Africa’s biggest wind farm project runs into stormy weather

• Lake Turkana Wind Power has negotiated a 20-year power purchase agreement with KPLC.

NAIROBI

Long term lenders behind the massive Lake Turkana Wind Power Project -Kenya’s largest green-field wind power scheme - are now asking for a government guarantee to cover the risks in the private-sector funded project.

If it is built, the project in northeastern Kenya would be the biggest wind farm in Africa.

Knowledgeable sources told Daily Nation that the lenders have expressed misgivings about the credit worthiness of The Kenya Power and Lighting Company (KPLC ), the party that will be responsible for the revenue to service the huge loans in accordance with a power purchase agreement Turkana Wind Power has already signed with  Kenya’s monopoly electricity distributor.

“It is clear that the project will not only face bankability issues, but will also struggle to mobilise Development Financial Institutions without a sovereign guarantee for KPLC tariff payments”,  said Mr Hela Cheikhorouhou of the African Development Bank (AfDB) in a  recent letter to the ministry of Energy. AfDB is the lead financial arranger for the project.

Lake Turkana Wind Power has negotiated a 20-year power purchase agreement with KPLC, that is denominated in Euros and which includes stand-by letters of credit guaranteeing advance payments.

Whether the government will agree to issue a guarantee to the project remains to be seen, considering that Kenya has been more or less observing a moratorium on sovereign guarantees to loans made on behalf of state corporations.

But in the case of the Turkana project, the stakes are very high for the government because the country is under intense pressure to increase its electricity generation capacity within  a very short period.

With a capacity of 300MW, 17 per cent of the country’s electricity generation capacity, Lake Turkana Wind Power offers the best chance of meaningfully reducing the country’s power deficit  in the medium term.

Currently Kenya’s interconnected power system  has an effective capacity of  only 1,289 MW during average rainfall.

This comprises 719MW hydro, 163 MW geothermal, and 407 MW thermal power-including 146 MW capacity of emergency power producers.

This is against a real demand estimated at 1,172 MW. Thus the reserve margin is much lower than the 15 per cent margin required to take care of planned and unplanned system outages.

Kenya has prioritised several generation projects to meet the projected power demand, most in different stages of implementation.

Turkana Wind Power, which is included in the list of the priority projects is supposed to start operating in  December 2012.

Lake Turkana’s other strong point is the tariff levels it has negotiated with KPLC which, unlike agreements signed with a couple of other independent power producers, does not provide for the so called ‘capacity charges’ that oblige KPLC to pay for power it has not used.