Page 3 - AsiaElec week 23

AsiaElec COMMENTARY AsiaElec
China’s African exposure
The Chinese-backed Lamu coal-to-power project in Kenya is set for approval, highlighting Beijing’s strong debt-fuelled presence in the African power sector
CHINA
WHAT:
A nal decision on Kenya’s 1,050-MW Lamu coal project is due this month
WHY:
There is considerable environmental protest against the Chinese project
WHAT NEXT:
A $1.2 billion loan and
a $360 million per year capacity payment oor gives Beijing a strong say in Kenya’s economic future
CHINA’S investment in power projects across Africa is coming up against considerable push- back in Kenya, as the controversial 1,050-MW Lamu coal-to-power project faces popular pro- tests and legal action in the courts.
e $2 billion coal-to-power project is to be built by Chinese contractors, burning Chinese coal and financed by Chinese cash. But the power plant would raise Kenya’s CO2 emissions and cause environmental damage to fragile coastal communities.
Amu Power, a consortium of Kenya’s Gulf Energy and Centum Investment along with Omani, US and Chinese interests, has signed a $2 billion, 25-year Build, Own and Operate (BOO) contract with China Power Global to build the plant.
China Huadia, Sichuan No 3 Power Con- struction Company and Sichuan Electric Power Design and Consulting Company are all involved in the project.
e Industrial Commercial Bank of China is to provide $1.2 billion, while General Electric has taken a 20% stake for $400 million, and is to provide its Ultra Super-Critical clean coal technology.
The project
e venture is a purely green eld project, with three 350-MW units. e footprint extends to a coal stockyard and a coal-receiving port for up to 3.6 million tonnes per year of South African coal. A substation and 400-kV switching facili- ties will connect to a new 520 km transmission line to Nairobi.
It forms part of the Chinese backed $25.5 bil- lion Lamu Port South Sudan Ethiopia Transport (LAPSSET), itself a key plank of Beijing’s Belt and Road Initiative (BRI) in Africa.
Yetcriticspointoutthatthecostoftheproject over 25 years could be too much for the Kenyan government, which is proposing to sign a power purchase agreement (PPA) for the project.
Nairobi would nd itself trapped in debt in order to access Chinese nancing and, in this case, Western technology.
e PPA would oblige the Kenyan govern- ment and its state-owned utility Kenya Power to repay Amu Power $360 million per year in xed-capacity payments. is is a minimum and could rise if Amu Power’s costs increase.
Meanwhile, Amu Power has claimed that it can produce power for US$0.072 kWh.
But a recent report from the US-based
Institute for Energy Economics and Financial Analysis found costs to be “highly optimistic”, warning that they could be as much as $0.22- $0.75 per kWh.
e study said Amu Power had underesti- mated the price of imported coal from South Africa, while rising operational and mainte- nance costs would also be higher.
Kenya’s power customers, who would pay through their power bills to support the PPA, would have to pay up to $9 billion over the 20-year period of the PPA, the study warned.
e pricing problem is crucial, as when Ken- ya’s regulator set the tari in 2017, it claimed that it was 61% cheaper than power supplied by diesel- red generation units to the national grid. e $9 billion gure puts coal’s costs far higher than geothermal or solar.
Creating utility-scale projects to under- cut dirty and expensive diesel is a key aim of the Kenyan government in pursuing coal, and indeed other large-scale projects.
Legal progress
Looking ahead, the project is still going through the legal system, a er the Kenyan High Court halted the project for the second time in 2018. e National Environmental Tribunal is to issue a new ruling on June 24.
Environmentalists who have taken legal action point to the project’s location in a UNE- SCO heritage area. ey also point to the pollu- tion threat of a coal- red plant in a country with zero coal capacity.
For the government, the 1,050-MW plant may o er a agship example of foreign invest- ment and competitive tendering.
e country currently has just 2,336 MW of predominantly green capacity.
AmuforecaststhatLamuwilltaketwoyears to build. Court action and other delays have pushed back the start of construction, which was originally set for 2017. Now it will be well into the 2020s before any power starts to ow.
Chinese lending
China’s initial $1.2 billion loan to the project is an example of its investment strategy in African power.
Chinese lending to sub Saharan Africa grew to more than $10 billion per year between 2012 and 2017, up from less than $1 billion in 2001, data from Moody’s said.
China has used various global forums and
The PPA would oblige Kenya Power to repay Amu Power $360 million per year in xed-capacity payments
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