The Long Road: Bringing Kenya’s Second Largest Wind Farm to Financial Close
Africa has immense potential, but investors are often turned off by the long timelines to reach financial close, break ground for construction, and commission a power project (the point at which returns on investment start to be realized). The story of the Kipeto Wind Farm, in the beautiful Kajiado plains of the Rift Valley region of Kenya, is a wonderful example of how a project can get stuck, and the value of the Power Africa partnership in helping get it across the finish line.
In December 2018, Power Africa partner and majority shareholder, Actis, working closely with Kenyan developer and minority shareholder Craftskills, brought the Kipeto project, the country’s second-largest wind farm, to financial close. The Kipeto power project will add 100 megawatts (MW) of renewable energy to Kenya’s national grid, and contributes to the Government of Kenya’s goal to provide 100% of its citizens with access to electricity by 2022 under its recently released Kenya National Electrification Strategy (KNES) and Vision 2030.
Partnership in Action
If it takes a village, as the old saying goes, then closing a large-scale power project takes a city. After acquiring a majority interest, Actis, the sponsor and lead investor, convened many divergent interests at the negotiating table, and alleviated enough concern across the board to close the project. Who were the other players, you ask?
Not surprisingly, many of them are Power Africa partners:
- The Overseas Private Investment Corporation (OPIC), a key U.S. government interagency partner of Power Africa, was involved in negotiations in an advisory capacity beginning in 2013, but formalized its participation by committing $233 million in debt financing to the project. The project is expected to receive its first tranche of funding from OPIC in early 2019.
- Power Africa and the U.S. Agency for International Development (USAID/Kenya) provided critical technical assistance to Kenya’s Energy Regulatory Commission (ERC), the Kenya Power and Lighting Company (KPLC) and the Kenya Electricity Generating Company (KenGen) on the integration of intermittent renewable energy sources into the grid, and also in the development of a new grid code with technical requirements for performance of intermittent sources of energy.
- Power Africa partner African Trade Insurance (ATI) is providing a standalone guarantee to cover up to three months of potential late payments by the offtaker, KPLC.
- General Electric (GE), a longstanding Power Africa partner, has been involved in the development of Kipeto for nearly a decade and will supply the wind turbines.
- Power Africa partner African Infrastructure Investment Managers (AIIM) led the Kipeto project from 2014–2017, and was instrumental in negotiating the PPA and EPC, and leading community engagement.
The question remains: why was all this assistance from Power Africa and others needed to bring Kipeto to financial close? The short answer is that there were a lot of obstacles.
A brief history of the Kipeto Wind Farm site: Long recognized as a place rich in wind resources, the first wind turbine was installed as a gift from the Belgian government in 1993; over the next 18 years, the generation footprint grew slowly, adding a few turbines, but it remained a small operation; in 2011, negotiations on a new Power Purchase Agreement (PPA) began for a large-scale project. The vision was for 100MW of operational power to be online by 2017. After fits and starts, the PPA was finally signed in 2016, and from its inception, Power Africa has been been helping advance negotiations with all players, including the Kenyan Ministry of Energy and the National Treasury.
As other issues mounted, though, it seemed as if Kipeto was destined for the dust bin.
In late 2015, two species of raptors native to the Kipeto project site, the Rüppell’s and White-backed Vultures, were uplisted to Critically Endangered on the International Union for the Conservation of Nature (IUCN) Red List of Threatened Species — the highest category of threat for species in the wild. At the request of Actis, Power Africa and USAID/Kenya helped complete a Biodiversity Action Plan (BAP) to understand, reduce and compensate for the possible impact of wind turbines on vultures and other raptors at the Kipeto site. A second study, the National Strategic Environmental Assessment for Windpower and Biodiversity in Kenya, is expected to catalyze best practices at scale across the wind industry in Kenya and the region, and will be completed and released publicly in early 2019. (Check out this story if you’re interested in learning more about the impacts of energy projects in sub-Saharan Africa on wildlife).
While it added more time to Kipeto’s clock, the BAP was critical to moving the project forward. In fact, the consultant leading the study, The Biodiversity Consultancy and lead researcher Dr. Leon Bennun, helped create a common language about the issue so that the project stakeholders — including the developers, the NGO community, and the Maasai who call the region home — could constructively discuss impacts and potential solutions.
According to Dr. Bennun, the key to a successful dialogue is mutual respect and a solid evidence base. When the Rüppell’s and White-backed Vultures were uplisted to Critically Endangered, the NGOs did what they’re mandated to do, and tried to protect them. It had become clear that the Kipeto site was close to important nesting places for these threatened birds, with many flying over, and the debate ensued: would the developer’s plans to reduce potential impacts on the site, and compensate for any losses through a biodiversity offset, go far enough, or would any wind farm on the site be too disastrous for these highly threatened vultures to carry on with the development? The only way to answer that question was to collect a mountain of data, together.
Actis and The Biodiversity Consultancy led many rounds of discussion, and heard the NGO community saying, “We’re not anti-development; we simply believe in well-planned development that makes sense.” To understand what “made sense,” Dr. Bennun enlisted the support of the NGOs in developing and implementing the BAP, and eventually found a way forward for the project that they and the developers could both, cautiously, agree on. The aim is to achieve a net gain for vultures through a combination of rigorous on-site mitigation and an off-site conservation programs that addresses incidental poisoning, the biggest single threat to these scavenging birds.
In Dr. Bennun’s own words, “USAID funding was crucial. It allowed us to take the theory of how we’d achieve net gain, and turn this into a practical Biodiversity Action Plan with the close engagement and input of NGO stakeholders. It also supported us to oversee further data collection, which significantly improved the evidence base and built confidence in our predictions.”
The engagement process is ongoing. Monthly raptor observation will continue in the construction period, and, as the project moves towards the initial operational phase, a team of observers will be recruited to keep the site clean of animal carcasses (so as not to attract vultures) and monitor the skies continuously each day, shutting the turbines down to allow the birds to safely pass when any are spotted in the vicinity.
By engaging with the affected community early and often, the Kipeto project avoided significant delays that have plagued other large-scale power projects in sub-Saharan Africa. The open dialogue between the developers and the Maasai community provides a great example of how active community engagement can overcome challenges, reduce delays and provide a supportive environment for large-scale energy projects.
In Kenya, and across the continent, project financiers often require the application of international standards such as the IFC Performance Standards and Equator Principles. Faced with increasingly empowered, organized, and informed communities, project developers have started to adopt ways to engage stakeholders early and often. In the case of Kipeto, the project, with input from IFC, facilitated the formation of a Community Impact Committee (CIC) in 2014, ensuring that it included representatives of different stakeholder classes (such as women, youth, elders, etc.) as per the traditional Maasai institutions.
Power Africa’s Guide to Community Engagement for Power Projects in Kenya outlines many of the lessons learned in this case, and prescribes a series of steps to engage the community affected by the development of a power project. While there are best practices on this subject, developers would be wise to avoid applying a one-size-fits-all approach. Many times, past experience and promises made on previous development projects shape the views of the community. On the Kipeto project, GE had promised benefit-sharing to community leaders many years ago, a promise that was not forgotten when Actis took over control of the project. Through negotiations, a Community Development Framework (which identifies project area needs, potential partners, and ways forward) was established, which will inform the creation of a Community Trust. After the first year of operation, funds will begin to flow from the Kipeto Wind Farm to the Trust. As we speak, the details of that Trust are being hammered out. The process will be consultative, very much guided by input from the community.
Of course, the final hurdle in a large-scale generation project like Kipeto is the issue of transmission. How the newly generated electricity gets from turbine to town is critical to a project’s financial viability. Power Africa supported a series of studies that helped put a solid plan in place to evacuate the power generated at Kipeto, and subsequently published a Transmission Roadmap to 2030 in November 2018, supporting transmission reform under Power Africa 2.0 and continuing to drive the kind of transmission projects Kenya and its potential power trading partners across the continent will need in the future.
Power Africa is pleased that the assistance provided to the Kipeto project not only helped get that deal unstuck, but also demonstrates the value of the Power Africa Toolbox throughout the project development lifetime. Without numerous interventions across a wide spectrum of support, the project would not have reached financial close in December, and would not be on track to be providing power to Kenyan homes and businesses by 2020.
Construction has begun, and with it, dozens of workers, consultants, scientists, observers, engineers will begin to descend upon the Kajiado plains — and a new round of talks with local leaders, NGOs, governmental officials and others will begin. New challenges continue to pop up, and the high and often challenging community expectations will continue to build as construction begins. But because of a solid foundation of trust and communication built over years of active listening and partnership with the community, we are confident that Kipeto will provide access energy to more Kenyans by next year.
The issues faced in bringing Kipeto to financial close are not uncommon to large-scale power projects in Africa, and we hope that this retelling can inform and inspire other projects to keeping pushing forward, and to seek the advice and assistance of Power Africa when the waters turn murky. Power Africa is a trusted partner, and we’re proud to have helped bring the project to financial close.
For more information, visit www.usaid.gov/powerafrica