All societies aspire to modernise and develop. Achieving this requires significant investment in major infrastructure—be it water, roads, energy, or ports. Yet few nations possess the financial muscle to fund such projects independently. Broadly, there are two avenues to bridge this gap: government borrowing or private sector investment. While public borrowing increases national debt, private investment presents an attractive alternative—though it is not without complexity. Investors evaluate a multitude of factors, with risk topping the list. It is in addressing this risk that GDC enters the picture.
Geothermal energy is a capital-intensive enterprise. This partly explains why, since 1972, progress in the sector remained sluggish. It was only with the establishment of the Geothermal Development Company (GDC) that the industry began to regain momentum.
A prime example of this resurgence is the Menengai Geothermal Project, which has successfully attracted a staggering Sh36 billion in private investment for the development of three power plants. These Independent Power Producers (IPPs) will collectively generate 105MW.
The model is simple yet strategic: the government, through GDC, undertakes the high-risk, early-stage work—exploration, drilling, and infrastructure development. The IPPs then step in to build and operate power plants, purchasing steam from GDC to generate electricity.
Had this investment come solely from the Exchequer, it would have required diverting funds from other vital sectors such as health, education, or security. The IPP model liberates government resources for such priorities. Attracting private capital into high-impact projects is not just pragmatic—it is essential. The Menengai 105MW project is a textbook example of how intelligently structured public-private partnerships (PPPs) can deliver transformative infrastructure while maintaining fiscal prudence. Furthermore, power from Menengai remains among the most affordable in Kenya, at approximately 7 US cents per kWh.
By assuming the upfront risk, GDC helps ensure that tariffs remain viable for investors while staying affordable for Kenyans.
Risk Mitigation
To strengthen the PPP model, GDC worked with development finance institutions to mitigate creditworthiness risks. With support from the African Development Bank (AfDB), a Partial Risk Guarantee (PRG) instrument was created—backed by the government—to cover two key risks: non-payment by the power off-taker (Kenya Power) and non-delivery of steam by GDC. The PRG was a critical pre-condition for the Menengai Project Implementation Steam Sales Agreement (PISSA), and its provision was facilitated by the Ministry of Energy and Petroleum.
More recently, the government has considered transitioning from PRGs to instruments provided by the African Trade Insurance Agency (ATIDI). Unlike PRGs, ATIDI’s insurance does not require an escrow account or letter of credit, and Kenya’s status as a shareholder country adds an extra layer of confidence for private investors.
GDC now aims to replicate and refine the Menengai model at Paka and Suswa geothermal fields, this time through even more innovative approaches, bringing on board strategic partners at earlier stages.
