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LAKE TURKANA WIND POWER PROJECT

Liz Gicharu & Jeannie Whitler, 27 March 2012

COMPANY OVERVIEW
Surging demand for power and blackouts are common across the African continent. Governments are looking to solar, wind and geothermal technologies to meet the ever increasing energy needs. Opportunities for wind power in Africa, and Kenya in particular, are increasingly becoming favorable due to an encouraging investment climate offering profitable feed-in tariffs 1 for wind energy, ideal natural conditions, an increasing energy demand in emerging economies and additional electricity generation requirements (Ministry of Energy, 2004). However, the political priorities of governments, their policies on energy, electricity and climate change, as well as their ability to act on such policies remain a huge issue for wind energy projects in all African countries. (Africa Wind Energy Association, 2010)

FORMATION
When Willem Dolleman, a Dutch entrepreneur and a Kenyan resident first begun fishing and camping around Lake Turkana in the early 1980s, he was struck by the powerful winds blowing in the area. Not only would they blow his boat away from the shore, but they would literally uproot his tent on the bank of the lake forcing him to sleep in his car (Mbugua, 2012). The Turkana-Marsabit Corridor is a topographically unique region. The winds sweeping this region start from a distance of 500 km far east in the Indian Ocean and are channeled through the corridor created by the Ethiopian and Kenyan highlands. The East African Monsoon winds interact to generate convergence zones including the low-level Turkana jet stream which blows steadily all year round at 11 m/s (25 mph) (L.Claveri, 2010). The impact of the Turkana wind speeds is significant especially when compared to the 17 mph wind speeds of farms such as the Roscoe Wind Farm in Texas, the worlds largest capacity onshore wind farm (O'Grady, 2009). In 2006, Dolleman approached Anset Africa, a sustainable energy project management company, with the concept of a wind farm at the Turkana-Marsabit Corridor. The partnership led to the formation of KP&P BV Ltd in 2006. The firm collected wind data and embarked on discussions with the potential investors and the Kenyan Government in 2009. This culminated in the signing of a Power Purchase Agreement (PPA) with Kenya Power & Lighting Company (KPLC), the sole national electricity distributor and state-owned utility in January 2010.

PRODUCT/TECHNOLOGY
The Lake Turkana Wind Power (LTWP) wind farm site, covering 40,000 acres (162km2), is located in northwestern Kenya, at the remote site of Loiyangalani nearly 300 miles north of Nairobi. LTWP aims to be the first provider of reliable, low cost wind power to the Kenya national grid. The projected capacity of 300MW is equivalent to approximately 20% of the current installed electricity generating capacity. The project at Ksh64 billion ($775 million) is seen to be the largest single private investment in Kenyas history. The African Development Bank is providing a loan that will cover 70 per cent of the project cost (Oirere, 2011). The venture primarily consists of the installation of 365 wind turbines of a hub height of 45 m and a nominal power 850 kW each. Due to the exceptionally high capacity factor output from the wind farm is rarely expected to drop below 170 MW (Esi-Africa, 2012). The companys capital expenditure will also be spent towards the
1 A feed-in tariff is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology (NREL, 2010)

construction of 200 km of tarmac road and bridges to transport the wind turbines from the Indian Ocean port of Mombasa to the north-western region of Kenya. The company has entered into a 20-year Build, Own, Operate and Transfer deal with the government in which it will install 400 km of transmission lines and construct several substations to connect the wind farm and supply power to the national electric grid (Nyambura-Mwaura, 20102).

BUSINESS STRATEGY
Fewer than one-in-five Kenyans have access to electricity (The World Bank, 2010). Demand continues to rise particularly in unlit rural households as well as from the increasing rate of small and medium sized businesses across the country. Over-reliance on imported fossil fuels such as coal and diesel have led the government to seek alternative sources of renewable energy for a number of reasons including their less harmful impact on the environment as well as their ability to become cheaper alternatives over time. The possibility of selling carbon credits to companies in the industrialized world is also seen as a lucrative revenue stream to the economy. (Rice, 2009) LTWP has entered into a power purchase agreement (PPAs) with publicly owned electricity distributor KPLC. This is backed by an assurance by the government in the form of a letter of comfort to make good any agreements defaulted upon by KPLC. Currently, there are no operational wind farms in Kenya. Besides LTWP, there are two other wind farms currently in development phase. Private investors have proposed establishing one windfarm near Naivasha, a well-known tourist town and the KenGen Ngong hills project near Nairobi. However, the projects are at a much smaller scale with both expected to add 5.1MW to the national grid, 2% of LTWPs expected capacity.

MARKET/INDUSTRY OVERVIEW
With an installed capacity of 767MW, Kenya Electricity Generating Company (KenGen) is the leading electric power generation company, producing 80 percent of electricity consumed in the country. KenGen is owned 70% by the Government of Kenya and 30% by the Public. Nearly three-quarters of Kenya its installed capacity comes from hydropower, and a further 11% from geothermal plants. Due to increasingly erratic rainfall patterns and the destruction of key water catchment areas, the companys hydroelectricity output has been affected. The Kenyan Ministry of Energy has since the mid-1990s encouraged private sector participation in energy generation. More recently, government policy has been developed to promote potential independent power producers (IPPs) to undertake feasibility studies on alternative sources of power generation. However, the market is still underserved as there are only four other major IPPs. They are all diesel-based generators with a combined capacity of 190 MW and 12% of the total installed capacity in the country.

SUSTAINABILITY/ETHICS
Contingent on World Bank support, an Environmental and Social Impact Assessment (ESIA) was conducted for LTWP. This ESIA provided an opportunity for the local community of the Lake Turkana that comprises of over 20,000 people to participate in the development process of the project through a series of public meetings (AFDB, 2009). As a result, modifications to the project were made to address both environmental and social impacts. (CEMIRIDE) Due to the remoteness of the project it will bring significant economic benefits to the community. This includes employment opportunities at 600 workers during the peak construction phase and an average of 300 workers thereafter; rehabilitation of roads, installation of two sub-stations that will provide electricity to the local area, assistance in acquiring cold storage facilities for fish, and financial assistance for the health and education facilities in the area. A Lake Turkana Wind Power Foundation has been created to help distribute the benefits agreed upon between the community and power company. Although there are significant benefits to the project, there will be some negative impacts during the construction and operation phases from a socio-economic perspective. The project will bring an influx of construction workers in the area that could lead to cultural contamination and increase exploitation of natural resources. Despite some of these negative impacts the community is strongly supportive of the project. (AFDB, 2009) 2

The ESIA also provided recommendations on the environmental impacts. The most serious direct negative impact is the bird mortality due to collision with the turbines. To limit this impact, the wind farm was located out the path of migratory birds and has been designed with adequate spacing between turbines to allow the passage of birds. In addition, the ESIA has also provided recommendation to reduce the impact of noise, waste, water quality, provide habitat protection, and the prevention of accidents and health hazards. As a result, the project will implement and monitor an Environmental and Social Management Plan and employ a full-time onsite Environmental and Social Development Manager who will represent the local community. Although the ESIA study provided recommendations to address the overall sustainability of the project, some ethical issues remain a concern. (UNFCC, 2010) Two issues have arisen from LTWP, concern about increase cost to the consumer and the motivation behind these investments. KPLCs PPA is a binding contract that requires KPLC to purchase wind power, whenever the wind farm generates electricity. However, KPLC also has to obtain contracts with Diesel power to address the times when no power is being supplied by LTWP. Duel contracts may result in higher electric bills for the consumer. In addition, there has been concern about the motivation behind power companies to establish green energy outside their home country. The carbon credits earned for projects such as LTWP can serve as a method to offset continued pollution practices being conducted by companies in their local communities. (Maku, 2012)

SUCCESS INDICATORS
LTWP has negotiated a Power Purchasing Agreement which guarantees that KPLC will pay for all power produced at a fixed price of 7.52cts per kWh. The companys main capital expenditure will include overhead transmission lines which will cost an estimated $200 million and a further $36 million will be spent on substations. LTWP on February 2011 registered with the UNFCCC and was approved at the Gold Standard rating; the carbon credits are estimated to earn Ksh26 billion ($265 million) over the life of the project. Despite these favorable projections, the Kenyan government declined to issue a sovereign guarantee to LTWP in assurance that it will undertake KPLCs debt should the national distributor default on its obligations. Sovereign guarantees are generally a pre-requisite for a project-financed investment in a developing country (Anton Eberhard, 2005). Instead, the government has offered a letter of comfort which only addresses force majeure, political issues, but has limited application and coverage in regard to debt default risk. This has been a hindrance to LTWP in acquiring public financing and has had an impact on companys the project schedule with project dates being pushed forward several times. Currently, the wind farm is expected to start production of the first 50 MW in mid-2014 and reach full capacity in early 2015 (Oirere, 2011). There are also significant logistical obstacles to overcome. The remote site of Loiyangalani is nearly 300 miles north of Nairobi. Transporting the turbines requires over 12,000 truck journeys, as well as the improvement of bridges and roads along the way (Mbugua, 2012). Security is also an issue as the remote region is frequented by bandits and many locals are armed with AK-47 guns.

ANALYSIS AND CONCLUSION


LTWP as a first mover in the renewable energy space in East Africa is on track to becoming the biggest source of reliable power in an underserved and erratic market. This is mainly due to its large scale, optimal site location, and steady wind source. In addition, the revenue source looks profitable with the gain from carbon credits projected at $265 million over the life of the project. This income could potentially benefit both the government and local community in the area through the companys social mission of forming a revolving trust for the pastoralist community. Despite the lack of concrete guarantees by the government, policies set by the Ministry of Energy including the implementation of feed-in tariffs for electricity generated from renewable energy sources could safeguard 3

investments made by LTWP investors. In addition, the power purchase agreement signed with the national distributor provides the company with a consistent client capable of purchasing its entire production capacity.

WORKS CITED
Vestas order agreement a boost for Lake Turkana wind project. (2012, January 11). Retrieved March 25, 2012, from www.esi-africa.com: http://www.esi-africa.com/Vestas/order/agreement/boost/Lake/Turkana/wind/project AFDB. (2009). Environmental and Social Impact Assessment. Tunis Belvedere, Tunisia: African Development Bank. Africa Wind Energy Association. (2010). http://www.afriwea.org. Retrieved March 13, 2012, from Afriwea : http://www.afriwea.org/about Anton Eberhard, K. G. ( 2005). The Kenyan IPP Experience. Cape Town: Management Programme in Infrastructure Reform & Regulation. CEMIRIDE. (n.d.). The Case of Olkaria Maasai. South Africa: University of Pretoria. Government of Kenya. (2005). Public Procurement and Disposal Act. Nairobi: Government Printer. L.Claveri, M. F. (2010). MM5-WASP COUPLING FOR EYA IN COMPLEX TOPOGRAPHICAL AND METEOROLOGICAL CONDITIONS: THE CASE OF LAKE TURKANA (KENYA) 300 MW WIND FARM. Wilhelmshaven: German Wind Energy Institute (DEWI). Maku, T. (2012, January 31). Why the upcoming wind power projects in Kenya must be viewed with suspicion. Retrieved March 18, 2012, from http://tommakau.com/: http://tommakau.com/2012/01/31/why-the-upcoming-wind-powerprojects-in-kenya-must-be-viewed-with-suspicion Mbugua, J. (2012, March 14 ). AllAfrica Global Media. Retrieved March 23, 2012, from http://allafrica.com: http://allafrica.com/stories/201203150073.html Ministry of Energy. (2004). Sessional Paper No. 4 of 2004 on Energy. Nairobi: Government of Kenya. NREL. (2010, July 1). Policymaker's Guide to Feed-in Tariff Policies, U.S. National Renewable Energy Lab,. Retrieved March 26, 2012, from www.nrel.gov: www.nrel.gov/docs/fy10osti/44849.pdf Nyambura-Mwaura, H. (20102, January 14). Kenya's LTWP says has 20-yr power purchase deal. Retrieved March 25, 2012, from http://www.reuters.com: http://www.reuters.com/article/2010/01/14/us-kenya-energy-windidUSTRE60D3Q420100114 O'Grady, E. (2009, October 1). E.ON completes world's largest wind farm in Texas. Retrieved March 23, 2012, from http://www.reuters.com: http://www.reuters.com/article/2009/10/01/wind-texas-idUSN3023624320091001 Oirere, S. (2011, January 1). Windpower Monthly Magazine. Retrieved March 16, 2012, from windpowermonthly.com: http://www.windpowermonthly.com/news/1047407/Lost-guarantees-stall-Kenya-projects Rice, X. (2009, July 27). Kenya to build Africa's biggest windfarm. Retrieved March 24, 2012, from www.guardian.co.uk: http://www.guardian.co.uk/environment/2009/jul/27/kenya-wind-farm The World Bank. (2010, May 27). World Bank Approves US$330 Million to Expand Electricity Access to Kenyans. Retrieved March 24, 2012, from http://web.worldbank.org: http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/0,,contentMDK:22595378~menuPK:64282138~pag ePK:41367~piPK:279616~theSitePK:40941,00.html UNFCC. (2010). Clean Development Mechanism Project Design Document. Bonn, Germany: United Nations Framwork on Climate Change.

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