Public-Non-public Partnerships (PPPs) have been profitable in reinvigorating Kenya’s geothermal sector, however some challenges in undertaking financing stay.
A paper by Jesse Nyokabi, Sharon Mwakugu, Louise Mathur, and Johnson Mwawasi, that was offered through the ninth Africa Rift Geothermal Convention in Djibouti, highlights the public-private partnership (PPP) construction for geothermal improvement in Kenya, undertaking financing fashions, danger mitigation measures, and present challenges.
The total textual content of the paper will be accessed through this hyperlink.
The present state of geothermal in Kenya
Kenya at the moment has a complete put in geothermal energy era of about 950 MWe which accounts for about 30% of the nation’s complete put in electrical energy capability. The Olkaria discipline stays the most efficient geothermal web site in Kenya. A 35-MW energy plant will quickly be operational in Menengai, with improvement of additional energy vegetation already in progress.
The Kenyan authorities has acknowledged the potential half that non-public buyers can play in creating the nation’s geothermal sector. This mannequin is already in follow in Menengai, the place the steam discipline was developed by state-owned Geothermal Growth Firm (GDC) however the energy vegetation are to be developed by unbiased energy producers (IPPs).
PPPs permit the Kenyan authorities to faucet into the experience, innovativeness, monetary effectivity, and high quality assurance of the non-public sector. The mechanism of PPPs in Kenya is ruled by the PPP Act of 2021 which seeks to broaden the scope of association to facilitate the higher participation of personal events by way of Annuity-based Design, Construct, Finance, and Function, Strategic Partnerships, and Joint Enterprise Partnerships.
Up to now, 13 IPPs have been licensed to undertake greenfield geothermal initiatives on the following prospects – Barrier, Longonot, Akiira, Elementaita, Homa Hills, Menengai North, Lake Magadi, Arus, Baringo, Emuruangogolak, Namarunu, and Emuruapoli
PPP as a danger switch mechanism
The PPP mannequin permits for the distribution of undertaking dangers among the many totally different stakeholders. Apart from the non-public developer and the Kenyan authorities, state-owned builders reminiscent of GDC and KenGen additionally share within the dangers. Additionally included on this risk-sharing mechanism are Kenya Energy and Lighting Firm PLC (Kenya Energy) and the Kenya Electrical energy Transmission Firm (KETRACO) because the events answerable for the electrical energy transmission system and high-voltage transmission grid.
Within the case of the 105-MW Menengai geothermal undertaking, the danger switch is summarized as beneath:
![](https://www.thinkgeoenergy.com/wp-content/uploads/2023/07/Kenya-PPP-risk-table-1024x449.png)
Financing fashions of Kenyan PPP initiatives
The PPP mannequin has been famous to be significantly efficient for geothermal initiatives – the general public sector concentrates its sources within the riskier upstream improvement phases (check drilling and discipline improvement) whereas the non-public associate funds the capital prices of the extra superior phases (energy plant development, operations, and upkeep).
In Kenya, the 155-MW Olkaria III was the primary privately funded and developed geothermal energy plant. Exploration of Olkaria was undertaken by the federal government of Kenya earlier than the facility plant was then developed by Ormat Applied sciences Inc. below a Construct-Personal-Function contract. The undertaking was funded by Ormat with a mix of fairness financing and debt financing, the latter of which was facilitated by a PPA with KPLC and a authorities safety package deal and a Political Threat Insurance coverage (PRI).
The same mannequin has been used for the Menengai undertaking. GDC provides steam to the facility vegetation owned and operated by the IPPs. The IPPs have signed a PPA with KPLC as the only off-taker of electrical energy. Essential dangers have been recognized with this mannequin, specifically:
Fee danger by KPLC as the only off-taker
Steam provide danger by GDC
To assist non-public builders receive debt financing, the African Growth Fund offered a partial danger assure of USD 11.27 million which lenders can draw upon within the occasion of the aforementioned dangers materializing. Two of the initiatives additionally receiving concessional financing of USD 15 million by way of the Dedicate Non-public Sector Program of the Clear Funding Facility Clear Know-how Fund. This allowed the initiatives to have a extra engaging return on funding.
Authorities Letters of Help issued by the Authorities of Kenya to the IPPs additional enhance the bankability of the initiatives by offering some mitigation towards political and nationwide dangers.
Current challenges in financing geothermal PPPs in Kenya
The paper goes on to explain challenges which might be nonetheless being encountered by geothermal builders in securing undertaking financing for Kenyan geothermal initiatives. A significant problem is the dearth of a developed monetary market in Kenya that may permit for sustainable and long-term undertaking financing. Business banks in Kenya stay hesitant to lend for tenures of greater than 10 years, forcing non-public corporations to resort to offshore borrowing.
Kenya additionally continues to take care of unfavourable publicity that may erode investor confidence and restrict non-public sector curiosity in geothermal initiatives. This may be countered by sufficient transparency within the procurement course of and constant decision-making course of by authorities officers within the vitality sector. An instance of such unfavourable publicity was the latest push by the federal government to renegotiate PPAs for contracts that had already been signed between the federal government and the IPPs.
General, the research concludes that the adoption of PPPs has been a optimistic improvement to speed up geothermal improvement in Kenya. Nonetheless, there are nonetheless a number of alternatives for this mannequin to be improved.
Supply: ResearchGate