The Lake Turkana Wind Power Project meant to add an existing 300MW of reliable, low cost wind energy to the national grid of Kenya reached a critical milestone following the signing of the $870 million financial agreements in Nairobi, Kenya. The project will be financed with a mixture of equity, mezzanine debt and senior debt.
The Lake Turkana Wind Power project is the first of its kind in East Africa and will be the largest wind project on the continent to date, says Tshepo Mahloele, CEO of Harith General Partners.
LTWP has signed a 20 year Power Purchase Agreement with the government of Kenya through its electricity entity, Kenya Power.
The transaction is also the second-largest pure-play renewable energy project finance deal ever recorded in Africa, behind the $1 billion package raised for the 160 MW first phase of the Noor I concentrated solar power plant being developed by ACWA Power in Morocco.
Lake Turkana’s financing was completed with a package comprising 70% debt, 20% equity and a 10% mezzanine tranche, as reported by Clean Energy Pipeline. Carlo Van Wageningen, Managing Director of the project’s special purpose vehicle Lake Turkana Wind Power, said that the financing comprised a €435 million debt package, a €125 million equity investment and a €63 million quasi-equity mezzanine tranche.
He said the largest equity investor is lead developer, UK-based independent power producer Aldwych, which owns a 32.5% stake. Aldwych is majority owned by the Pan Africa Infrastructure Development Fund, which is run by South African asset manager Harith General Partners.
The second-largest equity investor in the project is KP&P Africa B.V., the original developer of the Lake Turkana project, which holds a 25.25% stake.
Norwegian development investment firm Norfund owns a 12.5% stake, as do Finland-based Finnfund and Danish wind turbine maker Vestas, which is the supplier of wind turbines to the project. Danish investment fund IFU has a holding of approximately 6.5%.
Debt financing was provided by a syndicate led by the African Development Bank and comprises Standard Bank, Nedbank, the European Investment Bank, Dutch development bank DEG and French development finance institution Proparco.
The European Investment Bank’s involvement in the financing will monetise an export credit guarantee provided by Denmark’s Eksport Kredit Fonden.
The mezzanine tranche will be provided by DEG, a unit of the AfDB, and FMO, another Dutch development bank. An additional €25 million grant is being provided by the European Union to fill any gaps in the financing. There are several significant secondary infrastructure investments required to realise the Lake Turkana wind farm.
Kenyan transmission company KETRACO must build a 428 kilometre transmission line to connect the wind farm to the national grid.
Van Wageningen said a €142.5 million financing package has already been arranged to fund construction of the transmission line. Of that total, €55 million is a conditional loan from the Spanish government, €55 million is a loan provided by Spanish export credit agency CESCE and €32.5 million is being committed by the Kenyan government.
A further €10 million loan has been pledged by the Dutch government to finance construction of a road that will carry turbines and other equipment to the Lake Turkana site.
Under the project finance agreement signed today, the Lake Turkana wind farm must meet a number of administrative conditions to access the capital, but the developers are confident that cons
The parties at the signing ceremony were represented by lead developer and independent power producer, Aldwych, which is majority owned by the Pan African Infrastructure Development Fund (PAIDF). LTWP is primarily responsible for the financing, construction and operation of the wind farm and comprise a grouping of investors and lenders with extensive financial and technical capabilities and experience on the African continent. They include FMO, Vestas, Finnfund, IFU and a strong local sponsor KP&P on the equity side. The syndicate of banks is led by the African Development Bank and comprises Standard Bank, Nedbank, EIB, DEG and Proparco.
The project will be located on one of the best sites for a wind farm in the world. Not only are the wind speeds exceptionally high but the wind is only from one direction, is not seasonal, and is low in turbulence. The project site is situated on the southeast border of Lake Turkana between two high ranging mountains in the Turkana Corridor where a low level jet stream originating in the Indian Ocean creates favourable wind conditions.
Mahloele says the LTWP will essentially assist diversify Kenya’s energy mix and reduce the country’s reliance on power production from oil and diesel power generators. The Kenya government will save millions per year on importing fuel. The LTWP tax contribution to Kenya alone will be approximately $27m annually and $548m over the life of the investment.
Mahloele says the combination of international financial and technical expertise has ensured that the project is structured in a bankable and sustainable form in accordance with international standards.
Mahloele says the investment is the result of the forward thinking and planning on the part of the Kenyan leadership who had undertaken comprehensive power sector reforms over the past decade.
In Kenya, electricity is mainly generated from hydro, thermal and geothermal sources. Wind generation accounts for less than six megawatts of the installed capacity. Currently, hydro power comprises over 52 percent of the installed capacity in Kenya and is sourced from various stations managed by the Kenya Electricity Generating Company (KenGen).
It is our assertion that the Lake Turkana Wind Project will greatly reduce Kenya’s over reliance on hydropower which is playing a critical role in ensuring security of electricity supply but is however vulnerable to periodic draught seasons, says Mahloele.