The Kinangop wind farm, which reached financial close in October 2013, is the first privately financed wind project in Kenya. Unlike the larger and delay-plagued Lake Turkana wind project, Kinangop sped to financial close much more quickly. In its favour was its use of a single bank lender and favourable location. Foreign investors’ willingness to take over all of the project’s equity at financial close demonstrates increased confidence in Kenya’s power sector and bodes well for the country’s ability to develop additional renewables capacity.

Kinangop Wind Park Ltd

STATUS

Signed October 2013, financial close November 2013

SIZE

$150 million

DESCRIPTION

The construction of a 61MW wind farm 60km north of Nairobi, Kenya.

SPONSORS

African Infrastructure Investment Fund 2, Norfund

DEVELOPER

Aeolus

DEBT

$90 million

COMMERCIAL LENDER

Standard Bank

DEVELOPER’S LEGAL COUNSEL

Ashurst

LENDERS’ LEGAL COUNSEL

Herbert Smith Freehills, Walker Kontos

EPC CONTRACTOR

Iberdrola

EQUIPMENT SUPPLIER

General Electric

The government is now developing wind assets as an alternative source of power to expensive geothermal capacity, and Kenya boasts some of the highest wind speeds recorded anywhere in the world. The government hopes that 2,036MW of additional wind capacity will have come online by 2030, an amount equivalent to 9% of the country’s total generating fleet.

By far the largest wind deal in the country’s project pipeline is the 310MW Lake Turkana development, while GE Energy is the sponsor for the 100MW Kipeto Energy deal. Partially privatised generator Kenya Electricity Generating has at least two more wind projects, of 50MW and 150MW, in the pipeline.

But Kenya’s first wind project to reach financial close was 61MW Kinangop, located 60km north of Nairobi. Aeolus Kenya is the developer of the project and owned 100% of the equity of the project up until financial close. Aeolus Kenya is a subsidiary of Aeolus Group, which was established in the Netherlands in 2004 to build and finance small-scale renewables developments.

Aeolus always intended to sell down part of its stake in the Kinangop project, as it did not wish to provide all of the required equity. But it attracted so much interest from international investors that it was able to sell of all of its stake at financial close. African Infrastructure Investment Managers, a joint venture between Macquarie and Old Mutual Investment Group, has taken roughly a 70% stake in the project through its African Infrastructure Investment Fund 2, while the Norwegian Investment Fund for Developing Countries (Norfund), a private equity fund owned by the Norwegian ministry of foreign affairs now controls the remaining 30% stake.

The project has a total cost of $150 million. Iberdrola is the engineering, procurement and construction contractor, and GE is supplying and maintaining the 38 1.6MW turbines for the plant.

Standard Bank is the sole lender on the deal and was initially expected to provide 70% of the funding requirement as debt. The developer eventually had to reduce the debt-to-equity ratio, however, when delays to close on the financing forced the incoming sponsors to contribute more equity to the project.

Some of the assumptions underpinning the deal also changed during the financing process. Weakness in the EU’s carbon trading market reduced projected cashflows, which in turn lowered the deal’s projected debt service coverage ratio. In the final breakdown, the incoming sponsors will provide 40% of the funding requirement, with Standard Bank covering 40% of the costs through debt.

Standard Bank’s loan has a tenor of 10 years, with cash sweeps kicking in after year five. The sponsors were considering an early refinancing to reduce their interest expense, but no deal appears to be in place and any debt syndication looks unlikely this year. The sponsors are more likely now to wait to refinance until the plant becomes operational in 2015.

KPLC will buy all of Kinangop’s output under a 20-year power purchase agreement, at an agreed tariff of $0.12 per kWh. The price of power from Kinangop is similar to that of geothermal developments in the country, but is more expensive than Lake Turkana. That plant requires extensive transmission infrastructure, whereas Kinangop is relatively close to its nearest sub-station, and so Standard Bank was not exposed to anywhere near the same level of transmission risk.