Like an electric fan slowly rotating in between black outs, the Lake Turkana Wind Power (LTWP) project has seen its share of problems. From recent delays to feasibility disputes, the initiative has come to face quite a number of gridlocks.

So what seems to be the hitch?

Where did it Begin?

In 2006, a Dutch Entrepreneur by the name of Willem Dolleman saw Turkana’s potential for wind energy. Shortly thereafter, he approached Anset Africa, convincing the project development firm to spear-head the venture. Anset went on to establish KP&P, which, in turn began to collect wind data in order to test the project's feasibility. In 2009, an Investment Analysis by LTWP stated that the project's Capital Expenditure was USD 591.8 million (over KES 50 billion).

By January 2010, the government had signed a Power Purchase Agreement with Kenya Power. In 2011, LTWP was registered as a Clean Development Mechanism (CDM) project by the United Nations Framework Convention on Climate Change (UNFCCC). The Convention gave the project a Gold Standard rating.

The project currently has 5 joint development parties including KP&P BV Africa, Aldwych International Limited, Industrial Development Corporation of South Africa Limited (IDC), Norwegian Investment Fund for Developing Countries (Norfund) and the Industrial Fund for Developing Countries (IFU), Denmark.

Also part of the initiative is Civicon, a 27-year construction firm with a presence in Africa and the Middle East. Civicon’s tender includes the construction of double circuit transmission lines that will stretch over 400 Kilometres.

Nothing but Hot Air

The  LTWP reports that financing should have commenced in 2011 but negotiations led to prolonged delays.  The project was later set to take flight in July 2012 but financing was delayed until mid October. Even then, negotiations between the lenders and LTWP led to further push backs.

According to the wind power project’s Chairman, Carlo Van Wageningen, ground-breaking may be pushed as far back as three or four months.

To make matters worse, the World Bank has withdrawn from the initiative. Pesatalk sources within the energy sector report that the financier pulled out due to the national grid’s inability to absorb another 300 Mega Watts. The sources, who chose to remain anonymous, noted that Kenya’s grid could not handle the power that the project is expected to generate.

“Also the World Bank's PF portfolio might be over stretched after it gave its security for Triumph Thermal Power Plant in Thika and the Gulf Energy Plant in Athi River,” said one official.

A recent report states that the World Bank has loan guarantees amounting to least KES 14 billion for 4 other power plants including Triumph and Gulf Energy.

The World Bank was, in fact, a guarantor and not a financier for the wind power project. The actual lenders were the African Development Bank (AfDB), Nedbank and Standard Bank. The institutions were tasked with providing the loans based on the Power Purchase Agreement between LTWP and Kenya Power. According to the LTWP Investment Analysis, the project was supposed to make revenues of up to KES 9.9 billion a year. Based on their premium tariff of USD 10 (KES 851) per Megawatt Hour, Kenya Power would pay LTWP for a span of 20 years.  According to Nigerian-based investment house Dunn Loren Merrifield, Kengen charges Kenya Power KES 3000 per Megawatt hour. Making KES 851 quite the bargain.

When the World Bank decided to pull out, the other lenders had no choice but to stand down unless an equally efficient guarantor was found. After all, who wants to fund a project without any sort of insurance?

The Journey So Far

In light of hurdles, the initiative will proceed, despite the recent financial disputes that it has faced. “It would be imprudent to derail a power project which is ready and which would provide for 9% of the energy needs in the country in form of green energy,” said the Ministry’s Permanent Secretary, Francis Nyoike.

With regard to Civicon, the government announced that they are looking for alternative risk guarantors. "Even if they make such promises, the fact remains that it took almost 2 years to get the World Bank on board. Who knows how long this will take?” said pesatalk’s source. “Frustration may invalidate the contract to build the road.”

Civicon is responsible for the rehabilitation and repair of at least 3 road construction ventures in Sudan, which form a cumulative project value of no less than USD 54 million (KES 4.6 billion).

And how much have the recent delays cost the lenders and the World Bank? Well, according to Pesatalk sources, it may be difficult to put an actual price without reviewing the structure of the debt agreements. The plan was to have Kenya Power pay back the money over an undisclosed period of time.

Even then, the government remains adamant in their quest to build the largest single wind farm in sub-Saharan Africa. “It’s going on,” said Mechanical Engineer, G M Kihara from the Ministry’s Department of Renewable Energy. Speaking during an interview with pesatalk, Kihara went on to mention that the project was being done in collaboration with the Ministry of Finance.

As the country’s monopoly supplier of electricity, Kenya Power intends to purchase 300 Mega Watts of electricity from the farm over the course of 20 years.

The Finance Ministry was reluctant to say who the guarantor was although the Energy Ministry speculated that the Kenyan government would serve as collateral in case things went wrong. On the other hand, sources from within the industry note that, given the ongoing conflict between the LTWP and the World Bank, any engagement going forward is severely frustrated.  The current estimated cost of the wind farm stands at KES 75 billion, against a Capital Expenditure of about KES 50 billion.