State to sweeten geothermal development with risk fund

By LUKE ANAMI

Kenya will soon set up a risk fund to cater for the development of geothermal energy will be set up, Energy Minister Kiraitu Murungi has said.

The fund will be used for underwriting dry wells drilled by private companies so as to attract more investors and encourage their participation in the sector.

"The Government is in the process of addressing major challenges facing the generation of geothermal energy. Top among the solutions is the introduction of a risk-mitigating fund that will cover 20 per cent of the initial costs used by companies during the drilling of wells.

German Ambassador to Kenya Margit Hellwig-Botte shares a light moment with the Chairman of the Board of KfW Bankengruppe Dr Ulrich Schroder, and Energy Minister Kiraitu Murungi. [PICTURE: MOSES OMUSULA/STANDARD].

"Lack of a risk fund in the development of geothermal energy has been scaring away investors in the country," Kiraitu said when he addressed investors from Germany led by Chairman of the Board of KfW Bankengruppe Dr Ulrich Schroder,, who was accompanied by German Ambassador to Kenya, Margit Hellwig-Botte, yesterday at Nyayo House.

Kiraitu said foreign companies are avoiding investing in the exploration of geothermal energy since wells already sunk turn up with less or no steam as anticipated, and has caused financial losses to the investors.

He said the introduction of a risk-mitigating fund would, therefore, give comfort to private sector developers to venture in geothermal energy power generation.

Fast track

"We would like to request the Germany Development Cooporation, KfW, to fast track this project and to provide about Euros 75 million for setting up this fund," Kiraitu, who was flanked by Geothermal Development Company (GDC) CEO, Dr Silas Masinde Simiyu, and KenGen MD, Eddy Njoroge, said.

Beneficiaries from the fund would be required to pay only 40 per cent of the cost of any dry well sunk.

"The drilling of dry wells is a risk venture which most investors would rather avoid," Kiraitu said.

"It is expected that under this arrangement, Kenya will accelerate geothermal drilling and attendant power plants development, " the minister added after pointing out the country’s geothermal energy potential is well over 7,000 MW.

Because of the Government’s inability to raise guarantees to finance six electricity generation projects, including the 300MW Lake Turkana Wind Power initiative, the minister called for the creation of an escrow account, from which Kenya’s sole power distributor could draw guarantees for private power companies.

"The Lake Turkana Wind Power project has been delayed for lack of the guarantees, because its financiers will not disburse funds without them. We have not been able to raise guarantees, not only for Lake Turkana Wind, but indeed for our six projects," Kiraitu said.

Major hurdle

"The issue of guarantees has been a major hurdle, because the Treasury thinks they will complicate our debt ratios."

The visiting Chairman and CEO of KfW, Dr Schroder, said his organisation would continue investing in Kenya, and called for political stability to avoid financial risks to German investors. "We would like to see political stability come 2012 and corruption dealt with to attract more Geman investors," he said.