Kenya Power recently entered into a 20-year deal with Kipeto Power Ltd. to purchase electricity from a wind farm. Unlike typical power purchase agreements, Kenya Power’s decision to purchase energy from Kipeto Power comes before the actual construction of the proposed 100 MW wind farm. The proposed wind farm is to be located on the outskirts of Nairobi.
At first blush, the deal between Kenya Power and Kipeto Power Ltd. appears irregular given the fact that no power can be generated until a wind farm is built. However, the deal was signed just two days after the 2015 Global Entrepreneurship Summit in Nairobi. During the summit - attended by US President Barrack Obama and Kenya’s President Uhuru Kenyatta - the Overseas Private Investment Corporation (OPIC) of the United States signed a KSH 23 billion funding agreement with Kipeto Power Ltd. to develop the 100 MW wind farm on the outskirts of Nairobi. As background, OPIC is the U.S. Government’s development finance institution. It attempts to mobilize private capital to help solve perceived development challenges and advance U.S. foreign policy and national security objectives. OPIC works with the U.S. private sector and therefore mainly helps U.S. businesses gain footholds in emerging markets.
Given OPIC’s agreement with Kipeto Power, funding for the wind farm appears to be guaranteed and reports state that Kipeto Power hopes to complete the wind farm in less than two years. However, the terms of the deal were not released to the public. Furthermore, Kenya Power has now inked a deal for 20 years to purchase wind power from a wind farm that still requires major approvals prior to construction beginning. For example, the land the wind farm will occupy still needs to be acquired. As Nairobians are well aware, the acquisition of land is fraught and often dirty and more often than not subject to legal hurdles that may take years to resolve. Furthermore, the project still requires clearances from the Energy Regulatory Commission (ERC) and the National Environmental Management Agency (NEMA), prior to construction beginning.
Even given the questions raised above, Kenya Power may be onto something good. Assuming the deal proves reliable, funding from OPIC is available, and wind power is properly generated, studies show that wind power is generally among the cheapest sources of electricity - ranking just above hydroelectric power generation in cost. Wind power is also much cheaper than the ubiquitous diesel generators that continue to fuel Nairobi’s economy, especially during power cuts. Once online, the wind farm should also supplement Kenya’s utility of renewable energy beyond the current 85 percent. Wind farms are environmentally friendly, requiring little upkeep and causing no noise pollution. When built, the proposed Kipeto wind farm will be the second largest in Kenya after the 300 MW Lake Turkana Wind Project which is still under construction.