Lake
Turkana Wind Power (LTWP) when completed is envisaged to be the largest wind
farm in Africa with a capacity to produce 300 Megawatts (MW) of electricity in
the Turkana region of Kenya. This is the same region where oil has recently been
discovered in March 2012 by Anglo Irish company Tullow Oil.
The project is co-financed by the Spanish
Government in collaboration with other international lenders and the Government
of Kenya at a cost of US$ 1 billion. The African Development Bank (ADB)
is the lead arranger of debt financing with Standard Bank of South Africa and
NedBank Capital of South Africa as co-arrangers.
This
project has been on the drawing board for over 6 years and has been hit by
several major hurdles along the way in the form of lack of a clear renewable energy
policy in the beginning, to a lack of investment guarantees. Then there is the
issue of missing basic infrastructure in the Turkana region of north western
Kenya, a region that lacks basic amenities such as tarmacked roads, electricity
and piped water. The community that lives in this area is mainly nomadic who
rare livestock and fish in the Lake Turkana.
This
has led the LTWP Company into lengthy negotiations with both government and
potential investors to get the project going. The LTWP consortium now comprises KP&P Africa B.V. and Aldwych
International as co-developers, Norwegian Investment Fund for Developing
Countries (Norfund), Industrial Development Corporation of South Africa (IDC),
Industrial Fund for Developing Countries (IFU) and Wind Power A.S. (Vestas).
The government finally came up with a Renewable
Energy feed in tariff (FiT) policy in early 2010. The tariffs were subsequently
reviewed higher in 2011 as it was seen that that the low tariffs were leading
to under investment in the renewable energy sector even as the resources (raw material)
lay in abundance.
The
current FiT rates are US$12 cents a kilowatt-hour of electricity for wind power
and US$20 cents a kilowatt-hour of electricity for solar are now attractive
while the tariff for thermal is a maximum of 14 cents per kilowatt-hour.
Even
after the FiT policy made investing more enticing another barrier came up, these
were investment guarantees. Foreign direct investors usually require assurances
that their investment and return on investment will be protected from a wide
array of risks ranging from expropriation, political risk, foreign exchange risk
to commercial risk among others. They want to know that when they invest in an
area especially in a region like Africa that is deemed as a high risk frontier
market, that at the end of the day their investment is safe.
The situation has been made worse by the government of Kenya suspension
of sovereign risk guarantees for energy projects as it fights to contain an escalation
of foreign debt. I believe this was forced on the government after it began
receiving budgetary support aid from the World Bank post the global financial crisis
in 2009. In a recent advert to attract investment in the Geothermal sector this
line was inscribed “Investors are notified that the Government of Kenya will not
provide sovereign guarantees relating to this investment and therefore they
should seek other alternatives such as MIGA (World Bank) and other forms of
insurance”. The government is at the moment looking at the
World Bank to structure guarantees for large projects. However, the situation
has been made better by the recent discovery of oil within its borders. Oil
revenues always raise a country’s credit attractiveness and give investors
added confidence.
Despite all these challenges the company recently awarded a
contract to Civicon, the largest construction company in the region a US$ 300
million tender to build transmission lines and access roads. Under the
contract the company will rehabilitate 204 Kms of access roads and another 109
kms within the site. This will take 15 months to
complete, paving the way for the delivery of 365 Vestas wind turbines and Siemens
transformers to the site.
Also the Kenya Electricity Transmission Company Ltd (Ketraco)
has started construction of a double circuit 400kv, 428km high voltage transmission
line to deliver electricity from the site. This transmission line will
connect the site to the Suswa substation in central Kenya and will be funded by
the Spanish Government and undertaken by Spanish company Isolax.
Aldwych,
an Africa focused power company, will oversee the construction and operations
of the power plant on behalf of LTWP while Vestas will run the plant under
contract with LTWP.
The electricity
will be bought at a fixed rate by Kenya Power over period of 20 years as per a
signed Power Purchase agreement.(PPA).
As we await
this project to commence, KENGEN, Kenya’s national power producer already has 5.1MW
wind farm in the Ngong Hills area just south west of Nairobi. In January 2012, GE
Energy a subsidiary of the American multinational GE announced it was setting up
a 100MW wind farm (Kipeto Energy) in the Ngong area at a cost of US$ 300m. This
project’s unit costs are much less as it doesn’t have the same infrastructural challenges
as LTWP.
Other major
wind farms planned include Aeolus (Kinangop and
Ngong Hills) and Isiolo Wind farm that is in the process of verifying
its carbon credits under the UNFCCC’s Clean Development Mechanism(CDM) with Standard
Bank of South Africa as consultants. In addition there are 3 other planned wind
farms in the wind rich Marsabit area in North Eastern Kenya. Marsabit awaits
the World Bank funded high voltage transmission line from Ethiopia to Kenya to pass
through it for these projects to be considered viable. (Read my previous post: Construction of a 1,000Km power line
between Ethiopia and Kenya to commence soon)
With clear policy guidelines and strategy in the renewable
energy sector these projects would have been up and running several years ago,
these would have also lowered the hurdles currently being encountered and instead pushed
forward Kenya’s drive towards cleaner cheaper energy.
