How State blunders dimmed Kenyans’ hope for cheap power

The power agencies have over the last year had numerous fights centering around nearly all their areas of operations - ranging from faulty transformers to geothermal projects that never kicked off.

Power transmission lines also appear to have permanently stalled.

GDC and the waning geothermal promise

Of the 2,711 megawatts (MW) of Kenya’s installed power generating capacity, geothermal accounts for 663MW or 17 per cent of this.

This is despite the enormous potential the country has, with estimates putting geothermal potential at 10,000MW. It's one of the sources of energy that is seen as green and priced the lowest, compared with other alternatives that the country has embraced to bridge the electricity generation gaps.

Outside of Olkaria, where geothermal exploitation takes place, there is vast potential in Menengai as well as other areas in the Rift Valley.

The beauty with the Menengai geothermal fields is that Geothermal Development Corporation (GDC) has de-risked the area by drilling wells and laying basic infrastructure and all that is required is for investors to put up plants.

The sad bit, however, is that despite the billions that the firm spent, not a single unit of power has been produced in the region close to a decade since all these investments were made.

The company has in the past tried to pass the blame to the firms that were competitively selected to put up power plants.

Three firms were expected to put up electricity plants within the fields, which are fully developed with wells drilled and piping done to direct geothermal steam to central points.

The companies are supposed to develop three power plants separately with a combined capacity of 105MW under a Public-Private Partnership (PPP) where the State would provide the steam, with the investors putting up the plants.

GDC earlier this year told the National Assembly’s Committee on Energy that the companies had failed to secure funding to construct the power plants.

The State power generation firm noted that it had met all its obligations in availing infrastructure, including drilling of wells and piping steam to areas where three private companies are supposed to build power plants.

Cheap geothermal power could displace expensive power plants, especially thermal. GDC, however, failed to say why it had failed to keep the pressure on the firms that were entrusted with public resources.

The three companies were expected to invest a combined Sh30 billion in the power plants that were scheduled to start operations in December 2015.

The entity is not a stranger to controversy. Earlier this year, it emerged that it had paid Sh1.4 billion to a Chinese firm, whose address it did not know.

Hong Kong Offshore Oil Services (HOOSL) was awarded the contract in 2014 to develop between 15 and 20 wells in Baringo Silale, another area where the corporation says has huge potential for power production using geothermal steam.

Five years later, the work is yet to begin and GDC has recently started querying the capability of the company and sought advice from the Attorney General on instituting legal proceedings.

In September, GDC said it had drilled the first exploratory well in the area.

Rural electrification’s solar power plant rip-off

The Rural Electrification and Renewable Energy Corporation (REREC) towards the end of last year commissioned its 54MW solar power plant in Garissa. As of April this year, the agency said it had bagged Sh431 million from the sale of electricity to Kenya Power from the plant.

The backstory to the plant that has earned commendations for its scale and green energy could turn out to be a possible rip-off to taxpayers.

The plant was built at a cost of Sh13.5 billion compared to other plants of similar scale that private players are planning to put up that only confirms that REREC plant may have cost twice as much.

The higher-than-average cost will, without doubt, add to the pain for the taxpayer when the government starts repaying the loan advanced by China to construct the Garissa plant.

It is in comparison with a planned 45MW plant by KenGen in Embu, whose feasibility studies indicated it will cost Sh5.7 billion. The plant is also in comparison to a 52MW solar plant being constructed in Malindi by Malindi Solar Group majority-owned by UK-headquartered Globeleq estimated at Sh7 billion.

Kenergy Renewables, another private entity, is putting up a 40MW power plant at Rumuruti, Laikipia County, and expects to invest between Sh6 billion and Sh7 billion.

The Garissa plant has been put up using a loan from China’s Export-Import (EXIM) Bank, with China Jiangxi being the lead contractor of the consortium that include two other Chinese firms.

REREC has in the past told The Standard that the high cost was a result of the agency being a relatively “early adopter” of solar energy, with negotiations to build the plant having been done at a time when the cost of equipment was fairly high.

While the cost of solar equipment has gone down over the last decade in some instances by as much as 90 per cent, the question lingers as to why the contract was not executed until two years ago.

Ketraco and a legacy of stalled lines

The delay in completion of the high voltage power transmission line from Marsabit to Suswa in Kajiado County came at a huge cost to the taxpayer.

In addition to penalties that the government had to pay to the investors - Lake Turkana Wind Power (LTWP) - it was forced to look for another contractor which had the net effect of doubling the cost of construction.

The government was in an agreement with LTWP that it would have a transmission line in place when the firm finished building its 364MW plant. The line was, however, not in place in time and the State was penalised since the company was unable to monetise its investment.

In the absence of the line, the government was supposed to pay Sh1 billion every month until the infrastructure was in place.

After negotiations, it was agreed that the State would pay Sh14.5 billion (127 million euros) split into Sh5.6 billion upfront and Sh9 billion over six years.  The latter bit of the penalty is being paid by consumers through a charge on the electricity bill.

Under the deal brokered, the power plant would sell electricity to Kenya Power at 7.5 euro cents (Sh8.6 at current exchange rates) per unit of electricity as per the power purchase agreement, in addition it will levy 0.85 Euro cent to cater for the penalty, bringing the tariff to 8.529 euro cents (Sh9.8).

The pain that Kenyans have had to endure can be blamed on the Kenya Electricity Transmission Company (Ketraco). The transmission firm procured the services of a Spanish firm Isolux Corsan that was having financial challenges and would later file for bankruptcy hence abandoning the project.

Ketraco had to secure another contractor at an extra cost. The project cost Sh28 billion as opposed to the initial cost of Sh15 billion. The delay was despite Isolux having been awarded the contract for the line in June 2011. It was expected to start construction in early 2012 and have it ready by the end of 2013.

Construction works started in November 2015 and expected to complete in August 2016. The Auditor General recently queried whether Ketraco undertook any due diligence before hiring Isolux Corsan.

Other than the LTWP transmission line, the firm was also in the consortium of firms that contracted to put up the Kenya-Ethiopia power line.

In a recent report, the Auditor General questioned: “whether (Ketraco’s) management, through prescribed procurement procedures, satisfied themselves that the initial contractor was technically and financially qualified for the job before awarding the contract”.

Besides the delay, Ketraco also faced challenges with dodgy contractors, landowners who asked for large sums of compensation money and security concerns. The auditor general in its report noted that projects worth more than Sh38 billion were facing delays as of June 2015.

This value has since more than doubled, with Ketraco reporting delay in completion of power lines that are valued at more than Sh112 billion.  

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