Stephanie Hanson, One Acre Fund
December 15, 2011 | 0 Comments
"GDC Strikes Steam in Menengai," exalts the cover of this spring's issue of Steam, the magazine of Kenya's Geothermal Development Company. A column of steam spurts high into a deep blue sky in the cover photo — the geothermal industry's equivalent of the black column that spurts from a successful oil well.
But steam is even more valuable than oil, at least to Kenya, which aims to produce 5,000 megawatts of power from geothermal energy by 2030.
“Power from geothermal is a sure means of improving our people’s way of life,” says Stephen Kalonzo Nusyoka, the Vice President of Kenya.
Geothermal is the only alternative energy source that is currently cost-competitive with fossil fuels. One analysis even says that geothermal is cheaper to produce — 3.6 cents per kilowatt-hour as compared to 5.5 cents per kilowatt-hour for coal.
However, that analysis does not account for two things: the cost of financing geothermal projects and the cost of exploration — actually finding the steam. In Kenya, and across the world, both costs can be high. But a cadre of determined individuals are working to overcome those challenges and unlock what they believe will be the engine of economic growth for East Africa.
Unrealized potential and new technologies
Kenya is the epicenter of geothermal energy development in the region. It is estimated to have 7,000 MW – 10,000 MW of geothermal potential, and it is currently Africa’s largest geothermal producer with 210 MW of capacity. This production comes from the Olkaria field, where development began back in the 1950s. “It takes a long time to develop a virgin geothermal field,” says Daniel Saitet, an engineer for KenGen, the energy company that manages the Olkaria field.
In fact, Olkaria I, the first geothermal power plant in all of Africa, took 30 years to develop. One of the primary reasons for the slow pace of development was the long negotiation process to secure the large funding required to build the actual plant.
But Dr. Silas Masinde Simiyu, the head of Kenya’s Geothermal Development Company, believes that new technologies have made it possible to develop geothermal on a much more aggressive timescale, and to lower the risk for investors. In particular, he is enthusiastic about wellhead generators, which allow early generation of power before a conventional power plant is built.
A geothermal power plant works by tapping hot water from underground to turn steam turbines, or to heat another liquid to turn those steam turbines. A wellhead generator sits on top of a geothermal well, and the steam from the well runs a small turbine.
Wellhead generators allow an energy developer to start receiving revenue as early as 12 months after a well is drilled. They also reduce the risk for any investor in a large-scale power plant.
“If I want to generate wells for 50 MW, I can wait nine years for the power plant to come online. Or, I can ramp it up step by step, so that over the nine years, I will raise some revenue, and then use that to do further drilling in that field,” says Dr. Simiyu.
Financing geothermal development
New technologies such as wellhead generators can bring a revenue stream after a geothermal well is drilled successfully. But the upfront costs of drilling are still significant: It costs between $4 – 5 million to drill one well. For the industry to advance, it’s imperative to reduce the risk of geothermal exploration.
Kenya is tackling the exploration challenge through its Geothermal Development Corporation, a state-owned company that was created in 2008 for the specific purpose of accelerating the development of geothermal in Kenya. Thus far, GDC has drilled four wells at Menengai, is exploring another site called Silali, and is building a training institute for geothermal near Menengai.
“It is necessary for the government to take on this risk of exploration and development,” says Dr. Meseret Zemedkun, Project Manager of the Africa Rift Geothermal Development Facility. “And it’s necessary for the private sector to come in and make public-private partnerships to generate the power.”
Some energy industry insiders are skeptical of whether Kenya has the ability to line up the private funding it needs to meet its geothermal targets. The country has called for $20 billion in investment to reach its goal of 5,000 MW of geothermal power by 2030.
Designing and negotiating project finance for a conventional power plant is difficult, given the high capital investment and many involved parties (from the developer, to the government, to the power provider, and to the company actually generating the energy). A geothermal power plant will be even more difficult, since it’s a newer energy source and financial institutions have little or no experience with geothermal.
A steam-powered future for East Africa
Other countries in the region are watching Kenya’s approach to developing its geothermal resources with great interest. If geothermal’s exploration and financing challenges can be surmounted, East Africa has the potential to become the global leader in the production of the cheapest renewable energy source. Access to such low-cost energy supplies could spur economic growth and reduce poverty across the region.
At least that is the hope of the African Rift Geothermal Development Facility, an UN-funded mechanism that aims to help six countries in East Africa (Kenya, Uganda, Djibouti, Ethiopia, Eritrea, and Tanzania) develop their geothermal resources.
The facility, known as ArGEO and funded with about $18 million from the UN’s Global Environment Fund, became operational in 2010. It aims to provide technical assistance to participating countries that will help them reduce the risk of geothermal exploration, and create a clear regulatory framework for the industry. “We are fully steaming ahead,” says Dr. Zemedkun, ArGEO’s project manager. “In the next five years, I hope to see 500 MW minimum power generation in the region, excluding Kenya. If you include Kenya, it should be 1,000 MW of power generation. If we don’t think big, we won’t make it happen.”
In September, ArGEO convened a meeting of the region’s six energy ministers in Kenya to raise awareness and give them the opportunity to visit some of Kenya’s geothermal power plants.
Kenya has the potential to become the geothermal powerhouse of Africa, to kickstart its economy into middle-income status, and to set an example for the rest of the region. The stakes are high, and the risks are undeniable. But “it’s getting very, very exciting,” says Dr. Simiyu, “We are on course. We are succeeding.”
Stephanie Hanson is the director of policy and outreach at One Acre Fund, an agriculture finance organization that serves over 75,000 smallholder farmers in East Africa. From 2006 to 2009, she covered Africa and Latin America for CFR.org, the website of the Council on Foreign Relations. In 2008, she won a News and Documentary Emmy for Crisis Guide: Darfur. More at http://www.stephaniehanson.com
This article was orginally published on ecomagination.com and was republished with permission.