|A Geothermal Power station in Olkaria, Kenya|
The African Development Bank has lent a total of US$50 million to Quantum Power East Africa GT Menengai Ltd. This is the first loan to a private sector player in Kenya without a sovereign guarantee. The firm plans to generate 35 MW of geothermal power from Menengai wells. The loan is in two sets; a senior loan of US $29.5 million and a concessional loan of US $20 million.
The firm has already signed a Steam Supply Agreement with GDC, the developers of the Menengai geothermal wells. Quantum has also signed a 20 year Power Purchase Agreement with KPLC, the power distributor at US$0.007 per Kwh.
The Geothermal Development Corporation, GDC, is a state-owned corporation whose business is to develop geothermal wells at Menengai. It is currently developing 400 MW-almost 26 percent of the current capacity- of geothermal power from its Menengai fields. The firm hopes to generate a further 3000 MW of by 2020 from the same fields rising to 5500 MW in 2031.
GDC drills the steam and caps the wells, then contracts Independent Power Producers to build the generation capacity and sell to the electricity distribution company, Kenya Power Company. The IPPs must thus sign a 20-25 years Power Purchase Agreement, PPA, with KPLC.
Quantum is one of the three investors that have been contracted to build the generation capacity from these wells and sell to KPLC. The contract is a Build Own and Operate (BOO) models. The generators buy the steam from GDC, generate power and sale it to KPLC on 25 years PPA. The other two are Orppwer22 and Sosian Menengai. All will generate a total of 105Mw of power from the Menengai wells.
Orpower 22 associated with the US-based Ormat Technologies is the most experienced as it operates a 139 MW power generation unit at Ol Karia. Ormat4 is the first independent power producer to operate in the country’s green energy sector. Quantum becomes the second IPP contracted on the PPP model in the sector and the third is Sosian Menengai ltd, owned by local tycoon Narendra Raval of the DEVKI group.
GDC’s business model is to assume the drilling risk leaving the generation risk to the private sector. This model has a number of benefits; it ensures that geothermal power is the cheapest source of electricity. Two, it releases GDC to concentrate on its core business –drilling of steam wells and capping them. Since the IPPs pay a fee for the steam, the model ensures that GDC can meet some of the drilling costs from internal resources.
Kenya is the leader in Africa in Geothermal power Generation with a total of 776MW of installed capacity and counting. According to Kenya Power and Lighting Company, the power distributor in Kenya, Geothermal forms the 47 percent of its power sources, followed by Hydro at 39 percent. Diesel, despite its huge impact on the cost of power, supplies only 12 percent of power. Wind power, which currently commands only one percent of the power in the country is expected to jump significantly when the 310 MW Lake Turkana wind power comes on stream in September this year.
Kenya has nearly 7,000 MW of geothermal potential and is expected to be among the leading sources of electricity by 2030 when the country hopes to have a generating capacity of 17Gwh. Experts say it costs US$2.5 million to produce 1Gwh of electricity. With an estimated 15 Gwh to go, Kenya’s green energy is a hot investment. And with the acceptance of a PPP business Model, the sky it seems, is the limit. Green energy will cut the cost of power in Kenya significantly.