Introduction
The undertaking proposal was made in 2009 and is to be located in Kenya, at the southern terminal of Lake Turkana. The undertaking has a grant country of about 150Km2 for 99 old ages renewable every 33 old ages and the undertaking is expected to last 25-30 old ages.
The purpose of the undertaking is to Finance Build Own and Operate ( FBOO ) a 300 MW air current farm beside Lake Turkana. The air current farm will hold 353 air current turbines each with a capacity of 850 kilowatts and it will bring forth an equivalent of 17 % of Kenya ‘s current power coevals capacity, with the potency to power about 2 million Kenyan families.
The undertaking will besides Finance Build Own Operate and Transfer ( FBOOT ) one ( 1 ) power transmittal substation, one ( 1 ) terminus substation and a 428Km, 400kV transmittal line from Lake Turkana to the grid at Suswa.
Most of the equipment will be imported and the path for the transportation of equipment from the port to the undertaking site is about 1,200 kilometers therefore the undertaking will besides include route buildings, ascents and accommodations. Approximately 4,000 truck tonss ( to and fro ) will be required and transit will be done largely at dark.
The undertaking is expected to be 780MUSD and it will be financed through equity and commercial loans. Kenya traditionally relies on hydropower which is much cheaper than wind generated power hence the duty is expected to be higher.
Electricity generated will be purchased by Kenya Power and Lighting Company ( KPLC ) and distributed to consumers in Kenya. KPLC buys all the electricity generated in Kenya and handles transmittal and distribution. KPLC is a monopoly hence dialogues on duty will be tough.
The United Nations ( UN ) pays some pecuniary compensation to companies for decrease in emanations of CO2. The undertaking expects to bring forth mean emanation decreases of 919,060 metric tons of CO2 per twelvemonth which translates to about 12MEuro per twelvemonth of C recognition.
The undertaking is suggesting to portion some of the C recognition gross with KPLC as portion of dialogues for a favourable duty.
The LTWP is being developed by a pool of persons, international and local companies. The tabular array below shows members of the pool.
Company/Individual
Background/Information
Anset Africa
Undertaking Development and Management Company
Globeleq
United kingdoms based company focussed on supplying dependable power in emerging markets ( Africa, America, Asia )
KP & A ; P B.V.
Development & A ; Operation of Wind Energy Undertakings
Mr. Willem Dolleman
Dutch Kenyan Resident
Mr. Henk Hutting
Dutch
Mr. John Thiongo Mwangi
Kenyan
Mr. Kasper Paardekooper
Dutch
Mr. Ed Schieke
Belgian
Mr. Chris Stanbo
Norse
Mr. Carlo Van Wageningen
Italian/Dutch
Mr. Harry Wassenaar
Dutch
The undertaking has the undermentioned spouses:
Spouse
Background/Information
Anjarwall & A ; Khanna
Kenyan corporate jurisprudence firm/legal advisors
Carbon Africa
Carbon undertaking development company with central offices in Kenya
German Wind Energy Institute
Wind measuring and consulting services
KPMG
Fiscal Management and Auditing
Mammoet Europe B.V.
Dutch company specialised in heavy lifting and utmost conveyance solutions
Schick Consulting
Belgian company supplying research and confer withing on energy systems and connexion to bing webs
Vestas Benalux B.V.
Wind engineering supplier since 1979
Analysis
The undertaking will be critically examined in the undermentioned countries:
Benefits
Finance
Gross
Transportation system
Hazards
Benefits
Net income for investors
Reliable beginning of energy for economic development
Bing a innovator undertaking, its success will take to proliferation of air current undertakings in Kenya and other developing parts
Coevals of employment for locals during the building and operations stage
Ascent of the route system
Addition in authorities gross through the payment of revenue enhancement
Improvement in trade balance due to decrease in oil imports used for electricity coevals
Due to lifting fuel monetary values and the non-sustainability of oil as a beginning of energy, the undertaking has the possible to cut down the monetary value of electricity in the long tally
As with most Public Private Partnerships, merely the first benefit will accrue to the private sector, the remainder goes to the populace sector and the private sector can non tap in them!
Finance
The undertaking is expected to be 780 MUSD. The undertaking will be to the full financed by the private sector utilizing debt and equity. This means the cost of capital will be high compared to a authorities funded undertaking. This will potentially do duties higher and the payback period longer.
The major cost on the undertaking will be wind turbines which will be procured from Europe. This introduces the hazard of currency fluctuation and currency convertibility. To cut down this hazard, estimations and contracts for air current turbines and should be made in the currency of the providers, in this instance in Euro. Estimates for local labour, transit and stuffs should be done in Kenyan currency. Finance should be scheduled to co-occur with outgo to cut down payments on involvements. Inflation should be included in the estimation and proviso should be made for alterations in rising prices rate.
Gross
The undertaking expects to acquire its gross chiefly through duties. Additional gross of approximately 12 MEuro per annum of C recognition is expected.
Gross saless understandings should be made in such a manner that both the populace and private sector bears the use hazard. This can be by the populace sector paying the private sector for handiness at that place by pull offing the use hazard.
Transportation system
Most of the major equipment will be imported through the sea ports and transported by route from the ports to the undertaking site over a distance of about 1,200 Km. This will make marine lading, conveyance and hold hazards. These hazards are insurable and should organize portion of the entire undertaking cost.
Hazard
The hazard of handiness, dependability and maintainability can be shared with equipment providers by holding them include the cost of forces developing and equipment care in their proposals. This will organize a long term contract that will cover the undertaking life rhythm. The contract should besides portion the hazards of engineering alteration with the providers. For this undertaking, the provider of the equipment has been listed as one of the spouses ; this might be a hazard decrease scheme, depending on the inside informations of the understanding.
Concessions and licences will be required from the authorities during the undertaking. This has the possible to do holds in the undertaking. To cut down this hazard, the undertaking should delegate an single specifically dedicated to guaranting that all grants and licences are obtained on agenda. Since authorities is responsible for allowing grants and licences, the understanding between the private sector spouses and authorities should include a clause that ensures any extra cost or losingss to the undertaking as a consequence of hold blessings by authorities bureaus will be borne by the authorities. Alternately, the contract can stipulate the maximal figure of yearss between formal and proper entry of petitions for concessions/licenses by the private sector spouses and reception of a response from authorities bureaus. If the continuance is exceeded without a response, it should be deemed sanctioned.
As with most emerging economic systems, there is hapless substructure most particularly in footings of administration. The ‘horn of Africa ‘ where the air current turbines will go through en-route Kenya has late been a nest of plagiarists. Kenya besides experienced some unrest during the last elections. These should be factored in before the concluding investing determination by doing the hurdle rate of IRR high and including equal eventuality militias in the undertaking cost.
In specifying state of affairss where either party can name for a force majeure, war, civil perturbation and any alteration in statute law that significantly affects project economic sciences should be included.
The undertaking should include local ( host ) communities that will be affected by the undertaking ‘s activities in their Corporate Social Responsibility ( CSR ) plan. It has been shown in many developing economic systems that if non decently consulted and informed, local ( host ) communities can do holds, break and in utmost instances outright cancellation of substructure undertakings.
Estimates of grosss should be conservative, rising prices and hazard should be factored in estimations of cost.
Sensitivity analysis and parametric discounting should be done to place parametric quantities that have important influence on undertaking economic sciences. These parametric quantities should be analyzed to cut down chance / impact on undertaking economic sciences.
Contemplations on Lessons Learned
During the 5 twenty-four hours workshop, the following were learnt:
Importance of holding individuals/organizations that will be responsible for doing certain the undertaking achieves the coveted results and ends.
The cost of finance can be every bit high as 60 % of the undertaking cost! Hence beginnings of finance should be carefully evaluated to minimise cost of finance and attention should be taken in ciphering gross, cost, cost of capital, working capital, fixed capital, runing costs, administrative costs and depreciation. Debts should be structured to co-occur with the clip when the finance will be needed to cut down cost of finance.
Depreciation should be factored in the cost of substructure undertakings. Besides, in order to guarantee that the installation continues to function its intent, a amount of money equal to the sum of depreciation should be spent yearly on care. If an plus is to be replaced after a specific figure of old ages, it should be depreciated yearly in such a manner that the entire sum kept for depreciation will be able to replace it with a new one at the terminal of its service period.
Undertaking finance can be appraised utilizing tools such as part, gross net income, operating net income, net income before revenue enhancement, Accounting Rate of Return ( ARR ) , Net Present Value ( NPV ) , Internal Rate of Return ( IRR ) and Profitability Index ( PI ) .
It is necessary to be conservative in ciphering influxs and to do escape higher than expected in order to minimise hazard.
The construct of fanciful portions, fanciful value, book value and market capitalisation of a company was learnt.
100 % of undertaking finance must be in topographic point before a undertaking can get down. Assorted finance options are available and an progressively popular beginning of finance is Islamic finance.
The portion on PPP ‘s was really telling and of great involvement to me. My state, Nigeria is merely embarking into this type of agreement and the plan has highlighted the hazards, advantages and disadvantages every bit good as proposals for sharing hazards between all interest holders. ‘Risk should be transferred harmonizing to ability to pull off them’- ( R. Turner, 2010 ) .
My squad ‘s presentation is portion of my larning curve in squad work ; it gets better with each assignment. The squad studied the instance together and agreed on duties of each squad member. However, as we progressed some members handled undertakings outside their assigned undertakings like fixing the concluding slides. Team members sought and got aid from other squad members during the instance survey.
One of my acquisition experiences is that presentations should be simple and consecutive to the point. The right type and sum of artworks should be used.
My squad besides identified and analyzed the hazards but did non supply any good programs for avoiding, reassigning, extenuating or accepting the hazards. It is of import to hold a practical hazard response scheme for a undertaking. It is every bit of import to update the hazard registry as the undertaking progresses.
During the sensitiveness analysis, my squad merely concentrated on the fuel monetary value and Equity Risk Premium ( ERP ) alternatively of analysing the undertaking sensitiveness to all the variables. Sensitivity analysis is a hazard decrease scheme as such it should affect all the variables concerned.
FBOO is a really hard construct because although it is built, owned and operated by the private sector, the authorities ever remains involved.
In FBOOT agreements, one disadvantage is hazards are non shared based on capableness to manage the hazards. For illustration by roll uping together building, operation and care, the companies that are good at building might non be good at operations and care hence these facets of the undertaking should non be lumped together.
At what point should the plus be transferred to the authorities? This is normally determined by fiscal considerations, which is, when the private sector has recovered capital and made net incomes non harmonizing to when the populace sector will be more capable of managing the hazards. Hence FBOOT undertakings are non based on “ the best possible agreement ” , but on “ the best political model ” or “ the best manner of switching revenue enhancement between degrees of authorities ” .
Decision
This paper analyzed Lake Turkana Wind Power Project in footings of benefits, finance, gross, transit and hazards.
Apart from net incomes, all benefits will accrue to the authorities. The private sector is taking all the hazards on this undertaking. Use hazard should be taken by the authorities and equipment, care and engineering hazard should be borne by the equipment providers. Government should besides bare the hazard of holds in O.K.ing grants and licences.
Transportation, Marine and hold hazards should be insured. Sing the location of the undertaking, there should be eventuality militias and the hurdle rate of IRR should be high.
The undertaking is supposed to get down electricity coevals by June 2011 and is to be completed in July 2012, if all undertaking finance has been secured ; authorities has systematically refused to be portion of the support and the planetary economic meltdown has reduced beginnings of recognition for investors. This besides means that the cost of capital may be high and payback period may be longer.
The universe is traveling towards renewable energy and this undertaking has immense potency to win if the factors mentioned in this paper are taken into consideration.
