and it is our duty to give our children a clean and healthy environment as well,” Save Lamu vice chairperson Mohamed Mbwana said after the ruling, emphasising the concern over pollution the activists had held in opposing the project.

Should the country leave a loophole that will see thermal plants hooked into the grid, adverse environmental implications, including higher cost of power, will be the bigger headache since the plants run on diesel whose prices fluctuate and push up the cost of power.