The proposed Lamu coal plant: The wrong choice for Kenya

Building the proposed Lamu coal plant in Kenya, a three-unit, 981-megawatt (MW) facility, would be a costly error for the country, locking it into a 25-year power purchase agreement (PPA) that would force electricity consumers to pay more than $9 billion, even if Lamu doesn’t generate any power, as long as it is available for dispatch.

The project, first proposed in 2015 as part of a government initiative to build new baseload capacity to replace aging diesel-fired generation and serve planned future economic growth, has been overtaken by events, particularly lower-than-projected demand growth, lower forecasted generation from Lamu and higher anticipated costs for imported coal. These developments have undercut the plant’s financial viability and should prompt the Kenyan government to cancel the project.

The planned $2 billion coal plant, currently scheduled to enter commercial service in 2024, is being built by Amu Power Company Limited, a single-purpose entity 51 percent 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 Electric Design and Consulting Company in 2016. 

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However, construction has not yet started, and as will be demonstrated in this report, there is ample justification to cancel the entire project. Using data from the October 2016 Lahmeyer International report, Development of a Power Generation and Transmission Master Plan, Kenya, 2015-2035, and Kenya’s Updated 2017-2037 Least Cost Power Development Plan, released in June 2018, we show that the assumptions used by the coal plant’s developers no longer hold true and that building the facility would burden consumers with costly power for years to come. In addition, the project would make it difficult, if not impossible, for Kenya to meet its Paris climate change treaty obligations.

In particular, we find:

• The existing 25-year PPA would force Kenya to pay at least $360 million in annual capacity charges, even if no power is generated at the plant.
• Amu Power’s claims for the cost of Lamu-generated electricity are unrealistically low, based on outdated costs for the imported coal that will be burned and on overly optimistic assumptions about how much electricity the plant will generate.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 US 75 cents (76 Kenya Shillings) per kilowatt-hour (KWh), on average, during the years 2024 to 2037—more than 10 times what the plant’s proponents have claimed.

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• This estimate does not include costs for port upgrades that would be required to bring coal to the plant, nor construction of the transmission infrastructure needed to distribute the power; the costs of these projects would add significantly to Lamu’s overall impact on electricity consumers and taxpayers.
• The government’s own analysis demonstrates that, 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.
• The plant would slow development of Kenya’s plentiful renewable energy resources and make compliance with its greenhouse gas reduction obligations under the Paris Agreement difficult.

Press release: The Lamu Coal Plant will hinder, not spur, economic growth in Kenya

Please view full report PDF for references and sources.