Nakuru banks on steam power to drive economy

One of the rigs in Olkaria, an imposing engineering structure ringed by massive steam pipes. It is powered by four megawatts of electricity 24 hours a day. PHOTO | BILLY MUTAI

What you need to know:

  • The estimate right now is that by the end of this year, Nakuru County alone will be producing nearly 600 MW of geothermal power
  • The main centre of activity in the immediate period remains Olkaria where KenGen is at advanced stages of completing new power plants

Nakuru County is on the brink of experiencing major flows of new investments following an unprecedented boom in geothermal energy exploration and production.

If you are a private equity firm or any other investor with the financial capacity, experience and knowledge in development of geothermal  power, now is the time to look at Nakuru county.

Already, a number of new large and complex power plants are under construction.

In Naivasha’s Olkaria area, the state controlled KenGen is putting up several power plants with a combined capacity of producing 280MW. This makes Olkaria the largest geothermal production  field in Africa.

The whole project is estimated to cost a billion dollars (about Sh87 billion under the current exchange rate).

And, in Menengai, 20 kilometres from Nakuru Town, the State owned Geothermal Development Corporation  has completed drilling a total of 22 geothermal wells.

Three private independent power producers  have already been contracted under  the so-called “build operate and own” arrangement to construct  three new power plants from the geothermal steam produced in Menengai.

The three are a consortium led by the private equity firm Quantum Strategies Ltd, an entity by the name Sosian Energy Ltd and Ormat Energy of the United States.

The Menengai power plants will be contributing 100 MW of power to the national grid by December.

In the Naivasha area, the American company - Ormat, through its subsidiary, Orpower 4, is also at an advanced stage of completing the final phase of constructing the  Olkaria II power plant, bringing the capacity of this power complex to 100 MW.

The power is sold under a 20-year purchase agreement with Kenya Power.

Two other independent producers - Agil Energy and Marine Energy - who were granted geothermal energy concessions way back in 2009  are also at advanced stages of starting to drill.

Agil has been granted a concession in the Longonot area while Marine Energy  has a concession on a location near Suswa on the Narok border.

In total, the estimate right now is that by the end of this year, Nakuru County alone will be producing nearly 600 MW of geothermal power - just under 50 per cent of the electricity the whole country consumes currently at peak demand. Only recently, there was celebration in Olkaria when KenGen announced a spectacular discovery in its drilling programme.

GDC HAS DRILLED 22 WELLS

One of the wells produced what is so far the biggest geothermal well in Africa with a capacity to produce 30MW of electricity.

Until then, the average drilled well in Olkaria had a capacity of between 5MW and 10MW.

That discovery served to re-emphasize the point that the geothermal industry within Nakuru County had reached a tipping point.

Menengai itself is a hive of drilling activity. GDC has deployed a total of four drilling rigs each purchased at approximately $30 million.

So far, the State-owned body has drilled a total of 22 wells.

Geothermal drilling is a massive, complex and expensive operation.

One of the rigs in Menengai - an imposing giant engineering structure surrounded by heaps and piles of pipes – runs on an expansive power generation station that operates 24 four hours a day.

The diesel generators running the rig itself have a capacity to produce a massive 4MW of electricity. The plant consumes between 300 to 400 bags of cement per week.

About a kilometre away within the drilling location, there is a massive camp hosting more than 200 workers, complete with dormitories and a restaurant.

Menengai is bracing for even more activity in the coming months.

The engineer in charge, Mr Joshua Kangogo revealed that the company will shortly be receiving another three drilling rigs, bringing the total to seven.

When they receive the new rigs, GDC expects to rev up drilling activity for the next phase of the development programme in Menengai which will involve a 360MW plant expected to be completed in 2017.

The project is funded by the French agency AFD, (Euro 80 million) and the World Bank ($122 million).

Still, the main centre of activity in the immediate period remains Olkaria where KenGen is at advanced stages of completing new power plants.

KenGen’s Geothermal Development manager, Geoffrey Muchemi, explained that the company was currently running a total of eight rigs within the Olkaria fields.

Three of these rigs belong to KenGen, the remaining contracted from the Chinese firm, the Great Wall Drilling Company.

He disclosed that the 280-MW power plants will start feeding the national grid by August this year.  Running parallel to the current programme are drilling operations to produce enough steam to set KenGen’s next development programme rolling.

PUBLIC-PRIVATE PARTNERSHIP

The State-controlled company plans to produce an additional 560MW of power from the Olkaria fields.

In the next stage, KenGen will be financing some of the new power plants through public private partnership arrangements with international investors.

What opportunities does the boom in geothermal production open to investors in Nakuru County?

In a conversation with the Daily Nation, the governor Kinuthia Mbugua said that although the financial capacity of the county  to invest in power plants and  exploration of geothermal steam may be limited, there was room for foreign investors to partner with  Nakuru County in geothermal deals.

He also said that  in order to attract investors to the county, his government  will be aggressively pushing the national government to agree to a system where big investors - such as industrial parks and export processing zones - that are planning to set up shop within the county can be lured through cheaper tariffs.

An upbeat Mr Mbugua said that with the on-going revision of the Energy Bill, and the plans by the national government to revise the regime for setting electricity tariffs, Nakuru County will be pressing for subsidies for energy-intensive industries.

He predicted that the boom in the geothermal industry in the county was going to open some of the most exciting investment opportunities for investors.

“Instead of being branded as a flamingo economy, we are rebranding ourselves as the geothermal energy economy”, he said. Under the prevailing regulatory regime, county governments have no say in electricity pricing.

But Mr Mbugua expressed confidence that with the new constitutional dispensation demanding that local communities must share in revenues from extractive industries operating in their jurisdictions, it was only logical that Nakuru County be allowed to benefit from the booming geothermal industry.

With the tariff system being revised to reflect the demands of the new constitutional dispensation, setting shop in Nakuru is bound to be a compelling attraction to investors, especially to energy-intensive industries such as large scale green houses, meat processing plants, and investors interested in setting plants to manufacture  geothermal gases such as carbon dioxide and hydrogen sulphide.

The case for reviewing the tariff system to benefit Nakuru is a popular subject of discussion among the county’s leaders.

Mr Kamau Njuguna, the chairman of the Kenya National Chamber of Industry, told the Nation that even large geothermal power producers in the world such as Iceland have been luring investors with subsidized and clean geothermal power.

“We are not saying that we in Nakuru County should be allowed to enjoy cheaper power than the rest of the country”, he added pointing out  that the practice of  subsidizing electricity to investors  to lure them to areas and regions  where power is produced was  economically justifiable since proximity to power plants allow savings on transmission and distribution costs.

PROXIMITY TO NAIROBI

Currently, transmission and distribution losses are estimated nearly 18 per cent.

According to governor Mbugua, the Naivasha region was the most attractive location for an industrial park because of both its proximity to Nairobi and to the fact that it is emerging as the most important area for geothermal production.

On revenue sharing, governor Mbugua expressed confidence that the new Energy Bill will come up with a formula that will define the way revenues will be shared between the companies producing and selling steam, electricity producers and the country government.

He disclosed that what was being discussed was a new and comprehensive fiscal regime for revenue- sharing covering a whole range of issues including royalties and corporate taxes.

So far, the main proposal was an arrangement whereby the county will get 15 per cent of revenues, with 5 per cent going to the local community.

According to Mr Mbugua, Nakuru was planning to exploit geothermal energy beyond electricity production.

He argued that experts had found out that it was possible to use the condensate from geothermal processes to produce water for irrigation.

He added that the heat from geothermal steam and separated hot water can be used for processing agricultural products, thus enhancing their value shelf life.

Mr Mbugua added that he was looking for a time when heated water from the geothermal wells in Menengai will be used  in grain driers and  silos to maintain the required moisture content and storage temperatures.