State moves to set up geothermal unit

The State is set to constitute a technical committee to deal with the working relationship between two power producers after power utility functions are split once more, Energy PS, Patrick Nyoike, told Nation.

The Kenya Electricity Generating Company is grappling with the formation of a parallel parastatal for geothermal production.

The Energy ministry, Geothermal Development Company and KenGen officials will make up the committee.

Like KenGen, Kenya Power & Lighting Company is also set to cede some of its functions.

KenGen will leave the geothermal part, seen as the future of generation, to GDC.

The largely hydropower producer has in the past carried out geothermal exploration on behalf of the government. At KPLC, transmission is to be hived off.

This is the second split since 2000 when KPLC and KenGen were split from the old KPLC.

Analysts are yet to fully figure out the implications on the financial future of the two listed companies although doubts have been expressed about the economic sense of the 2000 split.

The committee on the power production firms’ link is expected to decide on staff recruitment.

Amongst its task is to decide whether employees in the geology wing of KenGen are to be transferred to GDC.

A decision will be made on whether the corporation will outsource services from KenGen.

GDC and the Kenya Electricity Transmission Company, chaired by Justus Kagenu, will appoint CEOs according to the PS.

The political contest for the jobs is expected to be stiff.

It will determine the location of offices, drilling equipment and other plant requirements of the new state corporation.

GDC is tasked with developing steam fields and selling geothermal energy for electricity generation. The government will finance risks associated with the exploration.

Reverse crisis

GDC, a limited liability company has 20,000 ordinary shares.

Treasury is the majority shareholder with 19,990, according to its memorandum and articles of association, with the Energy ministry holding 10.

The ministry in the current financial year has a budget of Sh4.4 billion for geothermal exploration.

President Mwai Kibaki on January 16, 2009 appointed Mr Paul Gondi to be the chairman of GDC’s board of directors.

Members of the board include Ms Rhoda Arupe Loyor, Engineer Kariuki Muchemi, Mr John Gitonga, Ms Sally Chelangat Towett and Moitalel ole Kenta.

They were appointed by Energy minister, Kiraitu Murungi, in a notice published in the Kenya Gazette of January 16 this year.

Kenya is investing in cheaper geothermal power generation to reverse the energy crisis caused by high fuel prices and overdependence on water-driven power production.

Mr Nyoike says the government will finance risks associated with exploration of viable quantities of steam for power generation in Naivasha and other high potential sites.

“Drilling one well costs $5 million (about Sh400 million) and it is among the activities to be undertaken by the new special purpose vehicle as investors concentrate on putting up generation facilities to inject power into the national grid,” he said.

During the KenGen initial public offering in 2006, investors were promised that the government would take over the risky exploration and drilling venture, which quite often yield zero results.

Kenya has a potential of 3,000 to 4,000 megawatts (MW) for geothermal generation and the focus is now on developing the vast resources to increase power output to meet demand rising at 8 per cent annually.

Kenya has geothermal hot spots containing hot water sources and steam at 300 degrees Celsius that are usually piped to the ground to produce power.

When the mixture reaches the plant, the water is separated from steam, which powers a generator turbine through pressure and heat.

Geothermal electricity can be delivered to consumers at about Sh4 per kilowatt-hour compared to Sh10 to Sh15 for other sources.

Kenya’s interconnected electricity system has an effective generation of about 1,250 MW including 146 from emergency power plants.

The current power demand averages 1,150 MW.

The Sessional Paper No. 4 of 2004 on Energy recognised the need for the government to create a special geothermal firm to drive exploration of steam to generate electricity as a clean sustainable source.

GDC as well as the new transmission parastatal are anchored in the Energy Act of 2006.

The main hindrance to geothermal power development has been high tariffs arising from high costs related to steam exploration.

“For tariffs to be low, the government is undertaking exploration. KenGen and private investors will undertake plant construction for generating electricity,” said the PS.

Mr Nyoike said KenGen, which is currently 30 per cent owned by private investors, will construct two geothermal plants of 140 MW at Olkaria IV near Naivasha to increase power feed to the national grid.

“KenGen has been involved in resource assessment in Olkaria IV.

The two plants will each have 70 MW and the Government of Japan is willing to give Kenya a loan but financing terms are yet to be finalised,” he said.

The Least Cost Power Development Plan (LCPDP) of 2009 to 2029 provides for the installation of new geothermal plants between Olkaria and Lake Bogoria, with a generation of 1790 MW and GDC developing the steam fields.

Key role

The current national access to electricity is estimated at 18 per cent but the government, as part of Vision 2030, aims to raise accessibility to 20 per cent by the end of 2010 and 40 per cent by 2012.

The new Rural Electrification Authority (REA) is expected to play a key role in meeting the government’s electrification goal by scaling up connection to the national grid to one million customers by 2012.

Mr Nyoike said GDC is mandated to undertake detailed investigation of sites like Longonot, Suswa, Menengai, Lake Magadi and Lake Bogoria, which have high potential, with a view to drilling.

The scope covers economic and financial analyses of steam reserves to be sold to KenGen and other users.

Reported by Kennedy Senelwa and Muna Wahome