Kenya: A place in the sun

Funding source
The Strathmore system was built at a cost of $1.3m, facilitated through a 10-year loan from the French Development Agency (AFD) and it has a payback period of seven years, which Professor Izael Da Silva, deputy Vice Chancellor and Director of Strathmore’s Energy Research Centre (SERC), says the university will be able to meet purely through what they save in electricity bills.

“We have a beautiful cash flow,” he said. “I can use my $25,000 a month [saved from electricity bill] to service the loan and after 10 years I will have paid everything and will have my system working for another 20 years for free.” At a 4.1% interest rate, the AFD loan was significantly lower than what Kenya’s commercial banks offer, which at best is 9%.

When Strathmore initially floated a tender for the project at end 2013, they wanted a 1 MW (1,000kW) system and received proposals from German, Canadian, British and Kenyan companies that were on average 30% higher than the current project.

At that cost, the payback period for the project would have been over 15 years, or three five-year election cycles. Projects in Kenya are often considered in relation to the elections because of how radically a change in government affects the business environment.

But the 600kW system they finally settled on allows a seven-year return on assets, with the cash flow entering the black in three and a half years.

“It means no power interruptions and no further expenditure on generators,” said Timothy Kipchumba, director of the procurement and tax division at Questworks.

In addition, the $1.3m solar energy system will save Strathmore $7m in electricity costs over its 30-year life span, and the university plans to leverage on it further by using the system to train engineers and solar technicians at its SERC and open a School of Engineering in July 2015.

The launch of the photovoltaic system may also be good news for its students since the Strathmore board plans to translate the energy savings into reduced fees and offer more scholarships – which Professor Da Silva said will increase threefold in the next three years from 350 to 1,000.

Regulatory hurdles
The initial desire for the larger 1 MW system was motivated by Strathmore’s intention to enter into a Power Banking Agreement with Kenya Power, such that the excess energy produced would be fed into the grid to counter balance the university’s energy needs during non-daylight hours.

However, Kenya Power turned down the proposal and suggested a Power Purchasing Agreement, where they would pay Strathmore $0.10 per unit even though they sell a unit to consumers for over double that at $0.23.

“We realised there was more financial benefit if we made the system suit our personal consumption and have a little left to sell, so we went from 1MW to 600kW,” said Professor Da Silva.

At the time of going to press, the university was to sign a 20-year agreement with Kenya Power, which makes them an independent power producer and contracts the state corporation to buy energy from them at a commissioned rate.

Da Silva hopes that, with time, Kenya Power will improve the tariff they offer, which may allow Strathmore to add more panels to its system and make solar power production an income-generating activity for the university.

Negotiations between Kenya Power and Strathmore have been protracted; this is the first agreement of its kind in Kenya between a private solar-power producer and the national electricity distributor. Other independent power producers who sell to the grid include sugar producer Mumias and Imenti Tea factory, but both supply thermal and geothermal energy.

The majority of solar projects in Kenya are for self-consumption, such as the 500kW solar system at the UNEP headquarters in Gigiri, and those of various agricultural firms like Kagwe Tea Factory in Limuru and Williamson Tea in Kericho.

Kenya’s current feed-in tariff (revised in 2010) prevents a power producer which generates 500kW or less from selling to the grid. The idea is more common in Europe and Asia, where power-banking arrangements exist, which allow private producers to give power to the grid and take it back as and when needed.

The expense of setting up a solar project coupled with uncertainty about whether Kenya Power will buy excess units are some of the hurdles that have prevented others from entering into the private producer sector, said Questworks’ Kipchumba. But he believes many will now follow Strathmore’s lead and join the ranks of carbon neutral institutions in Africa.