FEASIBILITY AND ENHANCED ROLE OF GEOTHERMAL IN KENYA S ENERGY SUPPLY. P.N. Mbuthi and H.K. Andambi. April 2004

Transcription

1 FEASIBILITY AND ENHANCED ROLE OF GEOTHERMAL IN KENYA S ENERGY SUPPLY By P.N. Mbuthi and H.K. Andambi April 2004

2 TABLE OF CONTENTS LIST OF TABLES...II LIST OF FIGURES...II `1.0 BACKGROUND Overview of Kenya s Power Sector Overview of Geothermal Energy Resource OBJECTIVES AND METHODOLOGY OF THE STUDY Objectives of the Study Methods Used to Collect Data and Information ANALYSIS Technical Assessment of Geothermal Energy Geothermal Energy Technology Geothermal Resource Potential in Kenya Geothermal Energy and Job/Enterprise Creation Advantages of Geothermal Against Conventional Power Economics of Geothermal Energy, Policy and Gender Issues Analysis of Economic, Policy and Gender Issues Related to Geothermal Resource Exploitation KEY CONCLUSIONS Technical Viability of 5% Geothermal Target Economic Viability of 5% Geothermal Target Benefits and Drawbacks of 5% Geothermal Target STUDY RECOMMENDATIONS Recommendations for Policy Makers Recommendations for Implementers (manufacturers, IPPs, financial institutions, informal investors, micro entrepreneurs, micro finance institutions, large private sector) Recommendations for Lobbyists (civil societies, CBOs, NGOs etc) Recommendations for End Users (existing and potential users and customers) REFERENCES APPENDICES Appendix I i

3 LIST OF TABLES Table 1.1 Exploration status of other geothermal prospects...4 Table 1.2 Summary of additional planned power generation ( )...5 Table 1.3 Direct uses of geothermal energy...5 Table 3.1 Major equipment items for geothermal power plants...12 Table 3.2 Indicative power station and steam field operating and maintenance.15 Table 3.3 Costs of electricity from geothermal steam (US $/kw installed capacity)...15 Table 3.4 Estimated cost of delivered geothermal energy...16 Table 7.1 Geothermal power generation (time series data)...27 LIST OF FIGURES Figure 1.1 National energy supply by source...1 Figure 1.2 Current electric power supply by source...2 Figure 1.3 Location of geothermal prospects (MOE, 2003)...3 Figure 3.1 Single flash power plant illustrating the principal elements...8 Figure 3.2 Binary cycle plant illustrating the principal elements...9 Figure 3.4 Olkaria I power plant...16 Figure 3.5 Olkaria II power plant...17 ii

4 1.0 BACKGROUND 1.1 Overview of Kenya s Power Sector Kenya s energy scene is dominated by two primary factors, namely: a predominant reliance on dwindling biomass energy resource to meet energy needs of the rural households and a heavy dependence on imported petroleum to meet the modern economic sector needs. As shown in Figure 1.1 below, biomass energy sources account for 68 % of the total national energy consumption, followed by petroleum accounting for 22 % and then electricity 9 %. Figure 1.1 National energy supply by source Electricity 9 % Others 1 % Petroleum 22 % Biomass 68 % The modern energy sector is dominated by petroleum and electricity as the prime movers of the modern sector of the economy. The consumption of commercial energy progressively declined over the last three decades. In 1971, the per capita consumption was 116 kilograms of oil equivalent (koe) while by 1994, it had declined to 107 koe. This downward trend further continued into the new millennium such that by 2001 the per capita consumption was 95 koe (MOE, 2003). At present, the installed electric power capacity stands at 1236 megawatts (MW) and is dominated by hydropower at 707 MW (57 %) which includes 30 MW of import from Uganda, followed by thermal at 409 MW (33 %) and geothermal at 121 MW (9.7 %) as also illustrated by Figure 1.2. Installed wind power capacity is only 0.55 MW. The on-going power development activities include two projects with a combined capacity of 96 MW comprising a 60 MW hydropower plant on Sondu Miriu River and one geothermal power plant with a capacity of 36 MW due for commissioning by 2006 and 2005 respectively. At the same time, plans are already underway for the award of construction contracts for another 64 MW Olkaria IV geothermal power plant. From the current national least-cost power development plan (KPLC, 2001), geothermal resource is envisaged to contribute much more into the national energy supply mix by

5 Figure 1.2 Current electric power supply by source Thermal (409 MW) 33% Geothermal (121 MW) 10% Hydropower (707 MW) 57% The government through the Kenya Electricity Generation Company (KENGEN) owns Eighty four per cent of electric power generating capacity while independent power producers (IPPs) own the remaining 16 per cent. The other forms of renewable energy including solar, wind, small and micro hydro, cogeneration, to mention but a couple, currently remain largely unexploited in spite of a significant existing potential. In 1999/2000, there was a severe drought that led to unprecedented power supply shortfall thus precipitating a devastating power rationing. During the time immense financial resources had to be expended to finance an emergency short-term stopgap power supply programme. As a result many industries either closed down or operated at minimal capacity and therefore many jobs were lost. It was reported that during the power crisis, the country was losing US $ 68 million every month, while the economic losses were estimated at 7 % of the GDP. According to the Government (GOK/Pricewaterhouse Coopers, 2003), the demand for electricity has continuously outstripped supply over the last few years with the level of unserved demand estimated to be above 380 GWh in 2000/2001. Kenya maintains a power sector least-cost planning, which has a 20-year horizon and involves examination of all available resources, their financial, technical, environmental and social merits. These alternatives are ranked, primarily on cost-benefit basis and reviewed and updated annually. In the recent plan ( ), priority is to develop indigenous sources of energy. Kenya s electricity sector operates a transmission and distribution network of about kilometres in length and serving 540,000 customers majority of whom are found in Nairobi. The network has been increasing in length at an annual rate of 2.4 % over the last five years. Furthermore, the network is characterised by high levels of power transmission losses currently estimated at 21 %. The Kenya Power and Lighting Company (KPLC), a semi-government owned entity is responsible for all electricity transmission and distribution in Kenya. 1.2 Overview of Geothermal Energy Resource Kenya is the first country in sub-sahara Africa to significantly exploit geothermal energy. It has also the highest level of geothermal installed capacity of 121 MW (MOE, 2003a). With this level, it accounts for about 1.3 per cent of the current 9000 MW (UNEP geothermal fact sheet) global installed geothermal capacity. By 2005, it is expected that the geothermal power generation would rise to 157 MW, when the remaining 36 MW power plant at Olkaria III project come on stream. In the long-term, it is planned that geothermal-based electricity generation will increase to 605 MW by In the following paragraphs, the location of geothermal resource, its historical development, the current and projected future status are discussed. 2

6 1.2.1 Location of Kenya s Geothermal Resource The geothermal energy resource is located within Kenya s Rift Valley. So far, a potential of more than 2000 MW (megawatts) (MOE, 2003) exploitable for the generation of electricity using conventional methods has been established. The high potential geothermal areas include: Suswa, Longonot, Eburru, Menengai, Silali, Korosi, Paka and Emuruangogolak volcanic complexes in addition to Olkaria geothermal field. Currently only the Olkaria geothermal field is being developed. Figure 1.3 below shows the location of various geothermal prospects in Kenya. Figure 1.3 Location of geothermal prospects (MOE, 2003) llll Historical Development From a historical perspective, geothermal energy resource progressively gained recognition as more and more information became available from the geothermal exploration efforts at the time. The national power development plan (Government of Kenya, 1967), though acknowledging the presence of geothermal steam in the Rift Valley, indicated that the trial borings then had unsuccessfully determined the value of the Rift valley steam. In the subsequent power development plan (GOK/EAPLC, 1978), it was reported that a decision had been taken to develop Olkaria I, but did not however go ahead to include the geothermal option in its proposed new power generation plan. Unlike the above power development plans, the national power development plan ( ) that followed explicitly put a case for geothermal energy asserting that its contribution in the overall energy supply be increased substantially. It is recalled that the latter power development plan immediately followed the successfully completion of the 45 MW plant at Olkaria I. The desire to harness geothermal energy has since been variously expressed in government documents, for instance: the current draft national energy policy (MOE, 2003) places geothermal resource development and exploitation on top of the short to long-term overall energy development agenda. 3

7 Kenya thus recognizes geothermal power as a key form of indigenous energy to provide baseload power supply against the background of diminishing exploitable large hydropower resource and unstable international hydrocarbon fuel prices. Geothermal energy has the capacity to replace the thermal-based electricity generation coupled with the minimal environmental impacts associated to its exploitation. By 1990, the government had already seen the need to harnessed geothermal energy with a view to generate a much greater proportion in the country s electricity in the decades that followed than what was at that time (Republic of Kenya, MOE, 1990). Due to a number of factors, geothermal development activities virtually grounded to a halt in the larger part of the 1990s and therefore all the earlier plans remained in abeyance Current Status Thus far, 103 geothermal wells have been drilled for exploration, production, monitoring and reinjection with depths varying between 180m to 2600 m. Most of these wells are in Olkaria and the rest in Eburru. Olkaria East is home to the 45 MW Olkaria 1 power station where initially 23 wells were connected to the three turbines, but currently are 31. This facility is a base load generating station producing 45 MW and consists of three units. These units were commissioned at diverse dates, thus: Unit 1 June 1981, Unit 2 November 1982 and Unit 3 March Olkaria I power plant has been operating at an availability factor of 98 % making it a more attractive base-load power supply choice over others. It is reported that until 16 Sept 2002, Unit 1 generator had operated problem-free. At present, the 64 MW Olkaria III geothermal project, which was subsequently downscaled to 48 MW is under construction. In its first phase, some 12 MW came on stream in 2001 on fast track basis in response to the power supply shortfall occasioned by a severe drought in 1999/2000. The remaining 36 MW is expected to come on stream in In this plant, a binary cycle power technology has been employed as opposed to the single flash power plant technology employed at both Olkaria I and II. It is worth noting that Olkaria III is the first privately-built, owned and operated geothermal power generation plant in Kenya. At the same time, appraisal drilling is progressing in Olkaria South East area the outcome of which will provide the basis upon which another 64 MW (Olkaria IV) project is envisaged. Elsewhere, exploratory drilling within Olkaria domes and Eburru fields are reportedly complete and awaiting appraisal drilling while surface studies have been completed in Suswa, Longonot and exploratory wells sited. Table 1.1 summarizes the exploration status for the various other geothermal prospects within the Kenyan Rift Valley system. Table 1.1 Exploration status of other geothermal prospects Prospect Reconnaissance Surface studies Wells sited Wells drilled Olkaria domes Yes Yes 3 3 Longonot Yes Yes 1 No Suswa Yes Yes 3 No Menengai Yes Partial No No Badlands Yes Partial No No Arus Yes No No No Lake Bogoria Yes No No No Korosi Yes No No No Paka Yes No No No Silali Yes No No No Emuruangogolak Yes No No No Namarunu Yes No No No Barrier volcano Yes No No No Lake Magadi Yes No No No 4

8 1.2.4 Projected Future Status Looking through the current least-cost power development plan LCPDP (2001), it is clear that geothermal energy is recognized as an important choice of future energy source. Table 1.2 among other things indicates that if the LCPDP is something to go by, then Kenya intends to increase geothermal output by 484 MW by It provides a summary of additional planned Generation up to 2019 (KPLC, 2001). Table 1.2 Summary of additional planned power generation ( ) Fiscal Summary of additional generation (MW) (MW) year Hydro Geothermal Diesel Total Totals Source: Adapted from KPLC, 2001 If the plans were to be implemented as summarized above, the installed electric capacity would be about 2700 MW by 2020 out of which the geothermal resource would contribute about 600 MW representing 22 %. Being environmentally clean, indigenous and with a very high availability factor (98%) would be a preferred least cost base load power source compared to hydro-power which is affected by drought. It is also possible for Kenya to derive all her additional electric power generation requirements within the next twenty years. However, funding of geothermal development remains the biggest hurdle against the resource development in Kenya, particularly considering the inevitable initial high-risk investment stages of its exploration and reservoir assessment. Whereas emphasis on geothermal use in Kenya has been on electric power generation, there other potential direct uses, which have a direct impact on poverty reduction. Table 1.3 indicates examples of direct use of geothermal heat at different temperature regimes. Table 1.3 Direct uses of geothermal energy Geothermal Temperature Uses 20 c Health spas, fish hatching and raising 50 c Mushroom growing 60 c Space and soil heating for green houses 70 c Refrigeration 80 c Space heating 90 c Fish drying, flower drying, tobacco curing. Wide temperature range Tourist attraction Source: MOE, 2003 In the meantime, geothermal heat resource is being used at low scale in horticultural greenhouses around Lake Naivasha. to control night-time humidity levels in order to alleviate incidence of fungal diseases. Also, low temperature geothermal steam is also used in Eburru for 5

9 the drying of pyrethrum flowers. At the same time are increasingly becoming tourist attraction sites. At community level, especially in dry areas, steam is usually condensed for various domestic purposes including water for livestock, drinking and irrigation. Such local uses of low temperature geothermal heat need to be optimised. 6

10 2.0 OBJECTIVES AND METHODOLOGY OF THE STUDY 2.1 Objectives of the Study The key broad objectives of the study are: a) To examine viability of 10% renewable energy technology target proposed at the Johannesburg WSSD Summit in selected African Countries with specific reference to geothermal energy; and b) To assess the benefits and drawbacks of the 10% Geothermal energy technology target in Kenya The specific objectives of the study were to: i. review the status and potential of Geothermal energy technologies in Kenya ii. iii. iv. assess the impact of Geothermal energy exploitation on the national debt, balance of payments and other social sectors such as health, education, water and agriculture. highlight the gender dimension of geothermal energy document other benefits of geothermal energy exploitation such as job and enterprise creation v. disseminate findings of the study to key stakeholders and the general public, to form a common position that will be advocated at major international, regional and national events, notably the 2004 German Renewable Energy Conference. vi. prepare materials for lobbying and advocacy to make geothermal energy a preferred choice in future expansion of electric power supply in Kenya. 2.2 Methods Used to Collect Data and Information This study was essentially a desk study. The requisite data were obtained from diverse sources including relevant government publications, power utilities periodical reports, journals, media articles, relevant books, expert consultations and discussions. Extensive internet surfing was done to collect complementary information materials concerning the global geothermal development activities. The acquired data and information were then critically analysed, collated, synthesized and documented in line with the pre-stated specific objectives of the inquiry. In analysing the acquired data and information, geothermal technology attributes were examined as a basis for evaluating economic, environmental and social benefits. 7

11 3.0 ANALYSIS 3.1 Technical Assessment of Geothermal Energy With a 9000 MW of installed geothermal power worldwide, generally, geothermal technology is well proven. At Lardarello in Italy, one of the oldest geothermal plants has operated since 1904 in a cost-effective manner, with the cost of generation in the range of five US cents per kilowatthour. In addition, the technology is relatively uncomplicated and involves extracting energy via conventional wells, pumps and/or heat exchangers. In the following sections, various aspects pertaining to geothermal technology, the resource base in Kenya, current and projected installed capacity, and economic, social and environmental viabilities are analysed with view to making a case for its future accelerated development. 3.2 Geothermal Energy Technology To be able to understand what local components of a geothermal power plant can be locally manufactured or assembled, it is useful to what geothermal technologies are in use or may come into use in the future. Globally, three geothermal technologies are available for exploiting geothermal energy resource. They are: (1) Flash plants, (2) Binary cycle plant and (3) Hybrid flash and binary cycle plant. The Olkaria I and II Geothermal Power Plants use the flash technology type, while the Olkaria III uses the binary cycle technology. Each of the foregoing technologies has key attributes as described below Flash Power Plants Flash plants are conventionally applied to moderate to high temperature liquid dominated resources and are the most common kind of geothermal power plants worldwide. Figure. 3.1 and 3.2 below are schematic representations of the single flash and binary cycle plants to show the process and major components. Figure 3.1 Single flash power plant illustrating the principal elements. Flash plants typically allow the resource liquid to flash to a two-phase liquid and vapour stream in the well-bore and then separates the steam and liquid at some point between the wells and the plant. The flash plant then uses the resulting steam to drive a steam turbine. After leaving the turbine, it is condensed creating a vacuum and thereby maximising the power generated by the 8

12 turbine generator. Typically flash condensing geothermal power plants vary in size from 5 Mwe to over 100 Mwe. Both Olkaria I and II power stations use single flash plant type, while Olkaria III is using a binary cycle power technology Binary Cycle Plant Binary plants are conventionally applied to moderate-temperature and low-temperature liquiddominated resources. Medium temperature systems may also be exploited using binary fluid plants. This relatively new technology can be used with sources down to 80 0 C but elaborate equipment and technical training is required. Figure 3.2 Binary cycle plant illustrating the principal elements They typically pump the liquid through heat exchangers, which transfer the energy to a secondary fluid, which is vaporized and run through a turbine to generate power. The reservoir fluid is passed through a heat exchanger, which heats a secondary working fluid, which has a boiling point lower than 100 o C (typically organic fluid such as isopentane), which is vaporized and is used to drive the turbine. The fluid in a binary plant is recycled back to the heat exchanger and forms a closed loop. The cooled reservoir fluid is re-injected back to the reservoir. The plant sizing and technology selection for geothermal plant is directly driven by the resource and its characteristics. Geothermal power generation is now a mature technology, with more than 9,000 MW of capacity in service through out the world. The development of the geothermal resources involves initial investigations to prove the geothermal resource. Investment in exploration, drilling wells and installation of power plant Hybrid flash and binary cycle plants Combined cycle power plants achieve higher overall utilisation efficiencies as the conventional steam turbine is more efficient at generating power from high temperature steam, and the binary cycle from the low temperature separated water. 3.3 Geothermal Resource Potential in Kenya As indicated in section above, Kenya s geothermal resource is found within the Kenyan Rift valley. So far 121 MW have been harnessed and connected to the national electricity grid. In a bid to stimulate private investment in the geothermal energy development, the Kenya government has proposed to implement a number of innovative investment risk reduction strategies. For 9

13 instance, the government through its electric power generation utility, Kenya Electricity Generation (KENGEN) Company has stepped up efforts to mobilise financial resources for accelerated geothermal resource assessment (GRA), and appraisal drilling. Similarly, the government proposes to further lower the risks by introducing a geothermal development risk fund (MOE, 2003). The current government has stated its objective to accelerate GRA to facilitate economic merit order ranking of geothermal energy as a least cost source of electricity supply (GOK, 2003:27) Theoretical Potential For the purpose of this paper, theoretical potential is the preliminary assessed potential from the surface geothermal activity manifestations considering the real extent where the manifestations have been observed. Theoretically, the identified geothermal potential in Kenya is estimated at 2000 MW across the whole Kenyan Rift valley as detailed below. Prospect Potential Olkaria 520 MW Eburru 200 MW Badlands 20 MW Longonot 200 MW Menegai 200 MW L. Bogoria 20 MW Korosi 100 MW Chepchuk 20 MW Bake 100 MW Silali 300 MW Emuruagolok 200 MW Namarunu 20 MW Barrier volcano 100 MW Total 2000 MW Again looking at table 1.1, figure 1.1 and figure. 3.3, out of the thirteen or more geothermal prospects identified, exploration drilling has only been done at Olkaria and Eburru fields. Hence the full geothermal potential of the Rift valley is not really known. Consequently, there is a great deal of exploratory work yet to be undertaken Technical Potential The technical potential relates to the confirmed level of extractable power from a prospect that has been rigorously assessed through exploratory and production drilling from the standpoint of the best available technology. A technical potential to generate over 600 MW currently exist compared to the above stated theoretical potential. This estimation has been made taking into account problems related to technically inaccessible prospects owing to difficulty terrains and inaccessibility, among other factors. However, with the on-going global advances to improve geothermal exploitation technologies, much higher technical potential may become evident over time Current and Projected Installed Geothermal Capacity As reported earlier in section 1.2.3, the current installed geothermal electric power capacity stands at 121 MW. This comprises of the following: 45 MW at Olkaria I, 64 MW at Olkaria II and 12 MW at Olkaria III. It is projected that by 2019, the installed geothermal power capacity will 10

14 grow by 484 MW to reach a total of 605 MW. This will be a growth of 500 % above the current capacity within sixteen years. The current least cost power generation expansion plan had in 2001 called for an additional 512 MWe by Figure 3.3 Simplified geological map of western and central Kenya showing locations of fields and prospects Source: KENGEN, Potential for Local Manufacture Looking the whole gamut of typical equipment for geothermal power plant and associated technical activities as presented in Table 3.1 below, there could a potential for local manufacture and/or assembly of some of these power plant components. However, at the present time, virtually all tools and equipment for geothermal resource exploration and development in Kenya are imported and this is not unique for Kenya. With the increased attention to the accelerated development of geothermal energy, some limited local assembly and limited manufacture of power plant components, up to about 10 % are likely to be realized as a measure to bring down the development and maintenance costs. The requisite capacity will have, however need to be deliberately build in order to achieve the foregoing. There is an obvious advantage of local assembly and/or manufacture of geothermal and other energy equipment to the overall economy, 11

15 in terms of job and enterprise creation and reduced costs of accessing the relevant hardware and saving on the foreign exchange that would otherwise be needed for the imports. Table 3.1 Major equipment items for geothermal power plants Source: DiPippo R, Also, with the expressed market acceleration for geothermal in the East African region, the economics of investing in local manufacture of geothermal exploitation hardware would be favourable considering the widening geothermal activity in the region. 3.4 Geothermal Energy and Job/Enterprise Creation Generally, indigenous energy supply systems stimulate local economies as well as creating the impetus for increased enterprise and job creation especially where community interests and participation are incorporated in the project conception, implementation and operation. Geothermal resource development and exploitation can create significant job and enterprise opportunities both directly and indirectly. It has been estimated that geothermal development can create on average 4 jobs per megawatt in construction employment and 1.7 jobs/mw in operation and maintenance (http//solstice.crest.org/geothermal/geothermal_brief_economics.html). Going by this, for the current 121 MW installed, over 350 jobs had retrospectively been created. To maintain and operate this installed infrastructure, at least 206 jobs are available. The harnessing of geothermal energy resource is ordinarily accompanied by a corresponding creation of niche markets especially on the direct geothermal energy applications; emergence of energy service companies to take advantage of emerging opportunities. The indirect benefits would basically include: lowered import bills, lowered and stabilised cost of energy (reduced dependence on fossil fuels which is subject to turbulent global political and economics), opening up rural development centres and enterprises and many other cascading livelihood opportunities. Moreover, Kenyan geothermal resources are sited in arid environments where the principal landuse is dominated by wildlife and pastoralism. The major community benefits would thus be mainly 12

16 in the direct use of geothermal heat for domestic and livestock uses and limited entrepreneurial activities. 3.5 Advantages of Geothermal Against Conventional Power Economic Benefits Geothermal energy is cheaper than the conventional sources. For example according to Nyoike (East African, June 2003), it costs $ 3,000 to produce a kilowatt from thermal energy compared to $ 2,400 per kilowatt in the case of geothermal energy. The use of geothermal power could potentially bring significant benefits to Kenya in addition to contributing to the government s objective of using indigenous resources to generate electricity as well as diversifying energy resources. By substituting for diesel, geothermal power sourcing reduces the foreign exchange used for purchasing petroleum products and hence improves the balance of payments. Geothermal energy helps achieve a government policy of diversifying energy supply, reduced energy imports resulting in economic savings to cushion the frequent adverse impacts of droughts and volatile fossil fuel prices Environmental Benefits The geothermal resources development in Kenya is guided by a number of legislations including: Geothermal Act, Water Act, Wildlife Act, Forest Act and a framework legislation, namely Environmental Management and Coordination Act (EMCA). The latter specifically deals with acceptable methods of handling polluting agents that may arise from geothermal developments (hazardous liquids, gases and thermal effluents and noise), as well as setting out the requirement for environment impact assessment (EIA) prior to the resource development activity. Comparatively, use of geothermal energy does little damage to the environment unlike the conventional sources of energy. For instance geothermal plants do not burn fuels to generate electricity, as do fossil fuel plants, geothermal power plants release less than one to four per cent the amount of carbon dioxide emitted by coal plants. They emit about one to three per cent of the sulphur compounds that coal and oil fired plants do. Well-designed binary cycle power plants have no emissions at all. Geothermal power plants are compatible with many environments including deserts, croplands and mountain forests, to mention but a few. As indicated earlier, the current installed power capacity form geothermal is 121 MW. It has been estimated that for every kilowatt-hour of geothermal electricity supplied, 0.22 kg of carbon is saved or avoided. This results to saving or avoidance of about 210,000 tonnes of carbon per year if the electricity had been generated from fossil fuels assuming 90 % availability factor. Assuming the value of carbon to be $ 10 per tonne, there would be an accruing certified emission reduction units (CERU) revenue stream worth $ 2.1 million per year. In addition, geothermal energy has other beneficial attributes as follows: a. Geothermal is a green renewable energy resource; b. Compliance with environmental regulations and legislations through out the total fuel cycle is attained with relative ease, due primarily to minimal emissions from their closed systems c. Development of geothermal energy has a minimal negative impact on the environment compared with development associated with conventional sources d. Low sulfur emission rates. Newest generation of geothermal power plants emits 13

17 only 0.66 kg of sulfur dioxide per MWh of electricity generated. Similarly no combustion by-products such as nitrogen oxides are emitted. e. Geo plants require relatively little land. Other land uses can mingle with little interference or fear of accidents f. Have neither huge piles of ash nor slag nor bags of radiation-tainted sulfur to contend with. Containment barriers associated with most fossil plants are nonexistent in current geothermal plant designs g. GHG emissions are almost zero, ozone-depleting chemicals from direct and indirect geothermal sources are also almost zero; sulfur emissions are virtually zero because, by design, geothermal s modern closed cycle systems re-inject almost everything but the extracted heat. h. Geothermal facilities present light demands on land use, looking much like light industry facility. An average geothermal power plant uses 1-8 acres per megawatt (an average nuclear plant uses 5-10 acres per MW, while for coal 19 acres per MW ( ). i. Geothermal resources contribute to energy supplies through both electrical power generation and direct heat uses, and to reduce energy demand through savings in electricity resulting from geothermal heat pumps to heat and cool buildings j. Geothermal projects generally have a very good history of operational reliability with high capacity factors typically per cent (world bank, undated). 3.6 Economics of Geothermal Energy, Policy and Gender Issues The economics of geothermal energy extraction are generally highly varied and wide-ranging depending on site characteristics and the form of geothermal energy end-use application. This is to say that the economics of direct use of geothermal resource significantly differ from that of geothermal power generation as elaborated in the following paragraphs. In the case of direct use of geothermal energy, the economics will depend upon the steam/hot water temperature required for a particular application, and the distance from the wells to the point of use. The cost also depends on whether the development is a stand-alone facility just providing heat for direct use, or it is a part of downstream cascading use with the primary development being a geothermal power station. Drilling is often required for applications whose resource temperatures are greater than 100 o C, but for lower temperature applications, the resource may be directly harnessed for the intended use. Typical indicative economic costs for process/direct use steam and hot water assuming the point of delivery is no more than one kilometre from the well and where drilling is required: High temperature (>150 o C) is US $ /tonne of steam: Medium temperature ( o C) is US $ /tonne of steam and US c20 40/tonne of hot water. For low temperature (<100 o C) is US c10-20/tonne of hot water. The cost of geothermal energy is of paramount importance as an indicator of its economic viability. The cost may be generally categorized into three main types, namely, direct capital costs, indirect costs and operation and maintenance. The direct costs relate to exploration, steamfield development and power plant construction. Table 3.2 provides indicative operation and maintenance costs of steamfield and power plants of various sizes as documented by the World Bank. These costs do not allow for the cost of new make up wells, normally required with time to makeup for the gradual production decline from the original well. The rate of decline varies depending on the nature and size of the development but ranges between 5 and 10 % per annum. On the other hand, indirect costs relate to access infrastructure, power transmission and 14

18 distribution and expatriate requirement. These costs would vary depending on site-specific parameters, level of infrastructure development and expatriate personnel requirement. Table 3.2 Indicative power station and steam field operating and maintenance Small (< 5 MW) cost US c/kwh Medium (5 30 MW) cost US c/kwh Large (> 30 MW) cost US c/kwh Steam field Power plant Total Source: World Bank : (http// Generally, renewable energy projects are capital intensive since the initial cost includes the lifetime supply of fuel energy. According to DiPippo (1999), the costs associated with building and operating a geothermal power plant vary widely depending on such factors as: (i) Resource type, (ii) Resource temperature, (iii) Reservoir productivity, (iv) Power plant size, (v) Environmental regulations, (vi) Cost of capital and (vii) Cost of labour. From the local experiences, the primary costs of geothermal have been identified as plant construction and well drilling (KPLC, 2000) and take most time. On the other hand, the primary cost of fossil-fuel plants are the fuel which make the operating costs of diesel plants to be highly variable. It has been estimated that these variable operating costs of diesel plants are roughly 20 times higher than those of geothermal due to the costs of fossil fuel. The geothermal plant construction costs are relatively fixed, hence the primary factor that can be improved to bring geothermal costs down to those of diesel plants is the reduction in the number of well drilled without compromising the well productivity. Such reduction in the wells drilled can potentially cut down on the drilling and piping costs as well as the lead-time (KENGEN, 2002). It has been estimated that it costs roughly $1.3 million to drill a geothermal well in the Rift valley setting irrespective of whether the well produces 1 or 10 MW of steam power. Currently, the average production well at Olkaria generates between 1 and 3 MW. There are however cases where a well produces as much as 10 MW, the difference is due to subsurface conditions. An important cost aspect relates to the surface equipment for the power plant, piping, cooling towers. For a given size of the power plant such cost is a relatively constant value and almost independent of the location. The different costs of geothermal power plants depend therefore on the properties of the field under development. The World Energy Assessment (UNDP, 2000), estimated the turnkey investment on installing geothermal electric power generation at US $ per kilowatt. This is consistent with the estimated geothermal plant installation costs presented in Table 3.3 below. It is noted, for example that Cost of the 64 MW Olkaria II, which was commissioned in November 2003 was US $ 2719 per kw, thus within the estimated range. Table 3.3 Costs of electricity from geothermal steam (US $/kw installed capacity) Plant size High quality resource Low quality resource <5 MW $ $ MW $ $ > 30 MW $ $ Source: 15

19 On the basis of cost of delivered geothermal power, the World Bank worked out figures for various plant sizes as seen in Table3.4. Table 3.4 Estimated cost of delivered geothermal energy Geothermal plant size High quality resource US c/kwh Medium quality resource US c/kwh Low quality resource 1 US c/kwh Small (<5MW) Medium (5-30 MW) Normally unsuitable Large (>30 MW) Normally unsuitable a. Projected geothermal investment The current national power development plan ( ) indicates that geothermal energy resource will increase from the current 121 MW installed capacity to 605 MW. To achieve this, investment would be required in geothermal resource identification and assessment (GRIA) and power plant construction and commissioning. The resource assessment entails exploratory drilling which seeks to prove the existence of the resource and delineate its extent and characteristics. Within the framework of the Millennium Development Goals, besides the economic goals for poverty eradication, the related environmental goals and linkages between poverty eradication and environmental sustainability were articulated. Energy is a central input as the means to achieve these ends. In this context, Kenya plans to enhance geothermal installed power capacity by 356 MW by Assuming a unit cost of installation at US $ 2700 per kilowatt (Table 3.3), the associated investment cost would amount to about one billion dollars. On the side of exploratory drilling, indicative investment levels have been documented. Exploratory wells range from 200m to 3000m depth with bottom hole diameter of 100m to 200m. Typical costs for slim hoe wells range from US $ 250 to $ 1000 per metre of depth (World Bank). At the same time, for production drilling the cost ranges from US $ 650 to US $ 1,500 per metre of depth. Traditionally geothermal projects were developed under a number of construction and procurement contracts, with the design and project management undertaken by consulting engineers. Recently, the trend has been away from multi-contract implementation method to the single turnkey/epc (engineering-procurement-construction) type. The EPC allows more room for vendor innovations reduces cost and overrun risks and gives a single point responsibility and liability for plant performance. Based upon EPC type project implementation approach and excluding the indirect costs, a typical unit cost of power from geothermal plants assuming a discount rate of 10 % and a capacity factor of 90 % and from a developing country context, as presented by the world Bank are as presented in Table 3.3. Figure 3.4 Olkaria I power plant 1 Resource with temperature below 150 o C 16

20 Figure 3.5 Olkaria II power plant b. Local manufacturing and financing of geothermal energy One of the greatest challenges of power sector development in general, and geothermal resource exploitation in particular, is financing. The situation becomes even more harder when dealing with IPP driven projects. The successful development of Kipevu II 74 MW thermal power project in 2001 without the usual government loans guarantee is a showcase and eye-opener of innovative financial mobilisation by the developers. Ultimately, according to Jan Kroneman (Tsavo Power Company, Energy News-issue 13), the project is prided as the lowest-cost energy producer among all thermal projects. c. Geothermal energy and external debt Oil imports constitutes one of the largest indirect determinants of external debt. The import of petroleum products account for about 25 % of the national import bill. The total net energy imports continue to dominate the total energy consumption. In 1997, it accounted for about 57 per cent of the total energy consumed in the country. At the end of 1999, the outstanding external debt of Kenya was estimated at $ 6.56 billion (OECD/AfDB, 2002). The growing debt has forced the country to limit its external borrowing to only concessionary loans. According to IMF/World Bank, Kenya has been regarded as a sustainable case and thus does not require debt relief under the enhanced heavily indebted poor countries (HIPC). The repayment of loans at a rate higher than is being received means that Kenya has in the recent past suffered reduced resources for domestic development. The external debt burden thus constitutes a serious obstacle to growth and employment creation. The high dependence on hydropower presents perverse problems. The occasional droughts affect the hydropower generation and in return trigger cascading macro-economic adverse 17

21 impacts. For instance, In the year 2000, industrial production was affected by the inadequate public utilities, namely water and energy. The metered power supply to the commercial and industrial sector declined by 5.4 per cent, leading to increased use of generators as an alternative source of power. Consequently there was reduced plant capacity, leading to less output. d. Impact of geothermal development on selected sectors Generally, the linkages between energy sector and various consuming sectors depend on the level of activity in each sector, various technological parameters as well as the price and income variables. Geothermal development leads to reduced pressure on water resources to generate power and therefore make more water available for other competing economic needs. Also, the expanded utilisation of direct geothermal steam is likely to complement the national efforts of enhancing water supply for various uses at the local level. The Lake Naivasha, situated only 5 km from Olkaria II site, is a highly significant international freshwater resource in a rather semi-arid area. It is also a ramsar site that supports a diversity of wildlife besides large economic activities, mainly floriculture. The lake s water is used in the drilling operations. In terms of impact on the agriculture sector, it is worth noting that livestock grazing, growing of foodstuffs and flowers and conservation of wildlife within the park. However, necessary environmental management would thus be vital integral component in geothermal resource development. Geothermal development produces some significant adverse impacts on health and other human infrastructure. The geothermal fluids often contain significant quantities of gases such as hydrogen sulphide as well as dissolved chemicals and can sometimes be acidic. Corrosion, erosion and deposition are thus issues requiring attention at the design and during operation stages. Well casings and pipelines may suffer corrosion and/or scale deposition and turbines especially blades may suffer damage leading to higher maintenance costs and reduced power output. However, provided carefully due consideration, the problems can normally be overcome by utilising corrosion-resistant materials, careful control of brine temperatures, the use of scrubbers and occasionally using corrosion inhibitors. Provision of electric power has direct benefits to the education sector. This in various ways including illumination to schools, enhancing access to information through the modern information modes and providing jobs and enterprise creation as a source of income to finance education. In keeping with the foregoing, and with view to comply with both national and international environmental law/regulations, standards and global environmental challenges, a fully-fledged environmental section was established in 1985 for monitoring environmental impacts, erosion control, and site rehabilitation and pollution control. e. Geothermal energy and gender dimension Generally, there is a strong link between energy supply and the various gender roles in energy acquisition and end-use. The households form the unit of focus in energy planning and great care is taken to differentiate them in terms of a number of indicators such as income, class and ethnicity. It is recognized that men and women have different access and control over the resources, which they use to fulfil various tasks, and therefore effective planning interventions require an understanding of the different roles played by women and men in specific household or community structure. A gendered approach to energy and environmental planning is thus seen as a way of improving the process, leading to more sustainable and effective interventions by improving the problem definition and strategy formulation. Geothermal resource exploitation is a competing land-use alternative. It displaces community various land-use systems including livestock grazing, farming and other cultural land-uses. In the case where any form of compensation is made to the occupants of a geothermal site, there is need to understand the various underlying gender concerns. 18

22 The incidence of pollution of water sources disproportionately predisposes women to health hazards owing to their role in fetching water for domestic purposes. The use of geothermal energy for power generation results in improved quality of life through better illumination, better air quality, improved access to information and telecommunication as well as being a stimulus to business development. Low marginal cost of fuel source may mean off-peak capacity from geothermal power plants can cheaply be used for regional projects like irrigation. There is opportunity for local community and private developers especially if geothermal resource ownership and control is vested albeit partially with the local community. 3.7 Analysis of Economic, Policy and Gender Issues Related to Geothermal Resource Exploitation Geothermal plants are excellent sources of baseload power. Baseload power is the power that electric utility companies must deliver all day long. Baseload geothermal plants sell electricity all all the time, not only during peak times when the demand for electricity is high. The Geothermal power plants have been used as baseload stations for many countries in the world. Initial capital cost may be high due to cost of drilling wells, but in the lon run, the cost per unit of electricity produced is lower compared to other modes of generation. In 1987, Acres projected the tariff to grow by 0.09 Ksh/kWh from 1988 through At the end of 1987, the tariff was 0.99 Ksh/kWh. The above annual tariff increment was approved by the government in The forecasted tariff was required to operate the electrical power system, to repay long-term loans and to pay for the local component of new generation, transmission and distribution facilities. According to Osanjo (Environment News Service, 2001) Kenya electricity tariff is among the highest in Africa and about five-times higher than that of South Africa and Egypt. For instance, for high voltage industrial customers, the tariff is US cents 9.7 per kilowatt-hour compared to South Africa 2.4. It is estimated (PriceWaterhouse Coopers, 2003), that transmission and distribution losses alone add about 0.9 US cents per KWh to Kenya s cost of electricity, thus loading about US $ 30 million annually to Kenyan industry and consumers. Geothermal power plants can produce electricity as cheaply as some conventional power plants. It costs cents per kwh to produce electricity form hydrothermal system. In comparison, new coal-fired plants produce electricity at about four cents per kwh. Initial construction costs for geothermal are high because geothermal wells and power plants must be constructed at the same time. But the cost over time is lower because the price and availability of the fuel is stable and predictable. 19