Project snapshot – Lake Turkana Wind Project
Sector: Renewable Energy
AfDB and related financing:
The total project cost is estimated at USD 680 million and includes the cost of the envisaged 400 km transmission line from Lake Turkana to the Susua sub-station near Nairobi, as well as the cost of upgrading 200 km of roads and various bridges.
The project will be financed through equity debt (25%), mezzanine debt (5%) and senior debt (70%). As the mandated lead arranger and senior co-lender, AfDB will provide a long-term senior loan of USD 150 million.
300 MW wind farm comprising 365 turbines
A 33 kV electrical collector network
428 km transmission line from Lake Turkana to Susua sub-station
The main objective of the project is to provide clean, reliable, low cost power by increasing Kenya’s national power generation capacity to approximately 17%.
The Lake Turkana Wind Power Project represents the largest wind farm project in Africa. It represents a large scale demonstration of clean energy technology and will lead to the reduction of up to 736, 615 tons of CO2 equivalent per year based on conservative estimates.
Innovation in Financing:
Kenya’s Lake Turkana Wind Power Project is an example of innovative financing for energy projects:
The deal had a unique public-private aspect in terms of generation (private sector, by Lake Turkana Wind Project) and transmission (with the ancillary 428 km transmission line being procured and delivered by the public sector. All stakeholders worked closely together to minimise project-on-project risk.
African Development Fund applied its first partial risk guarantee to the associated T-line to mitigate T-Line delay risk (which is otherwise covered by delay payment obligations of the Kenyan Government to the project company and its lenders).
AfDB used its B-Loan structure, allowing participant banks to benefit from its preferred creditor status.
European Investment Bank, with guarantee structures from the Danish Export Credit Agency (political and commercial cover) and from the two South African banks – The Standard Bank of South Africa Limited and Nedbank Limited (commercial cover) – it could leverage a huge €200 million into the project.
The application of the EU-Africa Infrastructure Trust Fund (EU-AITF) financial instrument (which blends development finance institution monies with grant monies from the European Commission) was crucial in filling the equity gap.
The Lake Turkana project showed some innovation in how the liquidity risk was managed (by a combination of letters of credit and escrow account arrangements) that demonstrated some out-of-the-box thinking by government, sponsors and lenders alike.