With African Development Bank (AfDB) support, Kenya has received approval from the Climate Investment Funds' Clean Technology Fund (CIF-CTF) for a US $29.65-million concessional loan to co-finance up to two geothermal projects to increase the country's power capacity, particularly drawing on untapped geothermal resources in the Rift Valley. The Concessional Finance Program for Geothermal Generation will build on the energy advancements already underway in the successful development of the country's showcase Menengai Geothermal Field.
The CTF funds will create a concessional lending program designed to ensure the projects' financial viability and commercial bankability by shoring up conventional financing and breaking down barriers to private investment. The program will support up to two geothermal generation projects structured as Independent Power Producers (IPPs), and will be implemented with AfDB support.
"Kenya is already demonstrating its ability to reshape its energy future by developing its vast geothermal resources through Menengai," said Joao Duarte Cunha, AfDB's Coordinator for CTF. "But it still faces market barriers to full deployment of its renewables. This infusion of capital will thus serve to build investor confidence and improve bankability of these vital resources. Furthermore, the success of the IPPs developed in this program can serve as a beacon for other countries looking to achieve similar green energy goals."
Transformation of the geothermal energy sector is a core part of Kenya's economic growth plan for its expanding and increasingly urbanizing population. In its "Vision 2030" the country identified energy and electricity as a key element of its economic transformation, with geothermal as the lead technology. It is estimated that by 2020 the country's projected installed energy capacity will triple from 2,177 MW to 6,766 MW, with geothermal contributing around 2,000 MW.
To create this sustainable energy future, the government recognizes that it must sustain a stable investment climate for private sector participation in the energy sector, expanding transmission and distribution networks to deliver power to customers, maintaining a creditworthy off-taker and cost-reflective tariffs, and reducing inefficiency in the sector to support more affordable end-user tariffs. A key government measure in this regard is to promote IPP schemes selected through international competitive bidding processes to enhance investment flows from the private sector into the power sector.
In a market where electrification is only 23% and private investment remains modest, the CTF-supported program will play a vital role by:
Creating a demonstration effect showing that the structure is economically viable for private investors;
Providing support and building a track record in a nascent market; and
Reducing the country's dependence on hydro and thermal power sources by contributing to deployment of up to 70 MW of clean, reliable and base-load renewable power.
The program is part of the CTF's Dedicated Private Sector Program (DPSP), designed to finance programs that can deliver development results, impact, private sector leverage and investment at scale and can be deployed rapidly and efficiently.
The country's CTF DPSPII program will complement its CIF Investment Plan already in place under the CIF's Program to Scale Up Renewable Energy in Low Income Countries (SREP), through which Kenya has undertaken its game-changing Menengai Geothermal Program, a showcase of the CIF's worldwide mitigation activities.
Established in 2008, as one of the largest fast-tracked climate financing instruments in the world, the $8.3 billion CIF provides developing countries with grants, concessional loans, risk mitigation instruments, and equity that leverage significant financing from the private sector, MDBs and other sources. Five MDBs - the African Development Bank (AfDB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB), and World Bank Group (WBG) - implement CIF-funded projects and programs.
