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The African Development Bank and the Climate Investment Funds support their first private sector-led geothermal power plant in Kenya
The African Development Bank approved on June 6, 2018 a senior loan of US $29.5 million and a concessional loan of US $20 million from the Climate Investment Funds (CIF) Clean Technology Fund (CTF) to Quantum Power East Africa GT Menengai Ltd.
The funding will support the development of a 35-MW geothermal power plant at the Menengai geothermal field in Nakuru County, Kenya, one of three modular geothermal plants in the Menengai field with a combined capacity of 105 MW. The project is part of the CTF Geothermal Concessional Finance Program under the Dedicated Private Sector Program designed to finance programs that can deliver development results, impact, private-sector leverage and investment at scale and can be deployed rapidly and efficiently.
“Kenya has nearly 7,000 MW of geothermal potential, yet only about 200 MW is currently being developed,” said Amadou Hott, Vice-President, Power, Energy, Climate and Green Growth at the African Development Bank. He welcomed the approval, noting that “the partnership between the African Development Bank and the CIF to contribute to Kenya’s efforts in scaling up the development of this renewable resource and boost economic growth is commendable. The deployment of CTF funds is directly contributing to unlocking the power of the private sector in driving long-lasting market transformation and mitigating risks in the geothermal power sector.”
Quantum Power-Menengai Geothermal Project, the second geothermal independent power project in Kenya, will strengthen public-private partnerships and enable the country to harness its abundant geothermal resources to provide reliable, low-cost, environmentally friendly base-load electricity. It supports the Government’s Big Four growth agenda and reinforces the Bank’s commitment to its strategy to “Light up and power Africa” and “Industrialize Africa”.
The Government of Kenya is also putting efforts into creating an enabling environment to enhance investment flows from private investors into the energy sector through the implementation of competitive tender processes in an attempt to lower the unit costs of geothermal power generation while lowering the costs of doing business and thus improving Kenya’s competitiveness in the region.
“The African Development Bank has invested considerable resources and time in the development of the Menengai geothermal steam field with the objective of enabling Kenya to find a productive source of steam for on-grid power generation,” said Anthony Nyong, Director for Climate Change and Green Growth at the African Development Bank. “The financial package being extended to this project shows strong commitment towards improving Kenya’s energy sector as well as tangible efforts to curb climate change and encourage green growth on the continent,” he said.
The project will provide positive environmental effects and contribute to green growth by developing renewable energy infrastructure (annual savings of up to 95,100 tons of CO2 equivalent) and increase the base-load, grid-connected generation capacity (potential to serve 48,800 households per year), at a low generation cost of 7 cents/kWh.
In anticipation of this and similar projects, the Bank approved a US $12-million partial risk guarantee in October 2014, to catalyze the participation of independent power projects in generating geothermal power. The guarantee mitigated the risk of non-payment by the state-owned power utility under the power purchase agreement and its non-supply of steam for up to three months.
This will be the first independent power project to which the Bank is providing debt funding as a non-sovereign operation. As the deal’s mandated lead arranger, the Bank is mobilizing all necessary debt funding from other development finance institutions.