How are you supporting investors in KenyaÃ¢â‚¬â„¢s wind power sector?
Ashurst has been advising the developer, Aeolus Kenya Limited, in relation to the development and financing of a 60MW onshore wind project in Kinangop.
We have advised on all aspects of the development, including negotiating the EPC contract, services agreement, power purchase agreement and advising in relation to the debt and equity raising. The players involved on this transaction are all major international corporations, which show the level of interest in investing in renewables projects in Kenya. We were involved in negotiating for the PPA with Kenya Power and Lighting Company and were impressed with the level of sophistication of the power distributorÃ¢â‚¬â„¢s negotiating team. They were highly experienced, but also pragmatic in their approach, which meant we were able to make good progress in agreeing on a bankable PPA.
Which renewable energy sub-sectors in Kenya offer the best opportunities at present?
There is a lot of interest in onshore wind projects in East Africa. Onshore wind is proven technology with limited completion and operation risks, which adds to its attractiveness. The cost per MW of onshore wind and low operation and maintenance costs also makes it good value for investors. This also makes it attractive for regulators and off takers because it keeps the cost of generation down and therefore the feed-in tariffs payable are lower. I understand that the wind conditions in Kenya give rise to higher load factors for onshore wind than you find in other countries, and we are aware of a number of onshore wind projects in the pipeline in Kenya. There is interest in hydro and geothermal but greater technical risk and high capital costs means that investors will be more cautious taking up these projects. However, there has been minimal interest in solar projects if one compares with countries such as Morocco in North Africa. Ashurst is involved in MoroccoÃ¢â‚¬â„¢s ambitious solar programme for both PV and CSP.
How would you advise deal supporters looking for opportunities in emerging and frontier markets?
An international law firm such as Ashurst is able to advise clients on what deal structure and risk allocation is likely to be bankable. We draw on our experience of working over many years on project development and financing in Europe, the Middle East and Asia. There is a clear progression and change in risk allocation as markets become more established and are perceived as stable. The risk allocation required to bank early Middle East I (W) PP projects is very different to the structures banked today, where sponsors and lenders agree to take more risk. Understanding where each country and region is in the evolution of risk allocation is key to being able to advice on bankable structures.
In Kenya for example, the fact that a number of power projects (mainly heavy fuel oil) have been successfully financed means that sponsors and banks are willing to accept risks in a wind based PPA, which they would not have been willing to accept if there was little precedent in the region for successful PPAs.
Ashurst is also in a position to advise clients on other risk mitigation tools, such as the use of political risk insurance or the introduction of other investors or lenders whose presence on the deal helps to mitigate against political interference.
What would be your top tips for doing business in Kenya successfully?
1. Build strong local networks and relationships
2. Understand local conditions
3. Be patient
4. Respect and do not under-estimate the quality of local professionals in the sector
Source : abdas.org