Kenya Cuts Power Tariffs for State-Owned Solar Farm by Half

(Bloomberg) -- Kenya slashed its fixed-price purchase contract for a state-owned 50-megawatt solar plant by half because the project was financed using concessional funds, Energy Regulatory Commission Director-General Pavel Oimeke said.

The East African nation, which has an electricity supply deficit, is boosting production from renewable sources including wind and geothermal as it cuts reliance on expensive diesel-powered plants.

The farm being developed by the Rural Electrification Authority, or REA, in the eastern Garissa region will be Kenya's biggest yet. It will sell electricity at 5.49 U.S. cents per kilowatt-hour, down from the 12 cents agreed on with Kenya Power & Lighting Ltd. in September 2016. Kenya received $135.7 million from the Export-Import Bank of China, Oimeke said.

“REA is wholly owned by the government of Kenya, hence the government has guaranteed the loan. This means lower financing costs,” he said.

The solar farm should start supplying electricity to the national grid by the end of September, REA said last week. Its break-even point based on the previous tariff was expected after 17 years of operation. Kenya has a feed-in tariff of 12 cents for solar projects not exceeding 40 megawatts.

The government is exploring the possibility of handing over operations of the solar farm once the facility is switched on to the Kenya Electricity Generating Co. Ltd or Kenya Power, which have expertise in running plants, REA Chief Executive Officer Peter Mbugua said.

Kenya could achieve lower tariffs if the government took the risk out of solar plants by providing land and sub-stations, said Guy Lawrence, director for East Africa at London-based Solarcentury Holdings Ltd.

“I believe in Kenya a suitable range for a commercial plant would be in the region of 8 to 10 cents under present conditions and according to geographies, if Kenya was to use an auction system rather than fixed tariffs,” he said.

Other renewable energy projects planned in Kenya include:

• A 30-megawatt facility in Makindu by Rareh Icon, owned by Swiss private equity investor responsAbility
• A 45-megawatt plant in central Embu county
• Xago Africa's 40-megawatt farm in the western county of Siaya
• The 70-megawatt Akiira Geothermal plant that's owned by Nairobi-listed Centum Investments Ltd.
• Two solar projects totaling 80 megawatts in Eldoret, western Kenya
• U.K.-based Globeleq to construct 40-megawatt solar plant near coastal town of Malindi for about $70 million

To contact the reporter on this story: David Herbling in Nairobi at dherbling@bloomberg.net.

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura, Renee Bonorchis

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