Government-owned power producer KenGen is for the first time teaming up with private investors to develop power plants, starting with a 140MW geothermal facility.
The company has shortlisted bidders to construct Olkaria VI with a capacity of 140MW in Naivasha on a build, own, operate and transfer (BOOT) basis.
The selected private developer(s) will finance and undertake project construction, operate it for some time to recoup expenses and make a predetermined profit before finally handing over the facility to KenGen.
The shortlist of bidders comprises Ormat Technologies, ITOCHU Corporation, Sumitomo Corporation, Enel Green Power and a consortium of Engie Energie Services, Toyota Tsusho Corporation, Kyuden International Corporation and DL Koisagat Tea Estate.
The winner will be announced next month.
“The successful bidder will enter into a joint venture with KenGen and will finance, construct, own and operate the power plant and the associated facilities and transfer the project back to KenGen at the end of the operational term,” the power producer said in a statement.
This is set to be KenGen’s first project to be developed under public private partnership (PPP) in line with the PPP Act 2013.
“Through the PPP projects, the company will enhance efficiency and manage costs while achieving faster project completion owing to the participation of the private sector. Due to the heavy capital investment required to develop power projects, KenGen found it necessary to have private investors take active part in the development of its power projects to achieve a fast capacity expansion program,” the company said.
The Nairobi Securities Exchange (NSE)-listed KenGen has previously financed its projects through syndicated debt funding sourced primarily from multilateral and bilateral institutions, locally raised debt (infrastructure bond), own equity and state-to-state concessionary funding. It’s 70 percent owned by the government and has developed a total geothermal stock of 707MW.
The National Treasury approved implementation of geothermal power projects with a total capacity of up to 560MW under the PPP framework, to help add to the country’s green energy stock without exerting financial pressure on the exchequer. The PPP route helps to unlock private sector capital for project development.
KenGen has adopted a three-pronged approach to geothermal development in partnership with private investors.
To begin with, the firm has completed feasibility study and due diligence, the findings of which have been approved by the PPP committee and received the greenlight to proceed to the second phase.
The second phase is the procurement process and is being undertaken in two stages.
The first stage involves Request for Prequalification and has successfully been completed and issued. This led to the shortlist of qualifying bidders gazetted last week on May 8. Among them is American firm Ormat Technologies Inc, which is currently the only independent power producer that has developed geothermal plants in Kenya.
The gazettement of the five bidders paves the way for second stage of the procurement process which is the Request for Proposals. This will determine the successful bidder who will then proceed to the third phase of the project – construction.
The successful bidder will enter into a joint venture with KenGen and incorporate a Special Purpose Vehicle (SPV) in accordance with the laws of Kenya. KenGen will be a shareholder in the SPV and will enter into a long-term power purchase agreement with Kenya Power. The SPV will enter into a long-term steam supply agreement with KenGen.
The PPP project will ensure a quick rate of conversion of steam into power while reducing risks and debt burden for KenGen. It will also enable technology transfer and capacity building.
Besides usage of private financing, PPP models ensure project cost overruns are not borne by government agencies, bring innovation and better use of appropriate technologies, and ensure better exploitation of direct and secondary assets.