Kenya to benefit from Sh1.7 billion EU power project

www.businessdailyafrica.com
September 8, 2009

Kenya is set to benefit from a Sh1.7 billion geothermal power project to be set up by the European Union in the Rift Valley. Executives in the energy sector say the funds will be used for feasibility studies and exploration work in an effort aimed at laying the ground work for the entry of private investors into geothermal generation. Private investors have preferred to invest in thermal power (diesel-driven) since they are cheaper to develop compared to geothermal but get expensive in the long run when its impact on power bills inflation and environmental damage are factored in.

Now, the EU seeks to reverse this trend by providing investor information such as maps of potential drilling points and helping the government to formulate policies that would help investors put their money in geothermal power generation. This comes at a time when the country is faced with a power shortfall that forced power managers to turn to rationing and to the more expensive thermal production to meet the ever rising consumers demand.

"Geothermal energy covers one of the four interdisciplinary core programmes of our centre and is part of its strategic priority in developing eco-friendly renewable energy," says Giorgio Rosso Cicogna, the managing director of International Centre for Science and High Technology — United Nations Industrial Development Organization (UNIDO).

The project will be implemented by UNDO at the request of the Africa Union which has already submitted the project's proposal to the European Union — the financiers of the project. Kenya derives 130 MWs of power or about 10 per cent of its installed power capacity from geothermal sources despite the potential of about 7, 000 MWs. The country's peak demand stands at 1,070 MWs.

Kenya requires an additional 1,500 MWs in the coming 10 years to stabilise supply, and the government is keen to tap into the least cost generation. The government has already established a state-owned Geothermal Development Company (GDC) to rev up the contribution of geothermal production. This will allow the government to facilitate the huge funding required for geothermal projects, which has acted as a deterrent for private firms to explore that segment.

For instance, an 80-MW geothermal would cost about Sh28 billion compared to only Sh8 billion for same thermal plant. Figures from the Energy ministry indicate that geothermal power can be delivered to consumers at less than Sh4.20 per kW hour, which is far much lower than the Sh15 per kW hour that power consumers are now paying. The government has unveiled tax concessions and a tariff policy to encourage private investors to enter geothermal generation.

The country's reliance on the weather-dependent hydro-power and the more expensive thermal sources to meet its energy needs has come with a price. The country is faced with a power rationing, which the government has announced will end this month. Secondly, power consumers are faced with expensive electricity in the form of increased fuel costs due to heavy reliance of thermal power to bridge the gap. Power consumers are now paying over Sh6 from Sh4.10 in March.

Kenya relies on hydro sources to generate 700 MW of power but electricity generator KenGen says this has reduced by 12 per cent due to drought which has forced a countrywide power rationing following the recent closure of Masinga dam station. The country has an installed capacity of 1,200 MW and hydro sources produce about 56 per cent of the total electricity while thermal and geothermal contributes 36 and eight per cent respectively to the national grid. The government expects the Geothermal Development Company (GDC) could deliver at least 700 MW in the next 10 years.