Kenya taps Sh6.7bn loan from Germany for geothermal plants upgrade

A newly launched well at Geothermal Development Company (GDC) Paka Hills

A newly launched well at Geothermal Development Company (GDC) Paka Hills drilling site in Tiaty, Baringo County on August 4, 2023. 

Photo credit: Francis Mureithi | Nation Media Group

Kenya has tapped a loan of 45 million euros (Sh6.71 billion as of February exchange rates when the deal was signed) from Germany that will see the capacity of two geothermal power plants based at Olkaria in Naivasha upgraded by 40 megawatts (MW).

The loans will be used to upgrade the capacity of KenGen's Olkaria I Additional Unit 4, 5, and Olkaria IV power plants from 300MW to 340MW. The Kenyan government owns a majority 70 per cent stake in the power producer.

A report on the loans contracted by the government between May 2022 and April 2023 prepared by the National Assembly's Public Debt and Privatisation Committee shows that the loans will be repaid in 20 instalments starting December 15, 2027, to June 15, 2037.

There will also be one instalment of €2.14 million (Sh338.9 million at present exchange rate) paid on December 15, 2037. The interest on the loan is six months Euribor plus a margin of 0.25 per cent per annum with a commitment charge of 0.25 per cent annually on undisbursed loan amounts.

"The loan, valued at Sh6.71 billion (€45 million) is intended to finance the upgrading of the geothermal power plant Olkaria I and IV. It was signed on February 28, 2023, between the Government of the Federal Republic of Germany as the lender and the Government of Kenya as the borrower," said the report.

German Chancellor Olaf Scholz toured the power plants in May during his State visit to Kenya. The upgrade will entail the replacement of the existing turbine rotor with new blades, which will add 10MW to each unit of Olkaria I Additional Units 4, 5, and two units of the Olkaria IV power plants, amounting to an additional 40MW.

Germany said the loan is part of its contribution to help Kenya transition fully to renewable energy. More than 90 per cent of Kenya's electricity is generated from renewable sources, primarily hydro, geothermal, and wind.

"Kenya and Germany have entered a climate and development partnership to support Kenya in reaching a 100 per cent renewable energy and to support the country's adaptation to climate change," said Mr Scholz during the visit.

KenGen currently has an installed generation capacity of 1,904MW, out of which hydro is 826MW, followed by geothermal (799MW), thermal (253MW), and wind (25.5MW).

The company is among dozens of State corporations that owe billions of shillings, which were borrowed on its behalf by the Kenyan government. The State has further guaranteed loans amounting to billions that the firm has procured over the years.