Building the proposed Lamu coal plant would be a costly error for the country, according to a new study.
The findings of the study by the Institute for Energy Economics and Financial Analysis (IEEFA) show that the plant would lock the country into a 25-year power purchase agreement (PPA) that would force electricity consumers to pay more than $9 billion, even if Lamu project doesn’t generate any power as long as it is available for dispatch.
Speaking in Nairobi yesterday, David David Schlissel, director of resource planning analysis for IEEFA, said the project, first proposed in 2015 as part of government initiative to build new baseload capacity to replace ageing diesel-fired generation and serve planned future economic growth, has been overtaken by events.
“This is particularly for the lower-than-projected demand growth, lower forecasted generation from Lamu and higher anticipated costs for imported coal.
These developments have undercut the plant’s financial viability and should prompt the Kenyan government to cancel the project,” Schlissel said.
He said the planned $2 billion coal plant, currently scheduled to enter commercial service in 2024, is being built by Amu Power Company Limited, a single-purpose entity that is 51 per cent owned by Centum Investments, a Kenyan investment firm, with the remainder held by Gulf Energy.
“The construction contract for the plant was awarded to Power Construction Corporation of China in 2016.
However, construction has not yet started, and there is ample justification to cancel the entire project,” he said.
Using data from the October 2016 Lahmeyer International report released in June 2018, the research shows that assumptions used by the coal plant’s developers no longer hold true and that building the facility would burden consumers with costly power for years to come.
“In addition, the project would make it difficult, if not impossible, for Kenya to meet its Paris climate change treaty obligations.
In particular, we find the existing 25-year PPA would force Kenya to pay at least $360 million in annual capacity charges, even if no power is generated at the plant,” Schlissel said.
The study also shows that Amu Power’s claims for the cost of Lamu-generated electricity are unrealistically low, based on outdated costs for the imported coal that will be burned and on overly optimistic assumptions about how much electricity the plant will generate.
“Using more realistic assumptions about future Lamu generation and coal costs, electricity from the plant could cost as much as US75 cents (Sh76) per kilowatt-hour (KWh), on average, during the years 2024 to 2037, more than 10 times what the plant’s proponents have claimed,” he said.
Schlissel said the plant would also stand in direct opposition to President Uhuru Kenyatta’s 2018 pledge to move the country to 100 per cent renewable energy in the near future.
The research recommends that a better alternative, both cleaner and cheaper, would be to take full advantage of the nation’s plentiful and largely untapped renewable energy resources.
The researcher said there is considerable hydropower potential estimated in the range of 3000-6000 MW of which only 750 MW is currently exploited.
He said there is also great potential for the use of solar energy and significant potential for wind resources.
The cost of renewable energy sources plummeted between 2009 and 2017, with solar photovoltaic and onshore wind turbine prices falling by 74 per cent and 34 per cent respectively.
Unlike coal, wind and solar resources do not have major negative environmental impacts.