2010-03-30
NAIROBI (Reuters) - Kenya signed a 23.4 billion shilling loan with Japan on Tuesday to help develop the geothermal energy sector in east Africa's largest economy, its finance minister said.

The loan will help fund the construction of two new units at the Olkaria I geothermal plant in the Rift Valley, which will generate an additional 140 MW for the country's main electricity generating firm, Kenya Electricity Generating Company.

"The growth for high demand for energy is driven by accelerated consumer connection, as well as robust economic growth performance," Uhuru Kenyatta told reporters.

"In consideration of the present energy situation, high fuel prices and over dependence on hydropower production, the government of Kenya now recognises the need to diversify power generation through environment-friendly sources."

Energy Minister Kiraitu Murungi said Kenya was targeting at least 5,000 MW of geothermal energy by 2030.

Murungi said the expansion of Olkaria I, currently producing 45 MW, would cost an estimated $660 million and would be completed by 2013.

Other financiers for the plant are the government, Germany's KfW, World Bank and the European Investment Bank.

Murungi said a new section, Olkaria IV, which is expected to produce 140 MW, would cost $714 million and its main financiers were the government, French development agency AFD and the European Investment Bank.

The drought prone nation, which relies heavily on hydropower, is increasingly turning to geothermal energy to increase power production. Businesses say frequent blackouts increase the cost of doing business in Kenya.

Geothermal power comes from steam made from underground water heated by the earth's core and used to spin turbines.

Although cheap and renewable, the start-up cost for geothermal is expensive compared with other energy sources.

Separately, Kenya and the African Development Bank signed a loan agreement worth about 7 billion shillings to boost water supply and sanitation in eight small towns and build a multipurpose dam in eastern Kenya to irrigate some 3,000 hectares of land.

"Once completed, the project will serve nearly 1 million people," Water Minister Charity Ngilu told reporters.