KivuWatt Power Plant Evaluation

Read the KivuWatt Impact Evaluation Study (2015-2019) here.

Before 2016, Rwanda’s electric system could not meet the energy demands, and the energy supply was expensive and unreliable. Therefore, it was critical to develop the KivuWatt power plant to increase the supply of affordable and reliable electricity, and ultimately contribute to the improvement of the country’s energy security and economic development opportunities.

Rwanda has one of the fastest growing economies in Africa. It experienced an average economic growth of 7.5% a year over the past decade, yet it remains one of the world’s poorest countries. The KivuWatt project was commissioned in 2015, after Rwanda experienced a large deficit in power between 2011 and 2013 that was directly remediated with costly and high-carbon diesel generation. KivuWatt has been used at 95% of its capacity since its commissioning and represents 25% of total grid electricity sales in Rwanda. This has greatly improved grid-wide security of supply, and reduced electricity imports.

FMO invested from the Access to Energy Fund (AEF) and the Infrastructure Development Fund (IDF, now called Building Prospects) on behalf of the Dutch government. FMO mobilized financial resources from the African Development Bank (AfDB), the Emerging Africa Infrastructure Fund (EAIF; now called Ninety One) and the Belgian Investment Company for Developing Countries (BIO) in support of Contour Global (USA) as sponsor, developer and owner of the project.

Project context

The KivuWatt project is the world’s first floating gas extraction platform on a lake. It exploits the unique geophysical characteristics of Lake Kivu, which contains high concentrations of biogenic methane and carbon dioxide gases trapped in the resource zone - a stable layer at 270 m to 500 m deep. The lake produces methane through the anaerobic digestion of organic nutrients and from nearby volcanic activities. Once extracted, the methane gas is then transported through a 13 km long semi-submerged pipeline to the 26 MW power plant onshore of the lake.

The KivuWatt project is governed by a set of requirements to ensure sustainable methane extraction and lake stability. An important side effect of the project is that it mitigates the lake saturation risk by reducing methane concentrations over time as it can lead to an explosion. At the same time it prevents the mixing of the lake’s layers which can cause biodiversity disappearance.

In 2014, FMO commissioned ENEA Consulting to perform a full five-year quantitative evaluation to assess the impacts of the financing of the Project on the Rwandan energy sector, the socio-economic impacts linked to improved energy availability and reliability, and the local impacts through KivuWatt’s Corporate Social Responsibility (CSR) activities. The evaluation confirmed that Kivuwatt has made an important contribution to Rwanda’s energy sector. In addition, the project positively impacted regional development in terms of social, environmental and economic development, while being in line with FMO’s core Sustainable Development Goals (SDGs).

Development impact

The project substantially contributed to SDG 13 - The energy generated enabled Rwanda to reduce the greenhouse gas emissions of the energy sector by roughly 44%, increasing its renewable energy share from 55% to 71%. That was possible by reducing the need for expensive, imported diesel oil by 25%, which in turn increased the country’s energy independence. The project also contributed to SDG 7 by improving energy reliability and grid stability, while it increased grid connections from 61,000 in 2015 to 154,000 in 2019. The increase in energy access not only resulted in improved livelihoods but also facilitated children to study in the evening.  The project’s contribution to SDG 8 could be seen through the direct creation of 111 local jobs, as well as the catalytic macroeconomic effect on the region by directly contributing to the country’s GDP. For example, average annual revenues of businesses almost doubled and weekly hours of operation increased by 11%, which is probably a consequence of improved access to electricity and general economic improvements in the country. That was closely related to its impact on SDG10, as it reduced income inequality across the country through allowing greater access to employment, education, healthcare, and business operations.

FMO was financially additional, as it mitigated financial risks for the client and for other financiers and investors, and provided ESG additionality by being instrumental in ensuring strict adherence to the management standards of the lake-water methane extraction, as well as air pollution and GHG emission, waste, fire and health and safety.

While the benefits of the project are vast, KivuWatt has an outstanding arbitration case due to KivuWatt’s delay in construction. This needs to be resolved to ensure the long-term sustainability of the investment and its positive impacts in the country. Furthermore, ContourGlobal will need to continue to closely monitor the performance of critical parameters of lake stability and the environment, which will remain a risk for the foreseeable future.

Learning and moving forward

The project also provided FMO with important learnings. KivuWatt’s commissioning date was delayed due to underperformance by the initially appointed Engineering, Procurement and Construction (EPC) contractor.  The EPC contractor was replaced, which led to substantial cost overruns and a 3-year delay of the expected cash flows from operations. The cost overruns were fully absorbed by Contour Global, highlighting the Sponsor’s commitment to the project. Although FMO’s investment criteria already capture the requirement to work with proven technology, the main lesson learned in this case is to do a more extensive review of the contractor’s expertise and capabilities.

The evaluation identified key aspects of the approach taken by FMO to this project which made it a success. The deep understanding of the contextual factors around the project contributed to the achievement of positive impacts. For example, its early assessment of the country’s macro-economic and legal framework helped to ensure alignment of expectations of all stakeholders with project outcomes, as well as to maximize the financial, socio-economic, and environmental impacts of the project. Moreover, it ensured strength of Sponsors’ support and robustness of financing structure which led to successful project development and operational / financial performance. These and other success factors are captured in FMO’s Investment Criteria and are therefore an integral part of FMO’s processes.

Note on timing: ‘The evaluation was performed mostly when KivuWatt was an AEF and Building Prospects client. However, now that the project has proven to produce stable electricity, the project risk has decreased. In 2020 the AEF and BP loans were refinanced with FMO funding (own balance sheet).