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Kenya, Olkaria Geothermal Power

Pioneering geothermal power generation in the Rift Valley to supply Kenya's fast-growing economy with reliable, renewable energy

Deep below the surface of Hell’s Gate National Park, near Lake Naivasha in the Great Rift Valley of Kenya, powerful geothermal activity is being harnessed to generate clean electrical power. OrPower4, a subsidiary of Ormat Technologies Inc., is currently a 48MW geothermal power plant, the first privately funded geothermal project on the continent of Africa.

BACKGROUND

Kenya's existing power supply is unable to meet the country's growing demand for electricity.  Renewable hydro power accounts for more than half of Kenya’s power generation, but it is vulnerable to an increasingly unpredictable climate. Most of the coutry's remaining energy is derived from burning fossil fuels. In contrast, the virtue of geothermal power is that it is renewable and locally generated, avoiding the expense and environmental hazards associated with importing fossil fuels. The new technology of the OrPower4 plant – air-cooled converters ensuring no surface discharge – has the least environmental impact of any power generated in Kenya. The 48MW of power it provides is also cheaper for local industry, and the poor communities the plant serves.

THE DEAL

The project was originally tendered with World Bank supervision in the mid-1990s. A US subsidiary of an Israeli parent company, Ormat Technologies, won the tender and set up a Kenyan company, OrPower4, to build, own and operate the project. DEG and KfW Entwicklungbank were mandated as lead arrangers for the project financing. The 48MW plant has been fully operational since 2009 with electricity generated by the plant being bought and distributed by Kenya Power (KPLC).

The total project investment cost for the 48MW plant was US$179.4 million of which US$59.7 million of long term commercial equity was invested by the project sponsor (Ormat), with the balance US$119.7 million being raised through long term loans from various development finance institutions such as DEG, FMO, EFP, KfW, Proparco and EAIF. OrPower4 have commenced a phase II expansion of the plant from 48MW to 84MW.

PIDG POSITION

PIDG facility EAIF provided a long-term loan of US$15 million to the project. EAIF’s loan is based on a 10-year loan term that was not available through commercial banks in Kenya.

In August 2012, the positive demonstration effect of the project financing resulted in the Overseas Private Investment Corporation (OPIC) signing an agreement to provide additional project financing, totalling US$310 million, for the further expansion of the OrPower4 plant - increasing its generation capacity to up to 100MW.

DEVELOPMENT IMPACT

  • Total investment committed of US$179.4 million
  • The Kenyan government benefited with upfront fees of US$3 million, along with a royalty charge received of US$2.5-3 million per year.
  • Improved quality and reliability of power is enhancing the lives of approximately 2.3 million people, of whom about 700,000 live below the poverty line.
  • Dependence on volatile hydro-power and fossil fuel imports has been reduced.
  • 56 people are employed long-term by the project - 5 of these are women.
  • By generating renewable energy, the project contributes positively to international climate change targets, and it qualifies for carbon credits within the Kyoto-Protocol’s Clean Development Mechanism.
  • Geothermal power is stable, unaffected by weather, and emits no CO2 – providing clean, cheap energy.
  • Through its innovative technology, Ormat is contributing signifcantly to knowledge transfer.
  • The plant is located within Hell's Gate National Park, and a community of around 2,000 local people receive support from the project sponsor – including education initiatives, such as the provision of books and teaching staff for girl’s education.
  • Contributing to Kenya’s energy security helps implement Vision 2030, a strategy which seeks to convert Kenya into a middle-income country by 2030.
  • OrPower4 is helping rebalance Kenya’s power deficit.