Using Public Finance to Attract Private Investment in Geothermal: Olkaria III Case Study, Kenya

The Olkaria III project, a 110 MW binary geothermal plant, is the first privately funded geothermal project in Africa. It succeeded by utilizing a phased expansion strategy and a mix of public and private financing. Key enablers included the Kenyan government's provision of exploratory data and wells, a 20-year power purchase agreement (PPA) with USD-pegged tariffs, and long-term, low-cost debt from Development Finance Institutions (DFIs). The project achieved a levelized cost of electricity (LCOE) 13% lower than the average for similar Kenyan projects, demonstrating that public-private models can be more cost-effective than purely public ones.

• Olkaria III achieved a levelized cost of electricity (LCOE) 13% lower than the average for similar geothermal projects in Kenya, with public financial support reducing the cost per unit of power by 31%.
• The project's financial viability was secured through a 20-year renegotiable power purchase agreement (PPA) with Kenya Power and Lighting Company (KPLC), featuring a tariff pegged to the US dollar to shield the developer from currency exchange risk.
• The Kenyan government significantly reduced exploration risk by providing exploratory data and donating eight wells (with 8 MW capacity) to Ormat Technologies, which increased the project's equity internal rate of return (IRR) from 13% to 16%.
• Development Finance Institutions (DFIs) provided critical long-term, low-cost debt that was unavailable in the local commercial market; for example, OPIC provided a 19-year tenor senior loan of USD 310 million.
• A phased development strategy, expanding capacity from 8 MW to 110 MW, allowed the developer to reduce investment exposure and progressively exploit the reservoir as it was proven.
• Political risk was mitigated through Political Risk Insurance (PRI) from the Multilateral Investment Guarantee Agency (MIGA), which covered equity exposure against transfer restrictions, war, civil disturbance, and expropriation.
• The Government of Kenya unlocked debt financing by providing a security package to back off-taker payments, consisting of a letter of credit from KPLC and a letter of comfort from the government.
• The project is estimated to reduce Kenyan power sector emissions by 3% to 4% by 2038, resulting in annual net savings of approximately 450,000 tCO2e by replacing fossil fuel generation.

APA

Micale, V., Trabacchi, C., & Boni, L. (2015). Using Public Finance to Attract Private Investment in Geothermal: Olkaria III Case Study, Kenya. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/06/150601_Final_Olkaria_ForWeb.pdf

Chicago

Micale, Valerio, Chiara Trabacchi, and Leonardo Boni. Using Public Finance to Attract Private Investment in Geothermal: Olkaria III Case Study, Kenya. Climate Policy Initiative, 2015. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/06/150601_Final_Olkaria_ForWeb.pdf.

Wikipedia

{{cite report |last1=Micale |first1=Valerio |last2=Trabacchi |first2=Chiara |last3=Boni |first3=Leonardo |title=Using Public Finance to Attract Private Investment in Geothermal: Olkaria III Case Study, Kenya |publisher=Climate Policy Initiative |date=June 2015 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2015/06/150601_Final_Olkaria_ForWeb.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{micale2015using, author = {Micale, Valerio and Trabacchi, Chiara and Boni, Leonardo}, title = {{Using Public Finance to Attract Private Investment in Geothermal: Olkaria III Case Study, Kenya}}, institution = {Climate Policy Initiative}, year = {2015}, month = jun, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2015/06/150601_Final_Olkaria_ForWeb.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }