228 Oliver W. Johnson et al.
II. In the meantime, the first private- sector concession was awarded to OrPower4
in 1998 to explore and develop Olkaria III. Additional Olkaria II steam turbine
units were commissioned in 2003 and in 2007; the 140 MW Olkaria IV was commissioned in 2010; and current work is ongoing to develop another 140 MW in
Olkaria V (Kenya Power, 2018; Ngugi, 2012; Omenda and Simiyu, 2015). Since
serious geothermal exploration first began 40 years ago, geothermal has evolved
from niche technology and resource to being a major contributor to the national
electricity mix, with an installed capacity of 652 MW providing almost half of
Kenya’s power (Kenya Power, 2018).
Geothermal capacity is projected to reach over 5500 MW by 2030, but only
if greater private- sector involvement can be achieved (Ngugi, 2012; Omenda
and Simiyu, 2015). To help accelerate geothermal development, the government established the Geothermal Development Company (GDC) in 2009, with
a mandate to carry out rapid exploration and development of geothermal over
the next 20 years, encouraging further private- sector-led expansion in geothermal power generation, and removing the high risks associated with expensive
exploratory drilling (Ngugi, 2012). A decade later, acceleration has been
limited. GDC is currently developing a geothermal field in Menengai providing
steam sales to three independent power producers (IPPs), but the project has
experienced delays related to finalising the steam sales agreement and getting
government letters of support, both of which are essential to convince investors
that financial and political risks are manageable. Other fields are promising but
much hinges on progress in Menengai (Ministry of Energy and Petroleum, 2013;
Ngugi, 2012).
Implementation risks
Geothermal development faces a range of barriers or potential risks to implementation (Figure 13.4). In terms of economic feasibility, geothermal development on ‘greenfield’ sites – where no previous development has taken place
– requires considerable upfront investment. One exploration well costs over
US$1 million to drill, and three wells are required simply to prove the resource.
This high investment is prohibitively risky for both private companies looking
to ensure a return on investment and state- owned utilities with limited budgets.
In Olkaria, representatives from KenGen and OrPower admit they have been
very lucky to find steam so easily and that the quality of steam has remained
consistent for so long. This might not be the case elsewhere in the Rift Valley,
and delays faced by private companies in Akiira and Longonot show the difficulty in finding investors patient enough to finance additional exploration.
Stakeholders highlight that GDC was created precisely to bear this risk on
behalf of the private sector, undertaking exploration and steam field development in greenfield sites and selling the steam to IPPs, which invest in power
generation only.
But even once the resource is proven, the financial risk does not disappear.
Typical costs for a 20 MW geothermal power plant – including these production
II. In the meantime, the first private- sector concession was awarded to OrPower4
in 1998 to explore and develop Olkaria III. Additional Olkaria II steam turbine
units were commissioned in 2003 and in 2007; the 140 MW Olkaria IV was commissioned in 2010; and current work is ongoing to develop another 140 MW in
Olkaria V (Kenya Power, 2018; Ngugi, 2012; Omenda and Simiyu, 2015). Since
serious geothermal exploration first began 40 years ago, geothermal has evolved
from niche technology and resource to being a major contributor to the national
electricity mix, with an installed capacity of 652 MW providing almost half of
Kenya’s power (Kenya Power, 2018).
Geothermal capacity is projected to reach over 5500 MW by 2030, but only
if greater private- sector involvement can be achieved (Ngugi, 2012; Omenda
and Simiyu, 2015). To help accelerate geothermal development, the government established the Geothermal Development Company (GDC) in 2009, with
a mandate to carry out rapid exploration and development of geothermal over
the next 20 years, encouraging further private- sector-led expansion in geothermal power generation, and removing the high risks associated with expensive
exploratory drilling (Ngugi, 2012). A decade later, acceleration has been
limited. GDC is currently developing a geothermal field in Menengai providing
steam sales to three independent power producers (IPPs), but the project has
experienced delays related to finalising the steam sales agreement and getting
government letters of support, both of which are essential to convince investors
that financial and political risks are manageable. Other fields are promising but
much hinges on progress in Menengai (Ministry of Energy and Petroleum, 2013;
Ngugi, 2012).
Implementation risks
Geothermal development faces a range of barriers or potential risks to implementation (Figure 13.4). In terms of economic feasibility, geothermal development on ‘greenfield’ sites – where no previous development has taken place
– requires considerable upfront investment. One exploration well costs over
US$1 million to drill, and three wells are required simply to prove the resource.
This high investment is prohibitively risky for both private companies looking
to ensure a return on investment and state- owned utilities with limited budgets.
In Olkaria, representatives from KenGen and OrPower admit they have been
very lucky to find steam so easily and that the quality of steam has remained
consistent for so long. This might not be the case elsewhere in the Rift Valley,
and delays faced by private companies in Akiira and Longonot show the difficulty in finding investors patient enough to finance additional exploration.
Stakeholders highlight that GDC was created precisely to bear this risk on
behalf of the private sector, undertaking exploration and steam field development in greenfield sites and selling the steam to IPPs, which invest in power
generation only.
But even once the resource is proven, the financial risk does not disappear.
Typical costs for a 20 MW geothermal power plant – including these production