Kenya to concession geothermal power generation

A geothermal Plant at Ol Karia in kenya

KENYA, AFRICA'S geothermal power giant, has changed its business model to speed up geothermal power generation. The new model involves un bundling the drilling function from the generation function. Drilling will remain in the hands of the government, while generation will be in the hands of the private sector.

The new model is working well and is expected to add an additional 400MW into the national grid come July 2016.  The government has created a company to take over the drilling function. Geothermal Development Corporation, GDC, plans to develop some 3000MW by 2020 rising to 5500MW in 2031, an appraisal report seen by this publication, says.

GDC’s will develop the steam wells and install the wellheads and then concession the wells to power producers who shall build, operate and maintain generating stations. The generators will sign PPAs with the power distributor in the country. KPLC. Previously both the drilling and the power generating functions were rolled into one. This made it impossible to attract the private sector into the geothermal power sub-sector.

The new model will start at the Menengai Geothermal development Project whose first phase is currently under development. It will produce some 400MW-an estimated 26 per cent of the current national supply, by 2016 at a cost of US$502 million. 

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The Kenya government will pick the Lion’s share of this tab at US$245 million. African Development Bank is second with a significant US$147 million while the rest will be funded by other donors including AFD, the French international co-operation agency and the European investment bank.

So far 19 IPPs have submitted bids for a concession to generate power from Menengai wells. Among the bidders is Kenya’s leading electricity generator, KenGen and a local investment firm, Centum investments. GDC will award the concession to four bidders.

The concessions, according to GDC, will be awarded subject to fulfillment of certain conditions. One of the conditions is they produce and sale power to Kenya at Kshs 6 (US$.0.070) per KWh, which is 50 per cent below the current cost.

The second phase will generate 800 MW at a cost of US$800 million. This phase will commence soon after Phase One. Reports indicate that AfDB is considering a proposal to finance part of the cost. There are indications that the bank will approve the proposal, informed sources say. In total Menengai steam wells are expected to produce an additional 1200MW of geothermal power by 2020 rising to more than 5000MW by 2030.

The creation of GDC to develop steam wells followed disappointment with the BOT model of PPP in drilling and steam well development. While the country was in a hurry to develop geothermal energy, the private sector’s delivery was very slow and frustrating. The only active operation Ol Karia IV, being developed by Or power will add only 52MW to the grid.

Investors are not ready to accept the drilling risk but are prepared to take the power generating risk says a report by African development Bank document seen by this publication. The Kenya government, says the AfDB report, had issued three licenses for steam well drilling between 2007 and 2009 but is now considering cancelling them since there has been no movement on the license for more than three years.

GDC was thus born to mitigate the drilling risk. Kenya has the potential for 10000MW of geothermal power. The country is in a hurry to develop geothermal sources of electric energy as other sources are no longer reliable.

Currently, hydro is the leading source generating a 766.88MW which forms 65 per cent of the KenGen’s installed capacity. KenGen is the power generating utility. Kenya’s generating capacity of 1400MW serves only 14 per cent of the Population. And the power is expensive.

Apart from GDC’s programme, the power generating company, KenGen, also has its own expansion programme which ends in 2016. The company plans to increase its power generating capacity by an additional 1832 MW by 2016.  Of these, Hydro will generate an additional only 53MW while wind power will generate an additional 56.8 MW, geothermal will generate an additional 732MW over the same period from its Ol-karia wells.

Geothermal energy is the natural heat stored within the earth’s crust. The energy is manifested on the earth’s surface in the form of fumaroles, hot springs and hot and altered grounds. To extract this energy, wells are drilled to tap steam and water at high temperatures (250-350°C) and pressures (600-1200 PSI) at depths of 1-3 km. For electricity generation, the steam is piped to a turbine, which rotates a generator to produce electrical energy.

Kenya is the leader in geothermal power generation in Africa having built its first geothermal power in early 1980s. It now generates some 150MW from two geothermal plants. The first plant was the Olkaria I Power Station which was also the first in Africa. The 45 MW plant was commissioned in three phases and has three units each generating 15MW. The first unit was commissioned in June 1981, the second and third units in November 1982 and March 1985.

Olkaria II Power Station, Africa’s largest Geothermal Power Station to date was built in the year 2000 and generates 70MW. It is the second geothermal plant owned and operated by KenGen. The second phase of Olkaria II was commissioned in 2010 injecting an extra 35 MW of power making a total of 150MW of power generated by geothermal means.