P R O J E C T O V E R V I E W
A fair wind over Lake Turkana Lake Turkana Wind Power (LTWP), after nine long years of negotiation and preparation, is now an active project that will be delivering 300 megawatts of power to the Kenyan grid by the end of 2016 Written by: John O’Hanlon Produced by: Kiron Chavda
3
LAKE TURKANA WIND POWER
T
he Lake Turkana Wind Power Project (LTWP) aims to provide 300MW of reliable, low cost wind power to the Kenya national grid, equivalent to approximately 20 percent of the current installed electricity generating capacity. The Project is of significant strategic benefit to Kenya, and at Ksh 70 billion (€600 million) will be the largest single private investment in Kenya’s history. A barren moonscape, pitted with volcanic craters, arid and inhospitable, and populated by warring tribespeople. That is one view of northern Kenya, and in a sense it is true: but a dualistic world view that only sees ‘challenges’ misses the point entirely. The counties of Turkana and Marsabit have extraordinary qualities. Among these is their wildlife, for example it was the prospect of catching six-foot Nile perch weighing nearly 390 stone that attracted entrepreneur Willem Dolleman to the shores of Lake Turkana in the late 1980s. His main problem was the relentless wind that would take control of his boat – no tent that he could obtain could withstand the force of those winds, and he often had to give in and sleep in his car.
80 metres tall 4
ENERGY
The potential of harnessing those forces for electricity generation was not lost on Dolleman and his friend Carlo van Wageningen, but at that time wind power was still an embryonic technology, and the low cost of oil put it out of contention. Wind power development required subsidies, and none would be forthcoming in Africa. It was not until 2005, when oil prices rose above £50 per barrel for the first time, that they, together with Chris Staubo decided it was time to take another look. The ‘founding fathers’ of LTWP called up Harry Wassenaar and Kasper Paardekooper of KP & P, a company with a history of developing and operating wind power projects, to bring some specialist expertise to the project. They were highly sceptical. Wassenaar, an old school friend of Dolleman, was however persuaded to come for a holiday. “He fell in love with the place as soon as he saw it,” says van Wageningen. “The wind itself convinced him!” With the help of Henk Hutting another veteran of wind power, if that is the right word in such a new industry, who confirmed the reliability of the wind flow in the area, LTWP was set up in Kenya under the ownership of KP & P BV, and the real work began. Early this year LTWP chairman Mugo Kibati accepted the Project Finance International
Key Personnel
Carlo van Wageningen Director Carlo was born in Rome (Italy) on 7th January 1957. He lived in North and West Africa with his parents from 1958 to 1969, in Nigeria, Libya, Ghana and Sierra Leone. He then went back to Rome to finish his higher education. From 1976 to 1988, Carlo worked for the Food and Agricultural Organization (FAO) of the United Nations and World Food Program. He was stationed in Rome (Italy), Niamey (Niger), Cotonou (Benin) and Harare (Zimbabwe) in various capacities. He ended his career in the United Nations as WFP Assistant Representative.
w w w. l t w p . c o . k e
5
LAKE TURKANA WIND POWER
What can a proven track record do for you? With 35 years of experience in building wind power plants, +67 GW (54,000 wind turbines) of installed wind power across 73 countries, 52 per cent more installed capacity than the closest competitor* and more than 26,000 wind turbines globally under 24/7 surveillance, our track record speaks for itself. Based on this vast experience and accumulated knowledge, we continuously support customers and policy makers throughout the world. As your trusted advisor, Vestas can help you make the most of your wind power potential.
* as of December 2013
+67 GW 35 years 73 countries +54,000 wind turbines 6
LAKE TURKANA WIND POWER (PFI) African Renewable Deal Award 2014 in recognition of the way the project finance was put together up to final financial close in December 2014 – it was considered the best project finance structure achieved in the region over the last couple of decades. “The MoU between Willem Dolleman, Carlo van Wageningen and Chris Staubo was signed in 2005 so it took nine years for us to complete the development phase,” says van Wageningen. That was three years longer than the founding fathers had hoped for, but explicable considering the complexity of the project and the painstaking way in which project and political risks perceived by lenders had to be mitigated, No collateral other than its own potential
ENERGY
The Lake Turkana Wind Power Project is the largest single private investment in Kenya’s history LTWP water storage and accommodation
w w w. l t w p . c o . k e
7
LAKE TURKANA WIND POWER
Engineering Africa... Civicon Group is proud to be associated with the Lake Turkana Wind Power Project Over the last 40 years, Civicon Group Engineering has established itself as the regions leading Mechanical Engineering, Civil Engineering and Contracting firm in East and Central Africa. The company has a dynamic management team with over 30 engineers and technicians, a staff base of 2000, a large asset base of 5 fully equipped workshops across Eastern Africa and over 350 pieces of heavy equipment. The group also provides out-of gauge Logistics, Cranage and Erection services.
Select Projects
Mechanical Engineering: Greenfield Titanium mine in Kenya. The scope included: Structural, Mechanical, Plate work and Piping (SMPP). Civil Engineering: Road construction, maintenance of 113 KM, Yei Juba Road, South Sudan. Logistics: Transport of brewery vessels, Uganda. Cranage & Erection: Development of Heavy Fuel Oil Power Plants across East Africa. Mining: Turnkey projects to develop Greenfield Titanium Mine (Kenya) and Greenfield Gold Mines (DRC). Oil and Gas: Building of well pads and associated infrastructure for leading Oil & Gas E&P companies. Demand for Engineering continues to grow, driven by: • Development of Power generation and transmission facilities in the region. • Investment by regional governments to develop new roads and maintain Existing ones. • Private sector’s Investment in oil storage facilities across the region and Exploration for oil and gas. Development of mining in the DRC and Tanzania
8
• MECHANICAL ENGINEERING • CIVIL ENGINEERING • SPECIALISED TRANSPORT • CRANEAGE & ERECTION
KENYA • UGANDA • TANZANIA • SOUTH SUDAN • RWANDA • DRC • MOZAMBIQUE
LAKE TURKANA WIND POWER was offered so the wind farm had to secure sound backing. Of course it had the support of the government of Kenya from day one, but given that there was only one customer for its product, the government owned Kenya Power and Lighting Company (KPLC), political risk was a considerable factor. Initially the World Bank had offered to cover this but withdrew after a lengthy due diligence process. This meant that a different structure had to be put in place, and that was not so easy. “Where you have a single client, lenders normally request that the offtaker issue a letter of credit in favour of the lenders equivalent to six months’ forecast invoicing,” says van Wageningen. “At 300 MW the monthly bill to KPLC would be around €9 million, but €54 million is a lot more than they had ever had to find at one time and it would have been difficult for them to obtain that kind of security. We had to be inventive and come up with a different structure that would satisfy the lenders.” This was eventually achieved through a temporary levy on the tariffs, paid into an escrow account held by the government but in favour of the lenders. Negotiations were held right up to cabinet level, however this is a project of strategic national importance and all parties wanted it to go ahead. Nevertheless it was with some relief that the partial risk guarantee (PRG) was signed by Mr Kibati and the leaders of the Standard Bank, the National Treasury and the Kenya Electricity Transmission
ENERGY
Road Construction by Civicon w w w. l t w p . c o . k e
9
LAKE TURKANA WIND POWER
Ketraco is a key partner in the Lake Turkana project. Building a 428 kilometre transmission line to power the 300MW wind farm
10
Company (Ketraco) in December last year. Ketraco is a key partner since it is tasked with building a 428 kilometre transmission line to evacuate the power output from the 300MW wind farm. This EPC contract is worth €142 million, and is being carried out by the Spanish company Isolux Corsán. The line will link Loiyangalani, close to the Lake, to the town of Suswa, on the outskirts of the capital, Nairobi. An additional benefit is that various geothermal plants that will be located along its route will be able to upload their output in the future. Though this contract is not directly overseen by LTWP it is classed as an ‘associated’ contract. “We have to make sure we complete the two projects in a harmonised manner, to be ready when we are ready to deliver power from our plant. They have been working since August 2014, and should complete by July 2016 ready for us to come on line with the first 90 MW in October,” says van Wageningen. The transmission line is one of seven EPC contracts, the remaining ones all directly owned by LTWP. Following financial close work started on all
ENERGY
fronts in January and the site became a hive of activity. Perhaps the most important is the construction, or rather the upgrade of a 210 kilometre stretch of road from the A2 highway at Laisamis. This is being surfaced to take the site traffic, and is currently proceeding to schedule. The same is true of the work on the site itself, where 150 housing units are being built for the staff as well as admin offices and a fully equipped maintenance workshop. “As the turbines will be at full production all of the time they will need servicing twice as often as similar units sited in Europe for example,” he explains. “The workshops are designed to accommodate full maintenance of the turbines including refurbishment of gearboxes if that is necessary.” The usual resource of sending the nacelles to a Vestas depot is just not available.
Video - Lake Turkana wind power project named African renewables deal of the year 2014 in London
““We have to make sure we complete the two projects in a harmonised manner, to be ready when we are ready to deliver power from our plant.” – Carlo van Wageningen, Director
w w w. l t w p . c o . k e
11
LAKE TURKANA WIND POWER
“As the turbines will be at full production all of the time they will need servicing twice as often as similar units sited in Europe” – Carlo van Wageningen
110
kilometres of internal roads are being built to reach the turbines on the estate
12
Groundworks have also started for the substation that will collect the power from the 365 turbines and feed it to Ketraco’s new transmission line, and the foundations of the turbines themselves. As a preliminary, soil survey drilling is being conducted at each microsite to make sure it can take the 43 metre masts supporting the Vestas V52-850 kW turbines. “We planned it so that when the turbines start coming into Mombasa they are loaded on trucks and driven straight to the site, avoiding double handling at a warehouse.” Delivery will be on a rolling programme, with around 30 turbines arriving each month. Additionally, 110 kilometres of internal roads are being built to reach the turbines on the 40,000 acres estate, held on a 99 year lease from the government. A word about the siting concept would be appropriate here. Henk Hutting quickly corrected his new colleagues, who had thought the wind a local thermal effect, once they called him in. He explained how two opposing, low level seasonal winds affecting East Africa, the Kaskazi and the Kuzi, run for six months from north east to south west and for six months in a south east to north west direction. Split in one case by the great mountains of Kilimanjaro and Kenya and in the other by the Ethiopian plateau, in each case a portion is directed northward up the Turkana corridor by the constant low pressure of the Sahara. Accelerated by the venturi effect of the hills to the north of Meru, the wind to
ENERGY
the south east of the lake averages 12 metres per second or around 27 miles per hour. For the wind turbine designers, the problem was if anything that the site had too much wind! Now that it is under construction the wind farm seems certain to be delivering low-cost electricity to the Kenyan national grid by the end of next year. At full production its contribution will be equivalent to nearly 20 percent of the currently installed generating capacity of Kenya. “We don’t claim that wind power can be considered baseload (always available), but in fact we achieve good enough load factor, based on eight years of wind measurement on site. And because the transmission line brings power to this region for the first time, it will transform the lives of the local people. What the effect of development will be upon local conflict, which is rife, remains to be seen, but the more
Vestas 850 kW turbines w w w. l t w p . c o . k e
13
The African continent contains many of the fastest growing emerging markets in the world today. In order to fuel this growth, the public private partnership model is being exploited throughout Africa to build the infrastructure needed to meet growing commercial demand. The Lake Turkana Wind Power Project is emblematic of the large and complex infrastructure projects that are now being pursued in SubSaharan Africa. In fact, in Kenya, this project is just the tip of the iceberg. Increasing modernisation efforts in the public and private sectors are making the difference. Bankable projects are easier to achieve in the face of better governance practices, lower political
risk, trade liberalisation and improved legal enforcement and regulatory regimes. With the availability of political risk insurance products, the implicit cover provided for by development financial institutions and guarantees offered by local governments, political risk in Africa can be managed effectively. In the legal arena, agreements are negotiated with detailed provisions providing for changes in the law or taxation schemes and the overall scrutiny of documents is significantly higher. As a result, opportunities are able to be valued more realistically which enhances the availability of creative financing options. In addition, the risk appetite of large multinational companies has increased as
evidenced by the growing number that have set up operations in Sub-Saharan Africa recently. Increased competition in turn is providing a more even playing field for newcomers to enter the market. As the Lake Turkana Wind Power Project shows, creative African solutions to African problems are paving the way for transformative infrastructure development. The opportunities in Sub-Saharan Africa are well-known to many. Those who understand the commercial challenges will reap the rewards of the PPP projects that will change the face of business in Africa.
Amyn Mussa, Editor Amyn Mussa is a partner at Anjarwalla & Khanna and head of the firm’s Energy & Infrastructure Group. Amyn is also Co-Head of the Energy & Infrastructure Sector Group of ALN, an association of top-tier independent law firms across Africa.
www.chasebankkenya.co.ke
Supporting businesses from the ground up
Every business needs a partner who supports them from the ground up as they explore emerging opportunities. With accolades that place us as the Best Bank in SME Banking, we endeavour to provide tailor made financial solutions that enable you and your business achieve the things that matter to you most. Talk to us today.
THE RELATIONSHIP BANK P. O. Box 66015-00800 Nairobi
14
0730 175 000 / 0709 800 000
atyourservice@chasebank.co.ke
ChaseBankKenya
@chasebankkenya
ENERGY
enterprising are already seeing this as a chance to establish trading businesses, commercial fishing, tanneries and other sources of employment and revenue. “As soon as the substation goes live we will be electrifying the largest towns in the area,” promises van Wageningen. The communities of Loiyangalani, Kargi, South Horr and Laisamis, will have access to light, refrigeration and other enabling technologies. Since the transmission line will carry high speed optic fibre as well, they will get better connectivity than many people in rural Europe, he points out. The money that will come in to this neglected part of Kenya will surely make a difference. Because this is green energy the United Nations registered LTWP under a mechanism that will allow the project to generate carbon credits which will generate some $4million to develop
“As soon as the substation goes live we will be electrifying the largest towns in the area” – Carlo van Wageningen
Progress on the village construction for staff lodgings
w w w. l t w p . c o . k e
15
LAKE TURKANA WIND POWER
500k The amount the Winds of Change Foundation is to be seeded with each year. 16
communities around the wind farm. Additionally the company has set up a CSR programme, implemented by the Winds of Change Foundation (a wholly owned subsidiary of LTWP) that funds health programmes and water, sanitation and educational initiatives. Seeded with â‚Ź500,000 a year, the foundation will be raising further funds to support business development. “Following extensive consultation with the communities to identify their needs we have created a 20
ENERGY
year development plan for the foundation.� The communities have been asked to participate and identify their needs.� The 20 year plan will be delivered in five year segments, he says. To have secured the largest ever private-sector financing in Kenya with no fewer than ten European and African development finance institutions providing debt and equity is a great achievement. The project will change the lives of millions of Kenyans, and boost the national economy.
Site Works - progress as at March 12 2015 w w w. l t w p . c o . k e
17
2nd Floor, Apollo Centre, Ring Road Westlands, Nairobi, Kenya PO Box 41968 T + 254 733 751 799 / www.ltwp.co.ke