KenGen eyes non-power revenue to boost earnings

Corporate News

KenGen managing director Albert Mugo (right) with finance director John Mudany during an investor briefing breakfast on October 26, 2016. PHOTO | DIANA NGILA 

By KIARIE NJOROGE, gkiarie@ke.nationmedia.com

In Summary

• KenGen is looking to have non-electricity revenue build up over time from the current 23 per cent of total revenue (about Sh9 billion) to about 30 per cent.
• The main driver of non-electricity income currently is earnings from sale of geothermal steam which raked in Sh6.8 billion in the year ended June.
• KenGen also sells geothermal steam to neighbouring flower farms in Naivasha that require it for heating and also to run their small power plants.

Power producer Kenya Electricity Generating Company (KenGen) is looking to further diversify its non-electricity revenue by offering consultancy services, increasing steam sales and leasing out drilling equipment.

KenGen finance director John Mudany on Wednesday said the firm was looking to have non-electricity revenue build up over time from the current 23 per cent of total revenue (about Sh9 billion) to about 30 per cent.

The main driver of non-electricity income currently is earnings from sale of geothermal steam which raked in Sh6.8 billion in the year ended June.

“Last year we made close to Sh1.5 billion from just drilling. We expect to see revenues increasing from this source,” said the KenGen chief executive Albert Mugo at an investors briefing Wednesday.

“We are concentrating a lot on diversification and definitely on the days to come- from consultancies, from drilling and also from steam- we’ll see more money coming in.”

KenGen also sells geothermal steam to neighbouring flower farms in Naivasha that require it for heating and also to run their small power plants.

The power company also expects to sell steam to industries that set up in the planned Naivasha industrial park. The company has three drilling rigs which they have hired out to Akiira Geothermal Ltd.

Mr Mugo said they are seeking more opportunities for consultancy and drilling services in the region.

The consultancy services involve feasibility studies conducted before actual drilling of the geothermal wells. KenGen conducts the studies to determine the steam quantity likely to be yielded.

“All these studies that you need before you put your money down, we have that skill and that is what we are selling,” said Mr Mudany.

Kenya has the potential to produce about 10,000 megawatts of geothermal power from the Rift Valley basin, studies by the Ministry of Energy show.

READ: KenGen seeks Sh5.8bn refund from State for geothermal wells

Less than 10 per cent of this has currently been tapped to produce power highlighting the potential for KenGen to earn revenues from these specialised services.

The country is banking on the cheap geothermal power to boost its total installed capacity, with the government placing it at the centre of its ambitious power generation plans.

The diversification of revenue by KenGen is linked to the increasing competition in electricity sales as more independent power producers enter the market

KenGen currently supplies 80 per cent of the power in the grid but upcoming producers like the Lake Turkana Wind Power Project that will inject 300 MW next year are expected to challenge this dominance.

The NSE-listed company is working to build more generating stations to keep up with the emerging IPPs.

It has lined up seven projects in the next four years that will add 725MW by 2020. It cited hefty capital requirement for the first two projects as the reason behind the failure to pay dividends this year.

Mr Mudany said that the company expects to start the 140MW Olkaria IV by December. The total cost for the project is US$623 million (Sh62.3 billion), inclusive of drilling which has already been done.