Kenya in new World Bank energy financing deal
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E-mail Xinhua, August 31, 2012
Kenya in new World Bank energy financing deal
NAIROBI, Aug. 31 (Xinhua) -- A new financing arrangement between Kenya and the World Bank has helped facilitate financing of mega electricity projects, setting the country on the path of meeting the target for planned investments in the renewable electricity sources.
The arrangement involves Kenya providing letters of support to private investors setting up power generation projects, while the World Bank takes up the role guaranteeing letters of credit issued by the commercial or development banks to the independent power producers.
The World Bank agency known as Multilateral Insurance Guarantee Agency (MIGA) will cover the risk of contract termination and political risks.
The Kenyan government has been avoiding providing credit guarantees to private investors because this has been inflating the country's public debt books, affecting the sovereign risk rating.
As a result of this avoidance, it has taken power sector investors longer to raise capital and therefore delaying the much needed new electricity projects.
The independent power producers (IPPs) have also been demanding payment security from Kenya Power and although the company was able to provide for some, it was not able to provide for the incoming IPPs because of the required huge financial commitment.
Among the main casualties has been the Lake Turkana Wind Power, the company that plans to set up Africa's biggest wind power project to generate 300 MW in the northern Kenya. Another wind power project with similar output planned by Gitson Energy in Marsabit, the central part of northern Kenya had also stalled.
Kenya is also seeking private investors to undertake investments in geothermal generation.
Unlike before, investors will not be required to send money in prospecting for geothermal steam, with the state-owned Geothermal Development Company being responsible for drilling of wells and then concession them to investors who will provide generation equipment.
"The new financing arrangement will help such projects move on, " said Permanent Secretary in the Kenya Treasury Joseph Kinyua.
"We will adopt this financing framework in future projects. However in the medium term, the investments will be undertaken within the context of public private partnerships (PPPs)," he added.
Although the immediate beneficiaries for the new financing arrangement are the expensive thermal power generators that use diesel to generate electricity because they are easy to set up, the long term gains of the new arrangement will be realized when the deal to finance large scale renewable is realized.
The facilitation of development of renewable power projects through the new financing arrangement falls into the plans for Kenya to pursue power investment strategy known as Least Cost Power Development Plan.
These plans involves scaling up investments in the least cost power sources like geothermal and wind to replace the expensive generators like thermal and stabilize of hydro sources that are vulnerable to climate change infused
Kenya's current electricity demand is 1,191 MW while the effective installed capacity under normal hydrology is 1,429 MW.
Hydro sources contribute 52.1 percent of total electricity, thermal 32.5 percent, geothermal 13.2 percent, baggase 1.8 percent and wind 0.4 percent.
The peak load is projected to grow to about 2,500 MW by 2015 and 15,000 MW by 2030. The plan is to scale up investments to increase installed capacity gradually to 19,200 MW by 2030 according to Kenya's Investment Plan for the Scaling-Up Renewable Energy (SREP) Program.
While the government has sunk 329 million U.S. dollars for drilling geothermal wells in the last seven years, less focus has been to wind investments.
In July this year, Kenya has launched its biggest investment in geothermal power generation with the commissioning of a 280 MW plant at Olkaria, about 100 km west of the capital Nairobi.
The nearly 950 million dollars project will be completed in December 2014, enabling geothermal to contribute 30 percent to the country's energy mix.
That is why the biggest impact for the new financing is expected to be felt in the wind energy whose resource is currently under-exploited and the sector is capital intensive.
Data from the Ministry of Energy indicate that total wind installed capacity is 5.1 MW operated by KenGen.
According to the energy investment plan, the low exploitation level of the resource prompted the government to develop the Feed- in Tariffs (FiT) Policy which provides for a fixed tariff not exceeding 12 U.S. cents per kilowatt-hour of electrical energy supplied in bulk to the grid for wind generated electricity.
In addition to the wind atlas developed by the Ministry of Energy developed ten years ago, it has also installed 53 Wind Masts and Data Loggers to collect site specific data. Enditem
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