KivuWatt: One-off innovation
ContourGlobal has closed the $91.5 million debt financing for the $142 million KivuWatt lakebed methane-to-power project in Rwanda. The financing is the largest single private investment in Rwanda’s history, and also its first project financing. It marks a powerful endorsement by development financing institutions of the country’s recovery since its 1994 genocide.
More particularly, the financing highlights the successful efforts of Contour to get lenders comfortable with a very unusual type of generating technology. The effort is unlikely to produce any follow-ups, because the setting for KivuWatt, and the lake chemistry that allows the project to operate, is unique.
KivuWatt will be located on Lake Kivu, which divides Rwanda from the Democratic Republic of Congo, is one of the African Great Lakes, and is also one of three so-called Exploding Lakes, along with Cameroon’s Lake Nyos and Lake Monoun. These lakes feature high concentrations of carbon dioxide as a result of volcanic rock interaction with the lake water, while Kivu, uniquely, also features high concentrations of methane on the lake bed, which is thought to be the legacy of biological processes.
The KivuWatt project, like many African independent power plants, is designed to provide cheap locally-sourced power, and reduce dependence on imported fuel oil. Like many proposed African renewables projects, it may be eligible for carbon credits, though it will not do so in much greater volumes than wind and small hydro.
It is also designed to reduce the likelihood of a catastrophic overturn at the lake – a massive release of gasses with the potential to suffocate the two million people living in the basin of Lake Kivu.
The Rwandan government has long wanted to combine the generation and overturn-mitigation potential of the lake. A number of small-scale operations already exist at the lake, none of them of more than 5MW. One of them, Dane Associates’ KP1 project, endured poor relations with the Rwandan government, before being effectively nationalised. Dane subsequently launched arbitration proceedings against the Rwandan government and was embroiled in litigation in Scottish courts with KivuWatt.
Contour’s involvement dates back to a 2008 meeting between its chief executive, Joseph Brandt, and the Rwandan energy minister. In 2009, the developer signed a 25-year concession and power purchase for KivuWatt, with a first phase of 25MW, and three subsequent phases, each of the same size. The scale of the project required that Contour develop new technology to extract methane from the lake, the world’s 18th-deepest, at depths of 300-400m.
The methane-gathering element, which Kenya’s Civicom will install on a barge, does not benefit from a lender-friendly wrap of construction risk. The technology has some equivalents, in the shape of the two smaller projects on Lake Kivu, and the process that washes the gas for burning is a common feature of gas field developments. But lenders had to rely upon a combination of intensive due diligence, limited sponsor support and generous pricing to get comfortable with the risk.
The generation element of the project is more straightforward, because it uses Wartsila-built and installed turbines, which Contour and its lenders are familiar with, and which benefit from a manufacturer warranty. However, lenders had to be comfortable that the gathering system would produce gas with a high enough methane content to be within the tolerances of the turbines.
The remaining project risks were more conventional and could be dealt with in a more straightforward fashion. There is little reserve risk, since the lake’s methane resource is estimated at 65 billion cubic metres, though the gathering technology has not been tested on KivuWatt’s scale. The obligations of the offtaker, Rwanda’s Energy, Water and Sanitation Authority, come with a full sovereign backstop, and are paid in Rwandan Francs but indexed to the US dollar. Contour’s $50.5 million equity investment benefits from political risk insurance from the Multilateral Investment Guarantee Agency.
The debt financing has a tenor of two years’ construction plus 13 years, and its providers are the African Development Bank, with a $25 million loan, the Emerging Africa Infrastructure Fund, also with $25 million, and the Netherlands’ FMO, which provided a $41.5 million commitment, of which it sold down $10 million to Belgium’s BIO. The lenders, as is their habit, signed separate loan agreements with the project, under a common terms agreement.
Pricing is undisclosed, but the nearest benchmark for a DFI-led emerging markets project financing with technological challenges would be the Maple Ethanol deal in Peru, which carried a 600bp over Libor margin. Maple had similar issues with coordinating conventional production technology with unorthodox fuel supply arrangements. It has a better-known host country, but greater market risk.
The KivuWatt financing signed on 29 August, at the same time that the barge for the project was launched onto Lake Kivu. It will be outfitted before being moved into position 14km into the lake, and is set to start operations in 2012. The concession agreement envisages three more 25MW stages, which will come online to meet expected future demand. The full project size of 100MW would exceed Rwanda’s entire current installed base of 75-80MW.
After the build out of KivuWatt, Contour will have no additional opportunities to use the technology deployed at the lake. The other exploding lakes do not have the methane concentrations to support generation activity, and the phenomenon does not exist anywhere else in the world. The chairman of EAIF, Tony Lea, calls KivuWatt “one of the most innovative in the history of electricity generation”. But it is unlikely to have any imitators.
ContourGlobal KivuWatt Ltd
Status: Signed 29 August 2011
Size: $142 million
Location: Lake Kivu, Rwanda
Description: 25MW phase 1 of a lakebed methane-to-power project
Offtaker: Rwanda Energy, Water and Sanitation Authority
Sponsor: ContourGlobal
Equity: $50.5 million
Debt: $91.5 million
Providers: African Development Bank, Emerging Africa Infrastructure Fund, FMO, BIO
Independent engineer: Royal Haskoning
Owner’s engineer: IVAGA
Lenders’ insurance adviser: INDECS
Model auditor: Mazars
Lender legal: Clifford Chance
Sponsor legal: Norton Rose
More particularly, the financing highlights the successful efforts of Contour to get lenders comfortable with a very unusual type of generating technology. The effort is unlikely to produce any follow-ups, because the setting for KivuWatt, and the lake chemistry that allows the project to operate, is unique.
KivuWatt will be located on Lake Kivu, which divides Rwanda from the Democratic Republic of Congo, is one of the African Great Lakes, and is also one of three so-called Exploding Lakes, along with Cameroon’s Lake Nyos and Lake Monoun. These lakes feature high concentrations of carbon dioxide as a result of volcanic rock interaction with the lake water, while Kivu, uniquely, also features high concentrations of methane on the lake bed, which is thought to be the legacy of biological processes.
The KivuWatt project, like many African independent power plants, is designed to provide cheap locally-sourced power, and reduce dependence on imported fuel oil. Like many proposed African renewables projects, it may be eligible for carbon credits, though it will not do so in much greater volumes than wind and small hydro.
It is also designed to reduce the likelihood of a catastrophic overturn at the lake – a massive release of gasses with the potential to suffocate the two million people living in the basin of Lake Kivu.
The Rwandan government has long wanted to combine the generation and overturn-mitigation potential of the lake. A number of small-scale operations already exist at the lake, none of them of more than 5MW. One of them, Dane Associates’ KP1 project, endured poor relations with the Rwandan government, before being effectively nationalised. Dane subsequently launched arbitration proceedings against the Rwandan government and was embroiled in litigation in Scottish courts with KivuWatt.
Contour’s involvement dates back to a 2008 meeting between its chief executive, Joseph Brandt, and the Rwandan energy minister. In 2009, the developer signed a 25-year concession and power purchase for KivuWatt, with a first phase of 25MW, and three subsequent phases, each of the same size. The scale of the project required that Contour develop new technology to extract methane from the lake, the world’s 18th-deepest, at depths of 300-400m.
The methane-gathering element, which Kenya’s Civicom will install on a barge, does not benefit from a lender-friendly wrap of construction risk. The technology has some equivalents, in the shape of the two smaller projects on Lake Kivu, and the process that washes the gas for burning is a common feature of gas field developments. But lenders had to rely upon a combination of intensive due diligence, limited sponsor support and generous pricing to get comfortable with the risk.
The generation element of the project is more straightforward, because it uses Wartsila-built and installed turbines, which Contour and its lenders are familiar with, and which benefit from a manufacturer warranty. However, lenders had to be comfortable that the gathering system would produce gas with a high enough methane content to be within the tolerances of the turbines.
The remaining project risks were more conventional and could be dealt with in a more straightforward fashion. There is little reserve risk, since the lake’s methane resource is estimated at 65 billion cubic metres, though the gathering technology has not been tested on KivuWatt’s scale. The obligations of the offtaker, Rwanda’s Energy, Water and Sanitation Authority, come with a full sovereign backstop, and are paid in Rwandan Francs but indexed to the US dollar. Contour’s $50.5 million equity investment benefits from political risk insurance from the Multilateral Investment Guarantee Agency.
The debt financing has a tenor of two years’ construction plus 13 years, and its providers are the African Development Bank, with a $25 million loan, the Emerging Africa Infrastructure Fund, also with $25 million, and the Netherlands’ FMO, which provided a $41.5 million commitment, of which it sold down $10 million to Belgium’s BIO. The lenders, as is their habit, signed separate loan agreements with the project, under a common terms agreement.
Pricing is undisclosed, but the nearest benchmark for a DFI-led emerging markets project financing with technological challenges would be the Maple Ethanol deal in Peru, which carried a 600bp over Libor margin. Maple had similar issues with coordinating conventional production technology with unorthodox fuel supply arrangements. It has a better-known host country, but greater market risk.
The KivuWatt financing signed on 29 August, at the same time that the barge for the project was launched onto Lake Kivu. It will be outfitted before being moved into position 14km into the lake, and is set to start operations in 2012. The concession agreement envisages three more 25MW stages, which will come online to meet expected future demand. The full project size of 100MW would exceed Rwanda’s entire current installed base of 75-80MW.
After the build out of KivuWatt, Contour will have no additional opportunities to use the technology deployed at the lake. The other exploding lakes do not have the methane concentrations to support generation activity, and the phenomenon does not exist anywhere else in the world. The chairman of EAIF, Tony Lea, calls KivuWatt “one of the most innovative in the history of electricity generation”. But it is unlikely to have any imitators.
ContourGlobal KivuWatt Ltd
Status: Signed 29 August 2011
Size: $142 million
Location: Lake Kivu, Rwanda
Description: 25MW phase 1 of a lakebed methane-to-power project
Offtaker: Rwanda Energy, Water and Sanitation Authority
Sponsor: ContourGlobal
Equity: $50.5 million
Debt: $91.5 million
Providers: African Development Bank, Emerging Africa Infrastructure Fund, FMO, BIO
Independent engineer: Royal Haskoning
Owner’s engineer: IVAGA
Lenders’ insurance adviser: INDECS
Model auditor: Mazars
Lender legal: Clifford Chance
Sponsor legal: Norton Rose
Request a Demo
Interested in IJGlobal? Request a demo to discuss a trial with a member of our team. Talk to the team to explore the value of our asset and transaction databases, our market-leading news, league tables and much more.