October 7, 2014 / 7:08 AM / 5 years ago

Kenya's KenGen seeks joint venture partners for geothermal plants

NAIROBI (Reuters) - State-controlled Kenya Electricity Generating Co (KenGen) said on Monday it wanted to team up with private investors for the first time to build geothermal power plants that would come on stream by 2016.

KenGen’s plan is part of Kenya’s ambition to add 5,000 megawatts (MW) of capacity by 2017, against a current total of 1,664 MW, as it tries to tackle power shortages and high prices holding back business in the east African nation.

By 2030 Kenya estimates it will need some 15,000 MW of extra capacity, with much coming from geothermal and other renewables which will be both cheaper than widely-used diesel generators and more reliable than its hydropower dams which are affected by regular droughts.

KenGen Chief Executive Albert Mugo said the company had already drilled 45 out of a targeted 80 geothermal wells that were expected to produce an extra 400 MW by 2016 at a cost of about $1.7 billion.

The company, which is 70 percent state-owned and is Kenya’s biggest power generator, was in talks with development institutions to borrow money for an initial plant with capacity of 140 MW, Mugo said in an interview.

“We are also looking at being able to do joint ventures,” he said, adding private partners “can help us in mobilising the debt for the project and also inject a substantial amount of equity and then we do these projects together”.

A KenGen official said any joint venture would be a first for the company.

Mugo said KenGen could probably fund a further 150 MW by issuing debt or equity, but joint ventures could be used to add the remaining 250 MW to meet the target of 400 MW by 2016.

GOOD INDICATION

KenGen said in February it planned to raise 30 billion shillings ($336 million) this year, with 15 billion coming from shareholders via a rights issue of new stock and the rest from the government using means yet to be announced.

Mugo said the government had assured the company it would take up its share of the rights.

“There is good indication that perhaps before the end of this month the government will have decided on how to take its rights,” he said in reference to the government’s deliberations on how to fund its part of the issue.

Mugo said in July the proceeds of the issue would help KenGen restructure its balance sheet and borrow for further expansion after 2017, when it plans to have 1,252 MW in place.

By the end of this year, KenGen will have added 305 MW in geothermal capacity, helping cut power bills that businesses say make Kenyan industry uncompetitive. In Kenya, an extra fuel charge or premium is added to normal power rates depending on the amount of diesel generation used and on global fuel costs.

This month, the fuel premium stood at 4.79 shillings per kilowatt hour (kWh), compared with 7.22 shillings in May, as geothermal helped reduce use of diesel generators.

“I won’t be surprised if by next month, we will be going to below 4 shillings per kWh on fuel. So that’s the kind of effect we are seeing on the tariff as we bring (on stream) the geothermal units.”

Overall, Kenya wants to halve electricity bills in the next three or four years from present levels of between $0.17 and $0.18 per kWh. Diesel generation costs about $0.35 per kWh, while the cost of geothermal - plentiful in the Rift Valley which runs through the country - ranges between $0.08 and $0.09 per KWh, the government says.

1 US dollar = 89.2500 Kenyan shilling

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