Risk Fund to be set up to assist geothermal development

Last Updated 15 years ago by Kenya Engineer

The Ministry of Energy has said the lack of a risk fund is deterring investors in the development of geothermal energy, and Energy Minister Kiraitu Murungi recently announced that the Government will shortly establish a risk fund.

“Lack of a risk fund in the development of geothermal energy has been scaring away investors in the country,” said Mr Murungi when he addressed investors from Germany led by the Chairman of the Board of KfW Bankengrouppe  Dr Ulrich  Schroder  who was accompanied by German Ambassadorto Kenya Margit Hellwig Botte at Nyayo House on 16 November, 2010.

Kiraitu said foreign funds are avoiding investment  in exploration of  geothermal energy since wells already sunk turn up with less or no steam and this causes financial losses to the investors.

He said the introduction of a risk mitigating fund would therefore give comfort to private sector developers to geothermal energy power generation. “We would like to request the Germany Development Corporation KfW  to fast track this project  and to provide about Euro 75 million for setting up this fund.” Kiraitu who was accompanied by Geothermal Development Company CEO Dr Silas Simiyu and KenGen MD Eddy Njoroge.

“It is expected that under this arrangement, Kenya will accelerate geothermal drilling and attendant power plant development. The fund will be used for underwriting dry geothermal wells drilled by private companies and to attract more investors and encourage their participation in the sector. Top among the solutions is the introduction of a risk mitigating fund that will cover 20  per cent of the initial costs used by companies during the drilling of  wells.

Beneficiaries from the fund will be required to pay only 40 per cent of the cost of any dry well sunk. “The drilling of dry wells is a risk venture which most investors would rather avoid,” Kiraitu said.

Because of the Government’s inability to raise guarantees to finance all electricity generation projects including the Lake Turkana Wind Power initiative, the minister called for an escrow account, from which Kenya’s sole power distributor could draw guarantees for private power companies.

“The Lake Turkana Wind Power project has been delayed for lack of the guarantees, because the financiers will not disburse funds without them,” Kiraitu said.

The visiting Chairman and CEO of KfW, Dr Schroder said his organization will continue investing in Kenya, and called for political stability to avoid financial risks to German investors. “We would like to see political stability come 2012 and corruption dealt with to attract more German investors,” he said