Kenya aims at a Risk Mitigation Fund for geothermal exploration

KenGen Olkaria II plant, Kenya (source:
Alexander Richter 17 Nov 2010

Kenya's Ministry of Energy is pushing for the establishment of a Risk Mitigation Fund to help overcome investor's concern with geothermal exploration and is looking at German KfW for funding of US$102m for the fund.

In news from Kenya it is reported that the country’s “The Ministry of Energy is mulling the establishment of a Risk Mitigation Fund to facilitate geothermal exploration in the country.

The fund aims at underwriting dry well drilling in the event a well is found not to have any steam as well as cushion investors from losses associated with the drilling.

Energy Minister Kiraitu Murungi told journalist on Tuesday, many investors had shied away from investing in geothermal development as a result of the uncertainty linked to exploration adding this will give them confidence in partnering with the government.

“For us to give comfort to private investors who want to invest in development of steam in our geothermal fields. We think that it is necessary to have some risk fund so that they don’t lose their money,” Mr Murungi said.

The government has been on a quest to shift from hydro powered sources of energy to more green energy with major focus on geothermal and wind.

Kenya has geothermal potential of between 7,000 to 10,000 Megawatts in the Rift Valley, which it hopes to exploit to address the power challenge in the country.

Geothermal power currently accounts for 265MW out of a total installed capacity of 1185MW.

Geothermal development however remains slow and expensive, with the Minister saying a single well requires close to Sh400 million to drill.

“The risk is great. Only two out of eight wells give us viable amounts of steam for geothermal development,” the Minister explained.

The Ministry has already requested the German Development Cooperation (KfW) to finance the fund to the tune of €75 million (Sh81.9 billion, US$ 102m).

Beneficiaries of the fund will be required to pay 40 percent of the cost of any dry well sunk.

Mr Murungi said the arrangement would help accelerate geothermal drilling and attendant power plant development.

However, the Ministry of Energy has also raised concerns that it is finding it difficult to mobilise guarantees for the financing of power generation projects in the country.

This has caused the delay of at least six power projects for failure to meet investor demands for suitable guarantees on their investments.

Mr Murungi said the issue has been challenging for the ministry, as the Treasury is unwilling to upset the country’s current debt ratios.

“We have been unable to raise guarantees for six projects, which we intended to increase our generation capacity to 3,000 MW by 2013.

The issue has been a major challenge for us because the Treasury thinks it’s going to complicate our debt ratios,” he explained.

He said the ministry was in consultation with the World Bank to work out a way to resolve the issue.

“We have to have these power projects if our entire generation project is not going to be thrown in disarray,” he said.”

Source: Capital FM Kenya