Dear Mr President, the bell has tolled for coal project

President Uhuru Kenyatta (standing, second from left) witnesses the signing of an agreement between Power China Resources and Gulf Energy for the Lamu coal-fired power plant. PHOTO | PSCU

What you need to know:

  • Coal will become an expensive dirty fuel.
  • But our coal investors have all bases covered in an ironclad 25-year power purchase agreement and guarantee from African Development Bank.
  • They will be laughing all the way to the bank regardless.

President Uhuru Kenyatta returned from China’s "New Silk Road" summit with $3.7 billion loans to finance the standard gauge railway to Kisumu. This brings the Chinese loans for the project close to $9 billion, equal to the total foreign debt that he found when he took office.

While in Beijing, the President also witnessed the signing of $2 billion financing for the controversial Lamu Coal Power Plant. This is not part of our public debt. The coal plant is a private venture. The President’s presence at the signing was likely arranged by the promoters of the project to shore up support for it.

From Beijing, the President proceeded to Italy for the G7 meeting where his cozying up with Donald Trump was probably the only respite from the icy reception the American President got from the other world leaders. Uhuru and Trump were the only pro-coal leaders at the meeting. When you stop to think about it, they have a lot more in common.

The case for coal power rests on cost. It used to be the cheapest source of electricity. The case against solar and wind power was predicated on cost, and reliability (lack thereof). Solar is only available during the day, and wind power is as unpredictable as, well, the wind.

A recent report by the World Economic Forum reports that grid-scale solar power has become cheaper than coal in 30 countries in the world, and will be cheaper than coal power worldwide by 2020. The WEF is the organisation that convenes the annual pilgrimage of the global corporate elite to Davos, Switzerland. Renewable energy as a whole, it asserts, has crossed the tipping point from a risky frontier technology to “not only a commercially viable option, but an outright compelling investment opportunity.”

You do not pitch to Davos Man unless you have a compelling case backed by solid numbers, for Davos Man is above all else a bottom line man.

“While the average global LCOE for coal has hovered around $100/MWh for over a decade, solar has seen its cost plummet from around $600 a decade ago to $300 only five years later, and now close to or below $100 for utility-scale photovoltaic. Wind LCOE is around $50. In this sense, the two major sources of non-hydro renewable energy have reached grid parity in a number of countries. In an increasingly larger number of countries, it has become more economical to install solar and wind capacity than coal capacity.”


"LCOE" stands for “levelised cost of electricity.” It represents the minimum charge for electricity at which a generating plant is financially viable. Grid parity is achieved when the LCOE of an alternative source of power is comparable to buying power from the grid.

There are two things driving these numbers, falling cost and rising efficiency. Cost is largely a function of economies of scale. The bigger the plant, the lower the cost. And plants are getting bigger every day. India is now home to the largest solar power plant in the world, at 650MW. That is the equivalent of our entire geothermal power generating capacity. The other reason is technology becoming more efficient. According to the WEF, the efficiency of solar panels has improved by 45 per cent in the last five years, and there are cells currently being tested in laboratories delivering double the efficiency of the existing ones. Efficiency of wind turbines has also doubled over the last decade.

Let’s turn to reliability.


These days, I see many owners of smartphones walking around with battery packs. This seemingly innocuous gadget is at the heart of the renewable energy revolution. I have written before about Elon Musk, the boss of electric carmaker Tesla, and his gigafactory, the lithium-ion battery factory in the Nevada desert that is now the world’s biggest factory. In addition to car batteries, Tesla also makes a domestic power storage battery branded powerwall and powerpack, a commercial-scale version of the same. Recently, when South Western Australia suffered power outages, Musk offered to build the State a 100MW storage facility within 100 days, failing which Australia would get it for free. Shortly, thereafter, the Australian Prime Minister announced that it was tendering the project.

If the bell has tolled for coal, why on earth are we building our first coal plant? The anchor local investors of the Lamu coal plant would have us believe that they are the quintessential Homo Davos. Did they miss that memo?

The site of the proposed Lamu coal-fired power plant in Kwasasi in April 2017. PHOTO | RUPI MANGAT| NATION MEDIA GROUP

In January this year, China’s National Energy Administration announced that it was suspending the construction of 104 coal power plants, some of them already under construction. Earlier this month, Beijing shut down its last coal-fired power plant. When they are cornered by economics, the remaining defenders of fossil fuels resort to attacking climate science. China’s flight from coal is not because it wants to save the planet.

From the Great Leap Forward to the Cultural Revolution, when China blunders, it blunders monumentally. China’s breakneck industrialisation has poisoned her water, soil and air on a scale not seen since the 19th century if that. By the time it decided to shut down its coal plants, Beijing was chocking itself to death. The city has been shut down on several occasions because the air was too unhealthy. Flights are routinely cancelled due to smog. It is normal to walk around wearing face masks and many residents own air purifiers.

What is China to do with all the coal plants that were being manufactured? The coal plant manufacturers are not just going to lie down and die are they? This is where we come in, and we are not alone. Tanzania, a country with 10 billion barrels of oil equivalent in proven natural gas reserves has plans to build almost 3000MW of coal power plants.


The performance of power plants is rated by a parameter called capacity factor. Capacity Factor measures actual output of a power plant as a percentage of potential output, in other words, what you get vis-à-vis what it says on the label. Capacity factor depends a lot on the efficiency of the fuel. Thus, a solar plant that has the capacity of 100MW will produce at the equivalent of a 30MW in Europe and a 60MW plant in the Sahara. In the pecking order, capacity factor range from the low 30s for solar plants to the high 80s for nuclear power plants. Coal plants are rated at 60-65 per cent capacity factor. This means if you install a 100MW plant you should plan for it to supply power at 60MW capacity on a continuous basis.

The Turkana Wind Power company has just completed a 310MW power plant in Loyangalani, Marsabit County. The wind farm’s capacity factor has been assessed at 62, against a global average of 30 to 40 per cent. This makes it not only one of the best wind resources anywhere, it makes it compete with coal in terms of efficiency. We won’t have to buy wind. Coal will have to be bought. In fact coal for the Lamu plant is to be imported from South Africa. Wind has no cleanup costs either. It stands to reason then, that the wind plant beats coal hands down on cost and efficiency. Ecologically, it is of course, as we say in Gikuyu, comparing sleep and death.


Commercial-scale solar installations are now quite common even here in Kenya, with Bidco, Strathmore University, Garden City and The Hub installing plants of anything between 0.5MW and 1.5MW. These installations suggest that solar has also reached grid parity here. More efficient panels and cheap batteries will make solar an even more attractive option for many more commercial installations. These advances also imply that the demand for grid power cannot be projected based on past trends. We should not be at all surprised if in another couple of decades, big power plants go the way of the mainframe computer.

This is the context in which the Jubilee administration has chaperoned the Lamu coal project and signed a 25-year power purchase agreement with the investor, Amu Power. Power purchase agreements of this type have three components, a capacity charge which is paid regardless (like a lease of the plant), a generation component (buying the electricity) and a fuel cost adjustment (if coal price goes up from contract price, we pay the difference). The capacity charge component has been set at 85 per cent capacity factor. As I indicated earlier, coal plant capacity factor is at 60-65 per cent. In the US, the highest capacity factor achieved in the last five years is 67 per cent, in the UK it is 58 per cent. So whether operating, Amu power will be paid a capacity charge at a level that the plant could not possibly achieve.


Given the rate at which other countries are abandoning coal-fired plants, investors anticipating low demand will take flight from coal mining. As the coal mining industry shrinks, its cost base will rise. Coal will become an expensive dirty fuel. But our coal investors have all bases covered in an ironclad 25-year power purchase agreement, complete with a risk guarantee from the venerable African Development Bank. They will be laughing all the way to the bank regardless.

This business model is known as primitive accumulation. That is our subspecies of Davos Man. Homo Davos Accumulatus Primitivus.

David Ndii, an economist, is currently serving on the National Super Alliance’s technical and strategy committee.

Twitter: @DavidNdii