The entry of the Spaniards has come at a time when anxiety was beginning to grow over whether the massive project would achieve financial closure.
African Development Bank, the financial arrangers of the project, had warned the government that reaching financial closure on the 300 MW wind farm would be difficult without a firm commitment that financing of the transmission line was fully funded.
The wind farm project will involve the construction of a 427-kilometre double circuit transmission line between Loiyangalani in Marsabit, northern Kenya, and the nearest point to the national grid at Suswa, approximately 100 kilometres from Nairobi.
The Lake Turkana Wind Power Project is significant to Kenya’s energy security because it will represent a fifth of Kenya’s existing capacity for generating electricity.
At 300 MW, it eclipses the 290 MW of expensive electricity Kenya is currently buying from diesel-fired power plants under an emergency programme to bridge the country’s chronic power deficit.
Communication between Kenya’s Ministries of Finance and Energy and the Spanish government over the past one month indicates that the major milestones have been met to close the financing for the project.
Documents seen by The EastAfrican now show that the government of Spain last week wrote to the Treasury of Kenya with the Euro 110 million offer, half of which will be on concessional terms with the remainder on commercial terms.
The specific details of the offer by the Spanish government are as follows: First, a concessional loan of €55 million ($74 million) at an interest of 0.10 per cent, with a repayment period of 35 years, including a 14-year grace period.
This loan will be supported by a Financial Co-operation Agreement between Kenya’s Ministry of Finance and Spain’s Ministry of Industry, Tourism and Trade.
Second, a €55 million commercial credit with official support from the Spanish Export Credit Insurance Company will be extended on OECD terms.
Third, there will be a sovereign guarantee by the Kenyan government. The local costs of the project, including acquisition of the way leave, will be met by the government through the Ministry of Energy.
The Spanish government has also indicated that the offer may be improved if the government of Spain is granted a preferential price regarding the Certificates of Emission Reduction (CERs) generated by the massive wind farm.
Kenya has compiled a wind energy atlas that gives indicative information about the wind potential in various parts of the country.
And, to attract investment capital in wind resources power generation, the government has published a “feed-in tariff” guaranteeing investors the minimum tariff they can charge the off-taker, the Kenya Power and Lighting Company (KPLC). The feed-in tariff applies for 15 years from the date of the commissioning of the wind power plant.
When completed, the Lake Turkana wind farm will be the largest producer of national-grid fed wind energy any where in the world. Until now, only Morocco and Egypt had implemented wind energy projects on any significant scale.
The Lake Turkana Wind Power Project is so massive that implementation will almost be a logistical nightmare, involving construction of 365 giant wind turbines at a cost of $800 billion and transporting to Marsabit, almost 1,500 kilometres from the port of Mombasa.
The wind farm, to be constructed on a 66,000 hectares of land, is to be funded by equity and long term loans, mainly by long term foreign financiers led by KP&P of the Netherlands and supplier credits from Dutch manufacturers of wind power generation equipment.
The transmission line will be funded by the state on lent to the state-owned Kenya Electricity Transmission Company. Aldwych International, with operations in more than 15 countries, recently became the main shareholder, having taken a 51 per cent stake.
The British firm has wide interests in Kenya’s energy sector, with a sizeable stake in the Rabai thermal power plant that supplies 90 megawatts to the national grid.
Aldwych’s entry into the wind power project came after collapse of negotiations between the original shareholders and Globeleq, the United Kingdom private equity firm.
The wind farm company has recently signed a power purchase deal with the off taker, the Kenya Power and Lighting Company, committing it to supply the national grid at a price of Ksh7.80 (7.22 euro cents per kwh), making the wind farm the cheapest source of power in Kenya, and below the feed-in tariff of Ksh9.
Current generation mix is made of 719 MW hydro, 163 MW geothermal, and 407 MW thermal power, including 290 MW from emergency power producers. That output stands against real demand level of 1,135 MW and peak demand of 1107 such units, leaving the reserve at just four per cent.
By JAINDI KISERO, http://www.theeastafrican.co.ke/news/-/2558/870272/-/pumtl7z/-/