Home Business Kenya: How the Chase for Cheaper Power From Lake Turkana Project Turned Elusive

Kenya: How the Chase for Cheaper Power From Lake Turkana Project Turned Elusive

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In 2011 when whispers of a wind power project in Kenya began to get louder, the country was struggling with its generation mix.

Reliance on expensive thermal energy was over 40 percent, geothermal was not as significant and hydro was too weather-reliant to guarantee steady supply.

Five days before Christmas of 2014, a financial closure was reached and Kenya was on the path to hosting Africa’s largest wind power facility.

The Sh70 billion project would not only inject clean power into the grid but was also billed as a cheaper option for the country whose consumers were constantly demanding cheaper electricity.

Kenya’s Least Cost Power Development Plan used in the project’s feasibility documents even said the wind farm would ‘generate the lowest cost power available to Kenya, which is 60 percent less expensive than the emergency thermal power plants.’

The 310 megawatts Lake Turkana Wind Power project may have delivered the cleaner energy for the country but the dream of reducing the cost of power remains elusive and its last two years of operation have left stakeholders chasing the wind in pursuit of cheaper power.

Electricity not used

Data from the Energy and Petroleum Regulatory Authority shows that the weighted average cost of power from the wind sources rank second after thermal to retail at Sh11.21 per unit with the currently reduced Value Added Tax of 14 percent.

The cost is Sh6.7 or 38 percent cheaper than thermal plants Kenya is keen on switching off and is far from the projected 60 percent relief from the expensive diesel as had been projected.

The cost of the project for Kenya was behind the exit of the World Bank whose concern was both on the country’s ability to absorb the power the plant was designed to generate and its impact on the cost of energy.

The global lender also withdrew its guarantees for the project after a sales deal with Kenya Power committed that forces consumers to pay billions of shillings for electricity not used — effectively beating the project’s primary purpose on the same.

The take-or-pay provisions in the deal would expose Kenya Power to ‘unacceptably large financial risk’ after it was committed to paying for excess power from the wind farm, beating the logic of putting up the wind farm to reduce the high cost of power.

The World Bank was also concerned about the deal clauses that put penalties on Kenya Power if the plant was completed before the transmission line would be ready to evacuate power.

Blown off

The project went on after the fall out and true to the concerns; Kenya was left with a Sh14.6 billion penalty when the line was not ready to evacuate power after lengthy delay foreseen by the World Bank.

“The PPA included contractual implications for both LTWP and Kenya Electricity Transmission Company in the event that either entity did not deliver the wind farm or the transmission interconnector respectively on time.

Based on this contractual agreement LTWP has only received Sh5.7 Billion of the Sh14.6 Billion that it is owed by KPLC for this delay and is not charging interest for the balance whose payment has been deferred over a 6-year period,” LTWP writes on its website.

Analysts believe it was a set up. Kenya power was only left with a buffer of three months since the construction of the transmission line was expected to take 23 months while that of the power plant was estimated at 26 months.

With that clause, the cheaper power element was blown off and the current tariff which is supposed to run for the first six years carries the load of the penalty which is expected to ease after the seventh year when the wind power will be sold at 7.684 euro cents (Sh9.91) per unit.

The firm had offered to sell power at half the rate once Kenya begins to absorb its output beyond a certain threshold.

Agreed capacity factor

This too has remained elusive since what is taken by Kenya Power is dependent on what LTWP gives and the wind is also unpredictable like it happened last year.