Kenya courts private geothermal investors

15th June 2012 By: John Muchira - Creamer Media Correspondent

Kenya is courting private-sector investors to help accelerate the development of geothermal power projects and tackle the country’s chronic power deficit.

After it became apparent that raising about $2-billion to finance the building of geothermal plants with a combined capacity of 2 000 MW would be a tall order, the authorities decided to target equity investors to finance the projects.

The State-owned Geothermal Development Corporation (GDC) has already put out bids inviting equity investors to fund the installation of 800 MW of capacity at a cost of $800-million.

The GDC says it would like to enter into joint venture agreements with four equity investors to fund the Menengai II project, where 120 wells will be drilled, with the steam sold to power generators like the Kenya Electricity Generating Company.

Under the deal, the GDC will provide between 20% and 40% of the capital, with investors contributing the balance. Each investor will, however, be required to raise at least $200-million to be shortlisted.

“The GDC intends to engage four equity investors who will each get the opportunity to jointly develop 200 MW of steam with the GDC at its Menengai Phase II scheme,” the corporation says.

The move to court equity investors comes soon after the GDC received a $118-million loan from the African Development Bank (AfDB) to support the Menengai project.

The GDC intends to use the funds to develop the Menengai steam field and to finance activities like drilling, as well as to procure and commission drill rigs and modular generation units, besides others.

The GDC has undertaken to bear the risk of drilling steam wells and will also incur the cost of developing infrastructure like roads and acquiring all land rights.

However, the Kenya government will not offer the investors sovereign guarantees, which will necessitate their seeking private insurance or guarantees from the World Bank’s Multilateral Investment Guarantee Agency.

The GDC, established two years ago to accelerate the development of geothermal resources in the East Africa nation, aims to shortlist bidders by year-end and to pick the four successful bidders by July 2013.

These investors will be expected to provide the funds within six months and will recoup their investments by receiving regular payments from steam sales over 20 years.

The Menengai project is one of the key electricity generation projects that Kenya plans to implement to address perennial energy shortfalls and meet increasing demand. The project will be commissioned between 2017 and 2021.

Kenya expects that geothermal power will account for 30% of total power supply by 2030.

The East African country plans to invest $50-billion over the next 20 years to cope with an 8% yearly growth in electricity demand. Currently, the country has an installed electricity generation capacity of 1 616 MW.