Questions as Indonesian firm set for energy deal

Players opposing the Adani proposal have cited the failure to engage Kenyans in the process of bringing the Indian firm on board. In the onboarding process of PGE into the Suswa fields, the government also appears to have skipped the competitive bidding process.

Other than its partnership with GDC, PGE plans to partner with privately owned Africa Geothermal Ltd (AGIL), which has a licence to explore geothermal and develop geothermal power plants at Longonot.

During a September meeting with senior officials from the Energy Ministry, including Cabinet Secretary Opiyo Wandayi, the firm was also offered a deal to participate in the exploration for geothermal power at Suswa alongside GDC. 

“GDC has offered a business scheme where PGE participates in 25 per cent of Upstream activities until COD (Commercial Operations Date) and 100 per cent downstream in power plant development,” said a report prepared by the Ministry of Energy after the visit, further explaining that PGE had insisted on involvement in upstream. 

“Based on PGE’s expertise and experience, PGE requires involvement in both upstream and downstream development.”

Getting in at the exploration stage could give PGE access to essential information on the Suswa geothermal fields.

GDC has traditionally explored and drilled wells as built the steam-gathering infrastructure. In doing the preliminary work, which is capital intensive but also marked by such major risks as hitting dry wells, GDC de-risks the fields for private sector investors.

After the fields are derisked, private sector players are then invited to bid and successful firms build power plants, as has been the case at Olkaria, Menengai and is currently being going on in Baringo.

Developing the Menengai fields has, however, been characterised by major delays, with the firms that were competitively selected being unable to move forward as financiers failed to offer them funding on account of the government’s failure to give certain guarantees.

The three firms were expected to complete power plants with a combined generating capacity of 105MW by as far back as 2016, but to date, only one company has been able to marshal resources and put up a 35MW power plant.

Unlike in the other fields, it also plans to engage the firm in the early stage of upstream works that should ideally be undertaken by GDC.

PGE and GDC signed a memorandum of understanding in August last year to develop the Suswa geothermal field. They estimate that the Indonesian firm would invest $200 million ( Sh26 billion) to develop power plants with an electricity generating capacity of between 200MW and 300MW.

The Suswa geothermal prospect, according to preliminary studies by GDC, has an estimated potential of 750MW. GDC expects this to be developed in phases. Over the initial phase, it had earlier planned to develop three plants with a combined generating capacity of 300MW, 100MW each.

The firm is counting on its experience in Indonesia, which is the second-largest geothermal power producer globally, with a geothermal installed capacity of 2,418MW, coming in after the United States. PGE is one of the largest geothermal power producers in Indonesia, managing 13 geothermal working areas with an installed capacity of about 1,900MW, of which 672MW is operated exclusively by PGE, while the other 1,205MW is managed with partners in joint ventures.

Despite tapping into Indonesian expertise, Kenya could be considered a heavyweight in the geothermal sector.

The country is ranked sixth in the world, with an installed capacity of 985MW, with Kengen accounting for 81 per cent of this capacity with its total generating capacity at 799MW.

US firm Ormat’s power plants, also in Olkaria, produce a combined 150MW. Sosian Energy, which has recently commissioned a 35MW power plant at Menengai fields, is the latest entrant in the sector. 

The country’s total electricity generating capacity stood at 3,321MW, as of December 2023, according to data by the Kenya National Bureau of Statistics (KNBS). Geothermal accounts for just a third of this capacity, despite having the potential to produce over 10,000MW through geothermal.

PGE, according to the report, will also be seeking other incentives, including a higher tariff that is likely to be passed on to consumers.

“PGE will also request the government of Kenya’s support in providing necessary adjustments or incentives such as steam and electricity pricing above current tariff, royalty and tax exemptions, and any other incentives to improve the economics of the project,” said the Ministry of Energy report on the discussions held during the meet with the Indonesians.

Wandayi told the Indonesians that “geothermal power development in Kenya is key in the Government’s agenda as it provides baseload power and will mitigate climate change”. He also noted that the “GDC/PGE joint development of Suswa will be given key priority” and that the matter is “being addressed at the highest level.”

The Energy and Petroleum CS represented Kenya during the 2nd Indonesia-Africa Forum (IAF) 2024 held between September 1 and 3 in Bali.

PGE has also signed a deal with Africa Geothermal International Ltd (AGIL) to explore and produce geothermal electricity in Longonot, Naivasha. The two first signed an MOU on August 20, 2023. 

“The Company has also engaged in partnerships with foreign firms as part of its international expansion efforts to position itself as a global player in the geothermal sector. Among these initiatives are collaborations with geothermal developers in Kenya, namely Africa Geothermal International No. 1 Limited (AGIL No. 1) to develop geothermal potential in the Longonot concession,” said PGE in an update to its shareholders early this year. 

AGIL is associated with former Energy Principal Secretary Patrick Nyoike and former Nyeri Senator Ephraim Maina, both directors of the company. The firms had earlier expected to start work on the Longonot fields this year and have the first power plants commissioned in 2027. PGE had earlier said its agreement with AGIL is aimed at developing the Longonot concession which could yield up to 500MW of which 140MW is ready to be exploited.