The spectre of a looming environmental disaster was not enough to deter the government from pursuing a Sh200 billion coal project in Lamu county — until the court intervened.
Still, the reality of its repercussions bears explaining to understand why environmentalists were up in arms about it. The coal plant, touted as a solution to the growing energy demands, is unreliable and costly after government officials and potential investors exaggerated figures.
Far from being a panacea to the country's energy problems, experts say it would increase electricity bills, destroy the environment and damage the livelihoods of people in Lamu.
The flagship Jubilee project would have seen billions end up in contractors' hands with little to show for it, following poorly crafted power purchase agreements (PPA). Already, the country is reeling from billions lost to the stalled Sh7 billion Galana Kulalu Irrigation Project and the Sh90 billion Arror and Kimwarer dams.
A report by the Institute for Energy Economics and Financial Analysis brands the Lamu coal plant a "poor investment that will lead to higher electricity bills to sustain it".
“As the evidence shows, the planned 981 MW Lamu coal plant would be a poor investment for all involved — except for the few companies backing the proposal and the Chinese firm contracted to build it,” IEEFA head of research David Schlissel said in the report.
1. COSTLY TO ECONOMY
The report, titled, 'The Wrong Choice for Kenya' was released last month after the National Environment Tribunal in June cancelled a licence issued to Amu Power Company Ltd for setting up the coal plant, after Nema failed to follow the law before issuing it.
“Cancelling the project would save taxpayers billions and give the country’s nascent solar and wind power developers a chance to build capacity on a level playing field, instead of competing against Lamu’s onerous take-or-pay contract,” Schlissel said.
The planned plant, scheduled to enter commercial service in 2024, was being built by Amu Power Company Limited, a single-purpose entity 51 per cent owned by Centum Investments, a Kenyan investment firm, with the remainder held by Gulf Energy.
The construction contract for the plant was awarded to Power Construction Corporation of China and Sichuan.
Experts believe the proposed plant, a three-unit, 981-megawatt (MW) facility, would be a costly error, locking Kenya into a 25-year PPA that would force electricity consumers to pay more than Sh900 billion, even if Lamu doesn’t generate any power, as long as it is available for dispatch.
Reports by IEEFA and Lahmeyer International said Kenya does not require that kind of energy due to a lack of market for excess energy, following massive investments by neighbours in the sector.
The reports are supported by the government's Development of a Power Generation and Transmission Master Plan 2015-2035 and Kenya’s Updated 2017-2037 Least Cost Power Development Plan (LCPDP), which argue developments have undercut the plant’s financial viability.
2. ENVIRONMENTAL CONCERNS
The project, first proposed in 2015, is a government initiative to build new baseload capacity to replace ageing diesel-fired generation and serve planned future economic growth.
Reports warn the project has been overtaken by events, particularly lower-than-projected demand growth, lower forecasted generation from Lamu and higher anticipated costs for imported coal.
They note that given the structure of the take-or-pay contract held by the developers, building Lamu almost certainly would result in higher coal-fired electricity generation and be detrimental to the nation’s clean and inexpensive geothermal resources.
Those against the project believe it's safe to cancel the project at this moment since it has not started. It was to start in 2015.
Environmental activist Victor Onjolo warns that the country should not rely on legal instruments to address the coal project.
“We should not use legal procedure to stop the plant but the history of nations that have been under the cloud of coal, like China and US, should form our conclusive judgment. Morals come first,” Onjolo told the Star from China.
Lamu locals said the noise from the construction process was heavily polluting the environment. They added that those involved in the plant construction are cutting mangroves — the fish-breeding area — and destroying the coral reef, where they put their eggs. They believe this will have a long-term impact on the fish development cycle.
“ I have fished here for 10 years and the fish are gone. Before, we would put out one net and catch maybe 500kg of fish, but now we can put 10 nets and get only 50kg,” Ali Juma said.
The environment was also being heavily polluted during the plant building by significantly increasing greenhouse gas emissions that absorb and emit radiant energy. This stands in stark contrast to the government's efforts to move the country to 100 per cent renewable energy in the near future and honour global environmental targets.
3. POOR POWER PURCHASE AGREEMENTS
The existing 25-year PPA would force Kenya to pay Sh36 billion annual charges, even if no power is generated at the plant.
Amu’s claims for the cost of Lamu-generated electricity are unrealistically low, based on outdated costs for the imported coal that will be burned and on overly optimistic assumptions about how much electricity the plant will generate.
“Using more realistic assumptions about future Lamu generation and coal costs, electricity from the plant could cost as much as Sh76 per kilowatt-hour (KWh) on average during the years 2024-37 — more than 10 times what the plant’s proponents have claimed,” the report said.
Project estimates failed to include costs for port upgrades required to bring coal to the plant and transmission infrastructure, which would add significantly to Lamu’s overall impact on electricity consumers and taxpayers.
Experts warn that electricity demand forecasts are regularly overestimated when compared to the actual demand growth in the medium-term period to justify the project.
“The plant would slow the development of plentiful renewable energy resources and make compliance with its greenhouse gas reduction obligations difficult,” Onjolo said.
The LCPDP demanded PPAs for large power plants renegotiated to introduce operation flexibility. This will minimise energy costs to ensure the plant is redesigned and constructed in phases to include smaller units to minimise required reserves.
4. EXAGGERATED FIGURES
“When using the most likely demand growth scenarios, Kenya’s abundant renewable resources render no new coal generation necessary in the country until 2029, at the earliest,” Schlissel said.
Kenya's power requirement estimation growth of 15 per cent is not necessary after Kenya failed to achieve short-term targets in the Vision 2030 blueprint goals. It only requires 11 per cent growth to serve the slow-growing demands.
“Actual energy and peak demand load growth has been much lower than predicted in 2011 because forecasted high rates of growth in the gross domestic product (GDP) and the planned Vision 2030 projects did not materialise,” the report said.
In addition, only very few countries have shown such sustained high consumption growth rates as has been forecasted for Kenya in the past.
The Lahmeyer report wants the Lamu project, and coal in general, evaluated to determine their viability.
The Lahmeyer report and 2017 LCPDP add that Lamu will not operate as a baseload or an intermediate plant between 2020 and 2037 since Kenya does not require that energy.
“The Lamu PPA includes a take-or-pay clause requiring that annual capacity charges, which start at $360 million (Sh36 billion), be paid to the plant’s owners, regardless of whether the plant is actually dispatched, as long as the plant is available for dispatch,” the report said.
“This is attributed to lower generation, higher fuel costs and escalation of the annual capacity charges and operating and maintenance expenses. The true costs of Lamu’s electricity during the years 2024 through 2037 could average as high as US22-75 cents per KWh — three to 10 times the company’s 2014 projection.”
5. CLEANER ALTERNATIVES
Experts are calling for a better alternative, both cleaner and cheaper, that takes advantage of the nation’s plentiful and largely untapped renewable energy resources.
They argue that wind and solar resources have other substantial benefits in addition to their declining investment costs.
Unlike coal, wind and solar resources do not have major negative environmental impacts, such as stack emissions. Nor do they require large expenditure for coal ash management.
6. INADEQUATE PUBLIC PARTICIPATION
In its report, Amu Plant promised to design, construct and operate its activities in a manner that protects human health and minimises the impact of its operations on the environment.
“Encourage and promote waste minimisation, sustainable use of natural resources, recycling, energy-efficient, resource conservation and resource recovery,” the 61-page report said.
To justify its activities, it added that coal plays a vital role in electricity generation worldwide, where coal-fired power plants currently fuel 41 per cent of global electricity.
“The company operates in a transparent manner that supports social and economic development. The same shall be expected with all our contractors,” it added.
However, the project is now in limbo after the National Environment Tribunal ruled that there was no proper public participation before Nema gave AMU Power the go-ahead. There were 31 meetings in the area until June 31, 2015.
“We accept that public participation was conducted but before the environment assessment study. The idea was not to share possible effects of the project. The firm was unwilling to give more details of project,” NET said.
“Would the members have supported the projects if they know about effects on human health, damage of flora and fauna, immature deaths and even caused adverse effects on forests? There might be ways to mitigate the same. However, the residents ought to have been notified of these before a licence was issued,” the tribunal ruled.
