Along the western border of Rwanda, an innovative energy project on Africa’s 2,700 square kilometer Lake Kivu is generating electricity in a region beset by both geochemical and geopolitical instability.
Lake Kivu is one of the world’s three known “exploding lakes,” presenting a threat as well as an opportunity for local communities. Volcanic and bacterial activity in the lake generates substantial methane deposits that, if untapped, could erupt violently with disastrous effects on local lives, wildlife, and the environment. If safely extracted, however, the methane could provide a source of electricity and reduce the geochemical risks associated with the untapped gas.
To harness the lake’s energy potential, private sector investors are financing Project KivuWatt, a unique technological solution that translates potential risks into both socioeconomic development and geochemical stability. The initiative offers a model for successful power-producing projects in Rwanda and other developing countries.
From Potential Disaster to Potential Opportunity
Deep below the surface of Lake Kivu, volcanic vents release large amounts of carbon dioxide (CO2), which is then converted to methane gas by subsurface bacteria. Both the CO2 and methane are currently trapped at the bottom of the lake, dissolved in water at the higher pressures of the lower depths. The lake’s dense layers prevent vertical mixing for the time being, but there is significant concern that a geologic disturbance in the area or a saturation of the water with CO2 and methane within the next two centuries could lead to a significant—and lethal—release of gases.
A release of this kind occurred at two lakes in Cameroon: at Lake Monoun in 1984 and at Lake Nyos in 1986. In an event known as a limnic eruption, or lake turnover, both lakes exploded when they reached CO2 saturation, releasing quantities of the gas significant enough to asphyxiate nearby people and livestock. Lake Nyos alone released some 80 million cubic meters of CO2, asphyxiating more than 1,700 people.
Current concentrations of dissolved CO2 in Lake Kivu are estimated at 250–300 billion cubic meters, while methane concentrations are nearing 55–60 billion cubic meters. Experts predict that the lake could become saturated within the next 50 to 200 years, but with graver consequences than in Cameroon given the region’s higher population density, the lake’s higher gas concentrations, and the presence of explosive methane in addition to CO2.
A Unique Lake Demands a Unique Solution
To address this problem and harness Lake Kivu’s high methane concentrations, ContourGlobal, an international energy development company, designed and implemented Phase 1 of Project KivuWatt, an innovative extraction and power plant system that taps the dissolved gas to generate electricity. A unique and flexible financing structure, arranged by the Emerging Africa Infrastructure Fund (EAIF) and the Netherlands Development Finance Company (FMO), raised a total debt funding of US$91.5 million to finance both the methane gas extraction and production facility and a 25 megawatt power plant located on the shore of Lake Kivu. (See Table 1.)
Despite the project’s potential, there is enormous investment risk (PDF) in operating a power plant that uses unique methane extraction technology in a politically tumultuous region and with a geologic disturbance looming. To create a context for secure investment, EAIF and FMO allocated risks and drew up investment policies that provided both flexibility and accountability to lenders. They allowed for decreased production capacity of the plant given the possibility of damages and reduced methane concentrations, provided a political risk insurance policy for ContourGlobal, and met environmental and social requirements (PDF) dictated by the government of Rwanda.
In addition, when ContourGlobal signed the 25-year concession agreement in March 2009 the Rwandan government also agreed to a power purchase agreement (PPA) that stipulated that the country’s state electricity utility purchase electricity from KivuWatt on a take-or-pay contract for the length of the concession term.
Unfortunately, the momentum of KivuWatt is waning only a few short years later. Although Phase 1 was financed and is complete, there are three more phases left to reach the project’s ambitious 100 MW planned capacity. Both private and public sector investors are reluctant to invest in a region that is currently, and is likely to continue, experiencing political instability. Political decisions made by the Rwandan government with regard to the insurgency in the neighboring Democratic Republic of the Congo have led both the United States and the European Union to significantly cut aid provisions.
Despite these challenges, the innovative financing structure designed for Project KivuWatt provides a useful precedent for future power generation projects in Rwanda. Understanding the mechanics of successful financing in unstable regions is integral to private sector investment in energy and other development. This aim is particularly urgent in the Lake Kivu region, where politics decrease the availability of public funding and where a lack of investment could result in the preventable loss of lives.