Kenya’s tropical climate and volcanic red soil make it an ideal place to cultivate tea, and for over a century tea has been a major cash crop and the leading foreign exchange earner for the country. The third largest tea producer in the world, the Kenyan tea industry supports the livelihood of millions of its citizens. But unreliable power supply and excessive drought in recent years has lowered Kenya’s tea production, affecting tens of thousands of smallholder farmers whose livelihoods depend on the crop.
Given that electricity is a key cost component in tea processing (accounting on average for up to 30% of production cost), large tea estates in Kenya have installed their own hydropower plants to establish cost competitiveness. Once constructed, the hydropower plants carry low technical risk, limited running costs and a long lifecycle of up to 100 years. The plants significantly reduce production costs in the long term, and help ensure high quality tea by improving reliability and continuity of power supply.
In 2016, IFC and GAFSP provided long-term affordable financing to KTDA Power Company, a wholly owned subsidiary of Kenya Tea Development Agency Holdings Limited (KTDA) - the largest tea business in East Africa that accounts for approximately 60% of the country’s tea production. KTDA works with 562,000 smallholder tea farmers, who are suppliers as well as shareholders of 54 separate tea companies owning a total of 66 tea factories.
The combined IFC and GAFSP investment will assist in the design, construction, operation and maintenance of seven run-of-the-river small hydropower plants with a total installed capacity of 16 Megawatt in various locations across Kenya. These hydropower plants will provide captive power generation for KTDA’s tea factories and will sell any excess to the state-owned utility company. The project is climate-smart, aligning with IFC’s strategic climate pillar to encourage renewable energy generation, including captive used by commercial and industrial sector clients.
The seven power plants are expected to be fully operational by 2020 and will result in significant cost savings, benefitting over 350,000 smallholder tea farmers who have endured two years of low income due to the drop in tea prices during the 2013 to 2014 season. The project is also expected to significantly improve the competitiveness of the Kenyan tea sector.
Once successfully implemented, this project is also expected to demonstrate that such ventures among indigenous power project companies are feasible, catalyzing an increase in the flow of domestic capital into this subsector and deepening the renewable energy market in Kenya.
350,000 smallholder tea farmers will benefit from lower cost of power
This investment will directly increase the incomes of 350,000 smallholder tea farmers who will receive, as tea factory owners, higher green leaf payment and profit margins due to lower energy costs. In addition, as shareholder of KTDA, the farmers will also receive dividends from additional revenue streams from increased energy sales. Farmers will also benefit financially from a more reliable power supply which will reduce production losses.
50,000 tons of carbon will be removed from the atmosphere
The hydropower plants will remove over 50,000 tons of carbon from the atmosphere through reduced consumption of diesel and biomass for energy generation.
2,000 jobs will be created
The construction of the new hydropower plants will create more than 2,000 new jobs, over a two to three-year period. Once the hydropower plants are completed, they will add an additional 60 new jobs to the local community.
Mr. Niraj Shah
Head, GAFSP Private Sector Window
Tel: 202 473 3743