Globeleq Signs Financing Agreement On $108M Menengai Geothermal Project In Kenya

Kenya is in the top ten in the world when it comes to installed geothermal electricity generation capacity. Kenya’s installed capacity for geothermal is about 1,000MW now. This dependable geothermal capacity is the main anchor of Kenya’s renewable energy success story. Along with wind, hydro, and some utility-scale solar, last year, these renewables were responsible for 90% of electricity generation. Kenya Electricity Generating Company PLC (KenGen) is the leading electric power generating company in Kenya and operates 799 MW of Kenya’s geothermal capacity. Kenya has potential to 10x its installed geothermal capacity. Studies have shown that there is potential for at least 10,000 MW from geothermal.

The first large scale geothermal development in Kenya was in the Olkaria field. Developers are now also working on Menengai field. Globeleq, a leading private power company in Africa, recently announced that it has signed financing agreements with the African Development Bank (AfDB) (as mandated lead arranger), the Eastern and Southern African Trade & Development Bank (TDB) and Finnfund, with regard to the $72 million debt funding for the 35 MW Menengai geothermal project in Nakuru County, Kenya.

Globeleq, which is owned 70% by British International Investment and 30% by Norfund, is providing equity, project development, and construction management experience.  The announcement follows the recent joint commitment by the Kenyan and UK Governments at COP27 in Egypt to fast-track green investment projects worth KES500 billion in the country, including the Menengai project.

The Menengai project is a greenfield geothermal project and part of the first phase of the wider Menengai complex, which is the second large-scale geothermal field being developed in Kenya after Olkaria. Construction of the project is expected to commence during the first quarter of 2023 once financial close has been reached. Globeleq will operate and maintain the power plant once it has reached commercial operations in 2025.

Steam will be supplied to the project by Geothermal Development Company (GDC), a Kenya government-owned company, under a 25-year project implementation and steam supply agreement. Once operational, electricity will be sold to Kenya Power, the national distribution company, under a power purchase agreement for the same timeframe. The project also benefits from a signed and effective Letter of Support issued by the Government of Kenya. The project will deliver clean and cheap baseload power to the national grid and enable GDC to monetize the available steam resources from the Menengai steam field.

Here are some quotes from the press release:

Mike Scholey, Globeleq’s CEO, said: “As an active participant in the Kenyan energy sector for many years, the Menengai geothermal project is our first geothermal project.  It fully aligns with our focus on quality investments which utilize renewable energy sources to create clean, reliable and cost-effective energy for the country and be an active part of the solution to the climate crisis. We are very excited to collaborate with our partner GDC in bringing this important project to fruition and look forward to further developing the Menengai geothermal complex.”

Dr. Kevin Kariuki, Vice-President, Power, Energy, Climate and Green Growth at AfDB added: “The Bank is proud to have led the financing of the Menengai project. The project showcases a suite of products that AfDB can bring to support our member countries to harness their geothermal energy potential. The Bank has provided US$29.5 million as senior debt and mobilized US$22.4 million co-financing, having earlier invested US$145 million to develop the Menengai steam field.  Moreover, we facilitated US$20 million concessional financing from the Clean Technology Fund to support the sustainability of the tariff and, for this specific project, we will provide a Partial Risk Guarantee of US$4 million to enhance its bankability. We look forward to a successful financial close and the commissioning of the plant.”

Michael Awori, TDB CEO said: “We are delighted to participate in this impactful transaction as part of this consortium of lenders. The cost-effective power generated through this project will create significant forex savings and increase the supply of green baseload power for several thousands of homes and businesses. TDB is a strong supporter of the energy sector in its member states, tackling short-term needs by financing the trade of energy commodities and long-term climate ambitions via renewable energy projects, including in wind, solar, run-of-the-river hydro and now geothermal power.”

Helena Teppana, Associate Director, Finnfund also commented: “This investment is yet another step in Finnfund’s commitment to make €1 billion of new investments in climate finance by 2030. The Menengai geothermal project will provide clean and affordable power to the Kenyan grid and will be a domestic source of energy which can generate base load and will have important social and economic impacts. We are proud to be investing in the power sector in Kenya with our partners.”

It’s really good to see more investments into Kenya’s renewable and dependable geothermal sector. This will go a long way in anchoring the energy mix and enabling the increase in the penetration of variable renewables such as wind and solar along with other enabling technologies such as utility-scale battery storage.

Kenya’s new President, William Ruto, emphasized the need to continue on this path to 100% renewables during his inaugural address a few months ago. With renewables already contributing about 90% plus a 10X potential for geothermal, Kenya could leverage this to attract firms that are looking for places where the grid is cleaner for green manufacturing. Another area of interest would be the data center market. There has been some activity on this front already with several players building data centers in Kenya. These could be a key market segment to unlock demand for all that geothermal capacity, especially now when stakeholders in the data center market prioritize decarbonization as part of their ESG targets.

Image: One of KenGen’s geothermal sites in Kenya. Image courtesy of KenGen