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Dec 11, 2009Geothermal Energy Potential in Kenya - Ormat developing projects through private equity
from Ratio Magazine
Kenya: Green Power Potential and Government Shortfalls
Tuesday, 08 December 2009
The two-day ‘Powering Kenya into a Green Future’ conference was very upbeat about Kenya’s renewable energy potential, but the reality of the Kenyan government’s commitment and, crucially, capacity to develop this sector is different. By Rachel Keeler.
Green energy for all and a solar water heater to be required by law in every urban building! The message, delivered by Kenya’s Energy Minister Kiraitu Murungi, sounded so progressive. And the Hilton ballroom packed with international press, high-level donors and Raila Odinga’s personal entourage did not hurt either. Still, those who stayed after the cameras stopped flashing, to the very end of the two-day “Powering Kenya into a Green Future” conference held in Nairobi on 23 and 24 November 2009, encountered a less comforting picture of Kenya’s energy future.
The good news, delivered by the ever positive UNEP advisor John Scanlon, was that “Kenya is sitting on a gold mine of renewable energy resources”: 7,000MW of unexploited geothermal steam, plus extensive wind, biomass and solar capacity. The bad news is that most of these require substantial support from the government to achieve even moderate levels of production. And the only truly novel idea put out by the government at the conference was Murungi’s short-sighted solar requirement. Public officials instead spent most of their time asking donors and the private sector for the USD5bn the ministry has determined as necessary to develop these resources and make Kenya energy secure by 2014.
Energy security of any kind is really Kenya’s goal here; it just happens that renewable energy sources are indigenously prolific as well as cheaper in the long run and less susceptible to oil price fluctuations than the largely diesel-fueled thermal power that the country relies on now for 39% of its electricity. Customers in Kenya are keen to see an end to the thermal-related fuel cost surcharges that have come to make up a sizeable chunk of their power bills. But if you cut out thermal supplies, Kenya’s current generation capacity is a mere 924MW – stacked against a current peak demand of 1076MW that only accounts for 18% of the Kenyan population. Much of that capacity is also overly dependent on rain-fed hydropower dams that are unreliable during cyclical droughts.
The Kenya Power and Lighting Company (KPLC) is, however, confident that generation capacity will double in the next five years – to just barely meet expected demand – as the result of 1557MW worth of power projects currently in the pipeline and scheduled for collective completion by 2014. Of this additional capacity, about 60% will be generated by renewable projects.
Many of these are notably wind generation plants, which the government credits itself with inspiring through setting workable feed in tariffs. There are a number of co-generation projects in the works as well, to follow the already successful production of 38MW from sugarcane waste by Mumias Sugar. The government has also been applauded for establishing the Geothermal Development Company (GDC). The parastatal is charged with taking on the up-front risk and extremely high capital costs involved in geothermal exploration that have long prevented private investors from approaching the sector in Kenya. Donors are eager to support these efforts, as they align with their own green ambitions for the continent. And local bankers say they view energy in Kenya as a good bet for project finance. Even on a relatively small scale: insiders say banks will line up to fund co-generation projects for big names like Mumias.
Management capacity within the Kenyan government is so woefully inadequate that progress on geothermal development – arguably the best hope for long run cost efficient energy security in the country – will be sluggish at best. KenGen has developed some geothermal expertise over the years and the government has now brought on American-based Geothermex as consultants. However, attracting investors will be tricky, experts say, because the steam they tap is not exportable like other natural resources (e.g. oil), and only a few companies in the world really have the capacity to develop it.
Finally, even if these projects can somehow be developed and managed well, the ability to raise the intended USD5bn is simply not there yet: The government has set up a KES500m green energy facility that it hopes will grow into a USD2bn revolving fund with help from donors. But donors have been cagey about just how much cash they have to contribute, and what they do have will necessarily come with time-consuming conditionalities. Private finance is still seen as generally too expensive. Ormat Technologies [CanGEA member], which has managed to develop several geothermal projects in Kenya, received some financing through private equity. That could be an option for other private developers, as well as funding from development financiers like the International Finance Corporation (IFC) or the African Development Bank (AfDB). But overall, the options are slim and the need simply too great.
The moral of the story? A quick fix is never available for such a grand and basic need as power. It will take decades for Kenya to achieve energy security because it is recovering from previous decades of government neglect. Demanding the installation of solar water heaters without any supportive incentives is a classic manifestation of the Kenyan government’s tiresome modus operandi: pushing costs onto consumers in an endless effort to make up for its own policy mistakes.
