After eight years of planning, funds have become available for the planned 310 megawatt (MW) Lake Turkana wind farm project estimated to cost $775 million – the largest private investment in Kenya’s history. The project will be the largest wind farm in Africa and when completed is expected to generate around 20 percent of Kenya’s current electricity generating capacity. The project site is near Lake Turkana in northern Kenya and is an especially attractive location perched up to 7,500 feet above sea-level, with consistent and predictable wind patterns. However, the site also represents many challenges that have been overcome including: it is far removed from a population center; there is little infrastructure to move heavy machinery; and a 265 mile transmission line needs to be constructed to evacuate the power to Suswa, 55 miles north of the Nairobi area and the national grid.
Despite these and additional obstacles, the six member joint venture project developers, Lake Turkana Wind Power (LTWP), which will own and operate the project, attracted financial support from 11 funding sources in an extremely complex structure that took more than four years to materialize composed of: the African Development Bank (AfDB), European Investment Bank (EIB), the Standard Bank of South Africa, Nedbank, Netherlands Development Finance Company (FMO), Proparco, East African Development Bank (EADB), PTA Bank, EKF, Triodos, and DEG.
To overcome one of the major hurdles and reach financial close on Dec. 11 of this year, it proved essential the AfDB finalized a $24.5 million partial risk guarantee (PRG). The PRG is structured to protect LTWP against the risk of potential construction delays to the 265 mile transmission line and substations and ensure the developers will get paid for electricity generated once the wind farm begins producing scheduled power. The transmission line and related substations are to be financed by the Government of Spain and Government of Kenya and construction has been contracted to state company Kenya Electricity Transmission Company (Ketraco). To underscore the importance, this is the AfDB’s first PRG transaction.
“It has been a long journey,” Kenya’s secretary for finance Henry Rotich, said at the signing of the guarantee. “I hope now we have resolved everything and we look forward to the groundbreaking.”
Previously securing a power purchase agreement (PPA) between LTWP and Kenya Power and Lighting Company (KP) was a separate milestone as well. Essentially a PPA is an agreement where an electricity producer sells electricity to a power distributor for a negotiated price. In this instance the agreed PPA states the electricity produced by LTWP will be bought at a fixed price of Ksh9/kWh ($0.09/kWh equivalent on December 22) by Kenya Power over a 20-year period.
Kwame Parker, Standard Bank’s (one of the lead arrangers of debt financing) East Africa Head of Power and Infrastructure stated the project “is designed to provide a clean source of electricity to Kenya. It will not only contribute to the social and economic development of Kenya, but will also contribute towards Kenya’s goal of significantly increasing its installed capacity and reducing its reliance on more expensive sources of power.”
If all goes according to plan, 50 MW of power can be operational in 27 months and the balance can come online five months later.
The wind farm will be one key accelerant to meet the government’s goal of scaling power generation to 5,000 MW by 2017, reducing shortages, and providing affordable tariffs. Currently there is a severely insufficient 1,700 MW of power capacity plus demand is continually increasing to boot. Such shortfalls stagnates economic growth due clouding investment attractiveness due to uncertainty of consistent electricity supplies and frequent blackouts.
According to the Kenyan government’s projections through 2029, Kenya will need additional installed electric energy capacity of 7,500 MW by 2029.
There are other wind projects in the pipeline and geothermal energy has vast potential, while trying to reduce reliance on external sources of energy. There is the goal that the Power Africa initiative, with Kenya as a priority country, will also help develop more projects to close the gap.
Lake Turkana wind farm is front and center as the Kenyan government is seeking to reduce its reliance on imported energy and fossil fuel while ensuring a reliable supply of electricity based on clean low-cost energy. Kenya produces almost no oil or natural gas, and has to import the fossil fuels that it needs. The wind project will allow the country to avoid paying more than $150 million in fuel costs each year.
Kenya also understands the need for joining power pools to increase security and last week signed an agreement with Zambia and Tanzania to build a joint transmission line to facilitate trade of power to reduce average energy costs, improve reliability, and provide security for power supply to both Eastern and Southern Africa.
Now that the hurdle of pricing and the transmission line are moving along for Lake Turkana, major infrastructure upgrades need to be in place to efficiently move the equipment to the project site. Part of the project design does include reinforcing 125 miles of roads and bridges to ensure safe delivery of the turbines from the port at Mombasa. Furthermore, site access roads will be needed. LTWP will be covering those costs. The rail network also needs to be strengthened.
The new transmission line can also serve as a major conduit for other power projects, such as Olkaria, and feeder lines down the road and avoid the large transmission cost.
Vestas, a Danish wind energy powerhouse, secured a firm and unconditional order to provide 365 turbines to tally 310 MW of the planned project capacity – the largest order in terms of number of turbines in company history. The scope of the contract is for supply, installation, and commissioning of the wind turbines as well as a 15-year service agreement.
For perspective, Vestas owns 19 percent of the global installed wind energy capacity total. Vestas is responsible for 60 gigawatts (GW) of the global 318 GW, according to the Vestas Performance & Diagnostic Center and the Global Wind Statistics 2013.
The wind farm is registered with the United Nations Framework Convention on Climate Change (UNFCCC) and approved at the Gold Standard rating. The project is forecast to reduce carbon emissions by 16 million tons during its 20-year lifespan and the new income from the carbon credits will be given to with the government and invested in the community.
As mentioned, to meet Kenya’s electricity demands in gross numbers, Lake Turkana is only part of the big picture, but it can serve as a great example for future large-scale windfarms and developers. With a successful project, a fruitful story will be present which can demonstrate Kenyans’ demands and further stimulate the investment environment for a power starved country. It can be transformative in terms of accelerating additional projects that will benefit development of Kenya, the nation’s electricity sector, and to the country as a whole.
