Wind power could transform Africa’s economic growth

Africa is home to the second largest population on earth of just over one billion people yet 500 million people lack access to reliable and clean energy. Aging and costly infrastructure accounts for much of the inefficiencies. In Sub-Saharan Africa, only 25% of the population has access to electricity compared to half in South Asia and more than 80 percent in Latin America, the Middle East and North Africa. The hill for Africa is clearly steep but countries, such as Kenya, are looking towards wind power as a cheaper and cleaner solution to their energy deficit.

The Lake Turkana Wind Power project – otherwise known as LTWP, has been in the works for nine years. It is a symbol of success for the public private model and international co-operation that spans several countries including African multilaterals, the European Union, Denmark, Finland, Germany, Norway, the U.K. and the U.S. Once completed, it will be the largest single wind farm in Africa with a capacity of 300 MW that will plug a power supply shortfall in Kenya, offer cheaper electricity to the masses, and it could very well point the way for the future of energy projects in Africa.

After some fits and starts – the most notable being the World Bank’s decision not to participate in the project in 2012 – the LTWP could easily have died if not for the commitment of the Kenyan government, the African Development Bank and the private companies leading the charge – namely Aldwych International Limited and KP&P Africa B.V.

The group was motivated by the clear demand for energy by Kenya’s 44 million residents, where less than 25% have access to clean and reliable electricity. The goal was to provide one-fifth or 20% of the country’s current installed power capacity of 1,664MW using wind energy, which will power 1.2 to 1.3 million households providing 190 to 200 MW of energy per year. The project is also expected to provide two key savings. First, the country will save $150 million annually in foreign currency and fuel adjust costs that appear on electricity bills due to the increased use of thermal power.

With the African Development Bank’s considerable weight as the senior debt lead arranger and partial risk guarantor, they helped secure funding agreements for the $800 million project with nearly a dozen financiers including EIB (the European Investment Bank), FMO, Standard Bank of South Africa, Nedbank, PTA Bank, DEG and America’s development finance institution – OPIC. The African Trade Insurance Agency (ATI) provided insurance support to some banks and Adlwych international. The final funding tally cemented another record for the project as the largest private investment ever made in the history of Kenya.

The largest equity investor Aldwych International Limited plays a central role in the LTWP. They are the co-developers who will oversee the construction and the operations of the project, which is expected to begin producing power in mid 2016. As one of the founding fathers, they formed LTWP to develop, finance, build and operate a wind farm in Marsabit County, approximately 10 km east of Lake Turkana in north-eastern Kenya.

The project consists of wind turbine generators, an electrical collection network and substation and infrastructure development that includes road rehabilitation. The project will feed the renewable power generated into Kenya’s national grid under a 20-year take or pay Power Purchase Agreement with the Kenya Power (KP). The government, through KP, formally committed to constructing a 436kV overhead transmission line from the project to a new sub-station located 90km north of Nairobi which will provide the primary source of demand for grid electricity supply.

ATI is supporting Aldwych International’s Euros 50 million (US$63 million) equity investment with cover on Aldwych’s subsidiary, Turkana Investments Limited. The cover protects against two main political risks – arbitration award default to mitigate the risk of breach of government obligations in the 20-year take or pay power purchase agreement, and currency transfer/conversion risk.

“We are excited about this project because it is the perfect example of the role that partners can play in supporting Africa in its quest to universalising access to clean energy on the continent,” notes ATI’s Chief Executive Officer, George Otieno.

Kenya plans to quadruple its energy output in the next five years with an additional 5,000MW of power. Energy expansion is a linchpin in the government’s Vision 2030 plan, which aims to propel Kenya into middle income status. A big part of the government’s strategy is diversification away from the hydroelectric power, which accounts for a major source of the country’s electricity. Instead, Kenya is banking its future on geothermal and wind energy to achieve President Kenyatta’s pledge to make certain every Kenyan has access to electricity by 2020.

The African Development Bank’s 2013 wind study identified eight African countries having the greatest wind energy potential among the world’s developing nations. Currently there are about 10.5 gigawatts of wind power in development across the continent with more expected to come on stream in the next few years. So far, Ethiopia, Kenya, South Africa – and recently, Senegal – are leading the charge in wind power generation. In Kenya

In Kenya, in addition to the LTWP, plans are well underway to construct the 61 megawatt Kingangop wind farm, located northwest of Nairobi. The $150 million wind plant, which has been registered under the United Nations’ Clean Development Mechanism, is expected to power about 150,000 homes when it goes online in mid-2015. The Ngong II wind farm outside Nairobi is also under construction and is expected to contribute significantly to the country’s energy capacity. ATI is currently in discussions to support these upcoming and other renewable energy projects in Kenya.

Many are also touting the potential to create a home-grown wind power manufacturing base in Africa, with South Africa taking the lead. South Africa was the fastest growing market in the G-20 with investments increasing from $30 million in 2011 to $5.5 billion in 2012 – of this, the solar sector attracted $4.3 billion while wind power attracted $1.1 billion. This dramatic investment growth placed the country as the ninth leading destination for clean energy investment behind Italy, the United Kingdom and India according to a 2013 report from Pew Charitable Trusts.

With hundreds of millions of Africans lacking access to electricity, there is clearly a huge shortfall in power generation. Wind power and other renewable energy technologies have a real potential to put a dent in the existing energy poverty in Africa. Their competitive generation costs, fast build times and scalability could quite easily make them the energy choice of the future for many African countries.

For more information, visit the LTWP project site at http://ltwp.co.ke/

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