Mon Nov 22 15:58:59 EAT 2010
Kenya on the cusp of a geothermal energy boom
The dominance of Chinese firms in exploration of geothermal energy in Kenya is set to end as East Africa’s largest economy rolls out an aggressive programme
Geothermal electricity generation in Kenya started in 1956 when two exploratory wells were drilled to a depth of 950m.The wells never discharged and were later abandoned.
It was not until 1985 that Olkaria I (45MW) was commissioned.Drilling continued in the Olkarai II steam field, with 30 wells being drilled by 1991.
In 1992, following the aid embargo by the Paris Club , donors pulled out and no work was undertaken until 1999.
Olakaria 119(70MW) was commissioned in 2003.
Right now drilling is going on in Olkaria IV, that is planned for 2012.
The dominance of Chinese firms in exploration of geothermal energy in Kenya is set to end as East Africa’s largest economy rolls out an aggressive programme to acquire its own rigs and to develop expertise.
Kenya has become a leading global hotspot in geothermal exploration as the government continues to invest heavily in clean energy to both reduce its over-reliance on hydroelectricity and diesel powered plants.
Chinese companies in the past five years have won most geothermal drilling contracts, which are worth millions of dollars, locking out European companies from the business.
The East African Rift Valley system is estimated to hold the potential of produce 7,000MW of electricity, with Kenya accounting for 1,200 MW, which is equivalent to the power the country produces annually.
In the initial stages, most of the geothermal drilling activity in Kenya was done by Nabor’s International, a French company, and Foraky Foraminus of Belgium.
The Europeans have since been supplanted by the Chinese. Since 2005, Great Wall Company, a Chinese firm, has been a market leader.
Great Wall’s first break in Kenya started with a contract to drill six wells in the Olkaria field. The Chinese company then bagged an even bigger contract to drill 15 more wells which were completed in 2008. This was followed by another contract to drill 10 additional wells.
Currently, Great Wall is on a new contract to drill 26 wells. This latest contract is supported by a loan to the government of $50 million (Ksh4.3 billion) by Exim Bank of China.
Early this year, Chinese company CNOOC, having hit a dry well in an oil exploration effort in Isiolo area, was awarded a contract to drill two wells, also in the Olkaria fields.
Opinion is divided in the industry as to whether the capture of geothermal exploration activity has served Kenya’s long term interests — with critics charging that the entrenched monopolistic position by the Chinese was unhealthy for the country in terms of both cost and transparency.
But at a cost of $6.5 million per well, is Kenya getting a good deal from the Chinese?
Whether or not this cost is high will be revealed only when the state-owned Geothermal Development Corporation (GDC) commences a new and aggressive drilling programme set to start next month, using two rigs it acquired recently.
In a conversation with the EastAfrican, the CEO of GDC, Silas Simiyu, said the company estimates to bring the cost of drilling a well down to $3.5 million.
“ We have to bring the cost of drilling down for the country to start enjoying cheaper power,” he said.
Whether the GDC can deliver the competitive price will be seen only when it starts drilling the first well using its own drill in March next year.
Three factors drive geothermal drilling costs high. First, is what the policy wonks call “upfront country risks". International geothermal drilling companies build in the costs associated with lack of engineering infrastructure in Africa to maintain drilling plants.
“As a drilling company, the fear is that you may be forced to transport machines abroad for repair,” says an engineer working with Great Wall company in the Olkaria fields.
Which is why, before they come to Kenya, the international players first assess avaliability and quality of services such as workshops, fabrication and the supporting technology. This adds to the cost of drilling because it is all built into the price they charge the country.
International drilling companies also charge resource and development risk — namely, the possibility of hitting corrossive geothermal fluids. Geothermal engineers say that despite the fact that drilling in Kenya has not experienced corosive geothermal fluids, drilling prices have not reflected this reality.
The third factor is the large expatriate component of the workforce.
For example, the Chinese have been operating with a crew of about 250 workers — the majority of them expatriates — who have to return to China every now and then for holidays, in the process incurring heavy travel costs.
Dr Simiyu, himself a geophycist, with more than 20 years experience in geothermal exploration, expressed confidence that GDC will be going into geothermal drilling with major advantages over the Chinese companies.
Already, the state-owned firm has acquired two rigs at an estimated cost of $25 million, which are already on location in Menengai, 10km from Nakuru town and 170km from Nairobi.
Procurement of five more rigs is in the pipeline. According to Dr Simiyu, the plan is that GDC will have a total of seven rigs by the end of next year.
Kenya has identified geothermal energy as its most economical generation option, compared with coal and nuclear energy.
Currently, it is estimated that the annual fixed cost of generating nuclear power in Kenya is around 0.0759 US cents per kilowatt hour, compared with 0.0708 for geothermal.
The nuclear option is rendered more unattractive by political and environmental concerns for safety, security and safeguards.
Although the fuel is avaliable, enrichment, waste disposal and high decommissioning costs are major concerns.
From a purely cost standpoint, coal at 0.407 US cents per kilowat hour, offers the cheapest option for Kenya. But the coal generation method is perceived to make a larger contribution to air pollution than other fossil fuels combined.
Currently, there is a total of 202 MW installed geothermal generating capacity in Kenya — 150MW by the state-controlled company, KenGen, 52MW by independent power producers OrPower, and 4MW by flower exporting farm Oserian, which uses geothermal energy to heat 50 hectares of green houses at its expansive flower farms in Naivasha.
Geothermal activities in Kenya are concentrated in the East African Rift Valley.
Over 14 geothermal prospecting sites have ben identified. Studies carried out in these sites indicate that a potential of between 7,000 MW and 10,000 MW exist.
The current effective installed capacity during normal hydrologyn is about 1,428 MW against a peak demand of about 1,200 MW.
This leaves a reserve margin of about 20 per cent. However, during low hydrology, the peak demand outsripts the available capacity, resulting in serious power shortages.
In such cases, the government resorts to diesel driven emergency power generators, with resultant increases in electricity tariffs.