| Project Detail |
Project Objectives:
Monetize and transact GHG reductions from renewable energy produced by small hydropower
benefiting smallholder tea farmers in rural Kenya.
3. Project Description:
The KTDA Small Hydro Programme of Activities (the “Project”) developed by KTDA Power
Company Limited (KTDA Power) aims to generate and sell Certified Emission Reductions (CERs)
from a planned group of 10 small scale run-of-river hydropower plants (“SHP” or “Sub-Project”)
at various locations in Kenya. The Project is implemented under a Clean Development Mechanism
(CDM) Program of Activities (PoA) titled “KTDA Small Hydro Programme of Activities”, which was
registered with the United Nations Framework Convention on Climate Change (UNFCCC)
secretariat in September, 2012.
The International Finance Corporation (IFC), in December 2015, considering carbon finance
revenues, committed US$ 25 million in debt to KTDA Power to finance the total cost of US$85.6
million for the construction of seven of the 10 SHPs with total aggregate capacity of 16.2MW. IFC
will thus be co-financing seven of the planned 10 SHPs, with other investors having provided
funding for the three other SHPs. These 10 SHPs build the foundation for the proposed carbon
finance operation. The Bank will not invest in the SHPs themselves, but through an Emission
Reductions Purchase Agreement (ERPA), provide results-based carbon finance to KTDA Power tied
to CER deliveries after the SHPs become operational and start generating renewable electricity
The SHPS will generate captive electricity to enhance access to reliable electricity much needed
by Kenya Tea Development Agency Holdings (KTDA)’s tea factories. Regional Power Companies
(RPCs) are being set up for this purpose and are owned by the small-scale tea farmers’ cooperatives, themselves members of KTDA. The project will, ultimately, increase the productivity,
and hence, the bottom line of the smallholder tea businesses allowing these savings to be passed
on to the tea farmers themselves. Second, surplus electricity will be sold to the state-owned utility
company, Kenya Power (KPLC) by supplying electricity to the national grid, which will contribute
towards addressing electricity reliability issues in the country and responding to the efforts by the
Ministry of Energy aiming to increase installed small hydro capacity. The SHPs will serve captive
power to 39 tea factories, contributing to increase income for over 350,000 small-holder tea
farmers, and will contribute to an increased share of energy from small SHPs in the total energy
mix of the grid, which currently represents under one percent.
KTDA Power plans to develop a portfolio of SHPs with an aggregate generation capacity of 31.3
megawatts (MW) across 10 proposed sites, as currently planned, in and around the Central
Highlands. These 10 SHPs will consist of 7-10 Component Project Activities (CPAs) under the CDMPoA framework. The main barrier for the expansion/replication of KTDA Power’s business model
has been difficulty in obtaining external commercial debt financing. This is due to high project cost
per MW derived from project site constraints and KTDA Power’s policy to ensure high quality of
electro mechanical equipment. In order to overcome this challenge, KTDA Power first developed
a pilot project consisting of three SHPs with total capacity of 12.4MW, obtaining concessional
financing from Agence Française de Développement (AFD). All the three SHPs of the pilot project
started construction, of which two SHPs (Chania and Gura) have completed construction in August
2016 and October 2016, respectively. The third pilot, North Mathioya, is expected to complete
construction in December 2018.
Once the pilot project of three SHPs demonstrated a certain level of track record, KTDA Power
planned for commercial expansion/replication via development of an additional 7 SHPs through
partnership with IFC. KTDA Power aimed to obtain commercial debt financing for the
expansion/replication of projects in order to demonstrate the commercial viability of its
innovative business model. Of the seven SHPs to be financed by the IFC, four have started
construction.
All of the projects are run-of-river types and consist of an intake weir between 2.5 and 3.0 m high,
headrace water channel, forebay, penstock and surface power house connected to the tea factory
and the national grid by medium-voltage transmission lines (11 kV). Generating capacities range
from 1.0 to 6.5 MW. The length of the headrace channel varies, but can be up to several
kilometers. The lengths of transmission lines vary as well, from about 7 to 22 km. The
infrastructure is located on private lands, which have either been bought or leased (willing buyer
– willing seller) from local farmers –mostly tea farmers, but in some cases coffee farmers (South
Mara and Lower Nyamindi are in coffee growing regions).
However, revenue from electricity alone does not generate sufficient cash flow for the debt
servicing. That is why carbon finance is being considered as results-based financing via the World
Bank as trustee of Carbon Initiative for Development (Ci-Dev), which would make the underlying
project viable. The carbon finance will not pay for the construction of the SHPs, but will be made
available after the SHPs are commissioned and start generating renewable electricity to help KTDA
Power with the loan payments to the IFC. |
