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Renewable energy policy spurs investor interest

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A government policy aimed at attracting investments to the renewable energy sector is generating interest as investors seek to exploit the hugely untapped sector

A year after the feed-in-tariffs policy was launched, several power producers have expressed interest in generating power from renewable energy sources.

The tariffs, which came into force in April 2008, allow power grid interconnection — supplying power to the national network by private generators — for a period of 15 years and seek to attract investors to wind, small hydro and biomass resource generated energy.

“The response is very good. This is because several investors, encouraged by the policy, have sent their expressions of interest to the ministry of Energy,” Kiremu Magambo, a renewable energy consultant with the ministry, told the Sunday Nation.

Currently, about 60 per cent of the country’s electricity supply is produced from rain-dependent dams, 30 per cent from costly fossil-fuel generators and a paltry 10 per cent from reliable but capital-intensive geothermal.

Kenyans currently consume up to 1,050 Megawatts (MW) of electricity during peak hours against the country’s effective generation capacity of 1,185 MW, as demand grows at the rate of 8 per cent annually. Therefore, diversification into renewable energy is critical if the country is to have adequate and sustainable power supply.

Although Mr Magambo declined to name the investors since he is not a ministry employee, a senior officer in the ministry involved with the projects revealed that already six private investors are carrying out site-specific feasibility studies as they eye the wind energy sector.

They include the Kenya Electricity Generating Company (KenGen), which is carrying out studies in Ngong and other areas, Lake Turkana Wind, which is exploring the Marsabit area near Lake Turkana East and Aelous in Ngong and Kinangop areas.

Others are Osiwo Power in Ngong/Kajiado area, Windflow in Marsabit and Wind Energy Ltd in Malindi area.

The results are encouraging, according to the official who spoke on condition of anonymity because he is not authorised to speak on behalf of the ministry.

“Some companies are already talking with the ministry and the Kenya Power and Lighting Company about starting negotiations with a view to entering into power purchase agreements,” he said.

Cement companies, including Athi River Mining, are known to be in an advanced stage of investment while sugar companies are well ahead in the field.

All combined, the projects have a potential 500 MW in wind power capacity.

Even multinationals such as American technological and services conglomerate, General Electric have not been left out.

“We are working with various developers who are working closely with the ministry of Energy to explore wind energy potential in various sites,” George Njenga, the country executive for East Africa of its energy subsidiary, GE Energy, said.

While the feed-in-tariff allows power producers to sell, it also obligates the distributors to buy on a priority basis all renewable energy-generated electricity at a pre-determined fixed tariff for a given period of time.

As per the policy, the tariffs range between $0.07 kilowatt hour (kWh) and $0.09 kWh depending on the plant capacity and source of the electricity—wind, small hydro or biomass.

The policy was developed to facilitate resource mobilisation by providing investment security and market stability for investors in RES (Renewable Energy Source) electricity generation.

Mr Njenga said convergence of a favourable investment, public policy, awareness and acceptance are all key to creating a more favourable environment for growing the industry in Kenya specifically and Africa generally.

“This is critical because a stable, long-term policy is needed to not only attract, but also sustain investment for the industry’s growth,” says Mr Njenga.

It is also aimed at encouraging private investors to operate the power plants prudently and efficiently to maximise returns.

While they agree that initial investment and renewable energy generally is expensive, in the long term it is cheaper than fossil fuel.

“Renewable energy sources will enhance the country’s energy supply security, reduce its dependence on imported fuels and cope with the global scarcity of fossil fuels and its attendant price volatility,” Mr Magambo said.

In line with a position paper prepared by the ministry in the 2007/08 fiscal year, the policy seeks to reduce transaction and administrative costs by eliminating the conventional bidding process.

The Public Procurement Oversight Authority has approved the policy, which in essence is a non-competitive form of procurement and can be interpreted as single sourcing in the public procurement parlance.

“If the government were to use the open tender system, it could have forced it to provide the investors with data from carrying out costly feasibility studies,” explains the renewable energy consultant.

This, he says, could limit the speed and amount of investments needed if the country is to produce adequate, sustainable and stable power supply.

Just setting up a wind power plant the size of the 40 MW Kindaruma hydro-power station will cost Sh4.5 billion without the feasibility studies and logistics such as transportation of material and equipment. The tariff system is already in use in the US, Europe and Asia.

The policy allows the investor to finance his or her project through debt, equity or both and welcomes both joint ventures and partnerships.

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