- The 54.6 MW Garissa solar farm owned and built by Kenya’s Rural Electrification Authority (REA) has hit an unexpected curveball.
- The initial feed-in tariff negotiated has suddenly been reduced by more than half by the Kenyan Government.
- The project now faces the bleak prospect of not being bankable.
The 54.6 MW Garissa solar farm is situated in North Eastern Kenya and was commissioned by REA in November 2018. It is currently Kenya’s largest solar farm. Read more.
Rural Electrification Authority (REA) had initially entered into a 25-year power purchase agreement (PPA) with Kenya Power at an initial feed-in tariff of Sh12 per kWh. At Sh12 per unit, the US 135.7 million solar project was expected to break even after 17 years of operation.
But the government later directed a cut in the tariff by more than half to Sh5.49 per kWh just months before the solar park started generating electricity at the end of last November. The tariff reduction means that the project now has a break-even period of 34 years, making it unbankable.
In justifying the downward tariff review, the government said the project loan from China’s Exim Bank was concessional with a low-interest rate and long maturity period.
The US 135.7 billion loan is guaranteed by the Kenyan government, meaning if the project defaults on repayment, the burden is transferred to taxpayers.
Negotiations are ongoing to have power producer KenGen, which is majority-owned by the government, take charge of the plant’s operation on behalf of REA.
Questions are now starting to be raised by Independent Power Producers in Kenya who have signed PPA agreements with Kenya Power; will their negotiated contract tariff be honoured or suddenly be reviewed downwards once their projects are commissioned?
Author Bryan Groenendaal