Investment Case Study: Lake Turkana Wind Power
Lake Turkana Wind Power (LTWP) was inaugurated in 2019, comprised of 365 wind turbines of 850KW each, and a high voltage substation. The project is, to date, the largest private equity transaction in Kenya and an example of innovative financing for energy projects, with an installed capacity of 310MW. The carbon credit potential of this project ranges between 565,920 and 1,264,320 CO2 tons equivalents (or carbon credits) per year. The project site has been selected due to its exceptionally favourable wind conditions: its expected capacity factor was at 55%; actual capacity factor has exceeded 60%. It provides approximately 17% of the country’s installed capacity, to be bought at a fixed price by The Kenya Power and Lighting Company PLC (Kenya Power) over a 20-year period in accordance with the Power Purchase Agreement (PPA).
The investor group included three Nordic DFIs (IFU, Norfund and Finnfund) and investors that were comfortable with project timelines (PensionDenmark, PKA, Pædagogernes Pensionskasse and Dansk Vækstkapital (the latter as a semi-public entity). The African Development Fund applied its first Partial Risk Guarantee to the associated 428 km transmission line to mitigate delay risk (otherwise covered by delay payment obligations of the Kenyan Government to the project company and its lenders). The project has been delivered under a multi-contract arrangement with 5 main suppliers of key project elements (wind turbines by Vestas Wind Systems, electrical balance of plant by Siemens, roads, and civil works by Civicon, grid stabilisation system by RXPC and compound/village by SECO).
Project’s Key to Success
Project preparation support from wind turbine manufacturer: This support led to better construction and operational success, especially with regards to logistics and transport planning and through providing a long-term O&M contract with guaranteed capacity utilisation.
Transaction structure deal: A unique public-private aspect in terms of generation by a privately owned independent power producer.
Close cooperation: All stakeholders worked closely together to minimise project-on-project risk. The project’s senior loan package was mobilised by a multiple lender group with Standard Bank of South Africa as facility agent and financing syndicated by African Development Bank and European Investment Bank, with guarantee structures from the Danish Export Credit Agency (political and commercial cover).
LTWP is located in a remote area with lacking or underdeveloped infrastructure. Apart from the 428 km T-line, +200 km of offsite road upgrades will be commissioned, in addition to onsite road network and a compound village to house construction and operational staff. This presented an ambitious task in itself and seen in the perspective of 2000+ truck loads over a 500km distance from the nearest deep-sea harbour in Mombasa, made up an enormous logistic challenge. Yet, LTWP will mitigate greenhouse gas emissions equal to 740,000 metric tons of carbon dioxide equivalent (tCO2eq) annually, increase national electricity supply by 15–20% (relative to 2015 generating capacity), and create more than 2,000 local jobs including 150 permanent jobs.