AfDB gives Sh1bn cover for Nakuru geothermal wells

What you need to know:

  • Kenya is ranked eighth in the world among the top geothermal producers behind the US, Philippines and Indonesia.

A 105 megawatt geothermal project at Menengai is poised for take-off after the African Development Bank (AfDB) approved a Sh1.1 billion ($12.7 million) guarantee.

The partial risk guarantee approved by the bank’s board will cover the project’s financiers and independent power producers, mitigating the risk of non-payment by Kenya Power under the Power Purchase Agreement and non-supply of steam by the Geothermal Development Company (GDC).

Earlier in the year GDC picked Ormat Technologies – through its wholly-owned subsidiary OrPower 4 – Quantum Power and local firm Sosian Energy to each build a 35 megawatt steam power plant under a build-own-operate model.

Construction of the plants is set to start in December. Each of the power plants will cost about Sh4 billion to set up and the electricity will be injected into the national grid by the end of 2015. The guarantee by AfDB will provide comfort to the project’s financiers and could see the independent power producers secure easier borrowing rates.

“This mitigation of perceived political risks will promote foreign direct investment in Kenya and “crowd in” private financing for power generation,” the bank said.

The guarantee covers private lenders and investors against the risk of a possible government failure to meet contractual obligations. Were the government to default, the bank would meet these obligations but would also suspend disbursement on all projects it is currently funding in Kenya. The country has borrowed heavily from the bank making such a default risky.

Last year, AfDB also stepped in to provide a Sh2.4 billion guarantee to the Sh71 billion Lake Turkana Wind Project after the World Bank pulled out.

Kenya targets to halve electricity bills next year from present levels of between Sh15-Sh16 per kWh on the back of increased injection of geothermal power to the national grid. Diesel generation costs about Sh30 per kWh while the cost of geothermal power ranges between Sh7.12 and Sh8.01 per KWh, the government says.

Kenya is ranked eighth in the world among the top geothermal producers behind the US, Philippines and Indonesia.
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