Kenya is poised to attract at least Ksh 1.5 trillion in private capital and significantly boost its geothermal installed capacity to 5000 megawatts within the next decade. This ambitious target is contingent upon the establishment of a stable fiscal and legal regime, according to the Geothermal Association of Kenya (GAK).
A critical element in achieving this goal is the formulation of stable and long-term Power Purchase Agreements (PPAs) with private sector geothermal developers. Such agreements are essential for mitigating the risks associated with currency fluctuations and the uncertainties of geothermal fields.
“If private developers know they will be paid a certain amount per kilowatt hour for the next 10 years, it gives them confidence to take on debt to bring that money into Kenya and develop the fields knowing they will be paid the exact amount to repay their debt and give their equity shareholders dividends in return,” said Dr. Gathuru Mburu, GAK director.
The Economics of Geothermal Power
Currently, producing 1 megawatt (MW) of geothermal power in Kenya requires an investment of at least Ksh 384 million ($3 million). To facilitate this level of investment, the GAK calls for a policy shift that allows the debt taken for geothermal field developments to be denominated in both local and foreign currencies. This approach would shield firms from the adverse effects of currency fluctuations.
“Power projects are long term and they are very capital intensive. Right now, that capital is lent in foreign currency and therefore it needs to be paid back in the same foreign currency. There is a concerted effort to see whether we can begin to split those PPAs into a portion in local currency and a portion in foreign currency,” added Dr. Mburu.
Enhancing Kenya’s Geothermal Capacity
Kenya is currently the world’s sixth-largest geothermal power producer, with an installed capacity of 985 MW. The involvement of the private sector is deemed crucial for scaling up this capacity. Private sector investment is expected to accelerate power production, which will, in turn, lower the cost of power and stimulate industrial development.
“It is very important for the private sector now to be involved because they can bring in the mass of capital we need to accelerate power production which will eventually lead to industrial development by lowering the cost of power,” noted Dr. Mburu.
Supporting Smaller Communities and Technological Adoption
The GAK also emphasizes the importance of making geothermal exploration data available and supporting the adoption of geothermal technologies, especially for smaller communities.
“You can have a project that is just proving heating, cooling, and electricity for a small isolated community so you don’t have to build as much transmission line which reduces costs for the country as a whole,” said Bryant Jones, Executive Director at Geothermal Rising.
Enhancing Kenya’s Global Geothermal Profile
At the Kenya Geothermal Congress 2024, it was revealed that Kenya will bid for a seat on the World Geothermal Congress board, which is arranged by the International Geothermal Association, of which Kenya is a member. Securing this position is expected to enhance Kenya’s profile on the global stage and attract more private capital for geothermal development.
In summary, Kenya’s geothermal power sector is set for significant growth, with the potential to attract substantial private investment. By ensuring a stable fiscal and legal environment, fostering private sector involvement, and supporting technological adoption, Kenya can achieve its ambitious geothermal capacity goals, thus driving industrial development and economic growth.
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