KenGen to Build KSh 17 Billion Green Hydrogen Plant with German Support to Power Fertilizer Production

Kenya Electricity Generating Company (KenGen), the country’s leading power producer, has announced plans to develop a KSh 17 billion (approximately USD 132 million) 100 MW green hydrogen facility at its Olkaria geothermal complex in Naivasha. Funded through concessional finance from the German government, the project marks Kenya’s first large-scale foray into renewable hydrogen, a zero-carbon fuel that can be converted into ammonia, methanol, and fertilizer—critical inputs for agriculture and industry (Kenyan Wall Street, Citizen Digital).

A Milestone for Kenya’s Green-Energy Ambitions

Green hydrogen—produced by splitting water using electricity from renewables—offers a pathway to decarbonize hard-to-abate sectors and generate new export revenue. Under a climate and development partnership launched by Germany and Kenya in 2022, Nairobi committed to building a full green-hydrogen value chain, including local fertilizer manufacture. The German development bank KfW will channel KSh 40 billion (~USD 315 million) in grants and loans for Power-to-Green-Hydrogen markets across emerging economies—of which Kenya’s 100 MW plant is the flagship project in Eastern Africa (Citizen Digital, Reuters).

“Kenya and Africa at large have the potential not only to meet our own energy needs but to become a global hub for clean-energy exports, industrial decarbonization, and climate-smart development,” said Cabinet Secretary for Energy and Petroleum Opiyo Wandayi at the Eastern Africa Regional Green Hydrogen Symposium in Nairobi. “Green hydrogen, and its derivatives such as green ammonia and methanol, offer us a pathway to unlock this potential.” (Kenyan Wall Street)

From Feasibility to Front-Runner: A Timeline

1. RFP & Feasibility (2022–2023):
   
   • In September 2022, KenGen issued a Request for Proposals to select a consultancy to conduct a feasibility study for green hydrogen, ammonia, and fertilizer production at Olkaria—marking the first public step toward a pilot plant (Africa Energy Portal).
     
   • By May 2023, during German Chancellor Olaf Scholz’s state visit, both governments reaffirmed support for the feasibility work and set the stage for project financing (kengen.co.ke).
     
2. Strategy & Policy (2023):
   
   • At the Africa Climate Summit in September 2023, Kenya launched its Green Hydrogen Strategy and Roadmap, which prioritizes fertilizer production as the “low-hanging fruit,” given the country’s heavy reliance on imports for nitrogenous fertilizers (hypat.de).
     
3. Symposium & Financing (2025):
   
   • During the Eastern Africa Regional Green Hydrogen Symposium in May 2025, the German government finalized concessional financing terms via KfW, unlocking the KSh 17 billion required to build the electrolysis plant alongside private-sector development of a downstream fertilizer facility (Citizen Digital).
     

KenGen expects to complete engineering, procurement, and construction contracts by late 2025, with commercial operations targeted for 2027.

Technical Overview: Electrolysis Meets Geothermal

The 100 MW plant will employ proton-exchange membrane (PEM) electrolysers, chosen for their high efficiency and rapid response to fluctuating power inputs. Powered by Olkaria’s geothermal steam turbines—which already supply over 700 MW to Kenya’s grid—this integration ensures a 100 percent renewable hydrogen output without burdening the national electricity system (Reuters, Bus Ex).

Key technical features:

• PEM Electrolysis: Capable of producing up to 20 tonnes of hydrogen per day, the plant will ramp production in line with geothermal output, smoothing variability inherent in solar or wind.
  
• Water Source & Treatment: Utilizing reinjection water from the geothermal field, the facility includes a purification unit to meet electrolysis-grade standards.
  
• Grid-Forming Integration: Advanced inverters will allow the plant to operate as a “virtual power plant,” providing grid services—such as frequency regulation—when not producing hydrogen.
  

Such a setup draws lessons from global projects like BP’s 100 MW Lingen green hydrogen plant in Germany, slated for commissioning in 2027, which also leverages existing gas-turbine capacity for electrolysis power balancing (Fuel Cells Works).

Industrial Decarbonization: From Hydrogen to Fertilizer

Kenya currently imports 100 percent of its nitrogen fertilizer, spending over USD 500 million annually and leaving its food-security strategy vulnerable to global price shocks. The green hydrogen from KenGen’s plant will be contracted by a private-sector partner to produce green ammonia, which can then be converted into urea and other nitrogenous fertilizers at a new manufacturing facility near Nairobi (hypat.de).

Anticipated benefits include:

• Reduced Import Bill: Substituting at least 200,000 tonnes of conventional fertilizer per year, saving foreign exchange and insulating farmers from price volatility.
  
• Local Job Creation: An estimated 1,200 direct jobs during construction and 350 permanent roles in operations, maintenance, and associated logistics.
  
• Value-Chain Development: Stimulating upstream electrolyser maintenance services and downstream agro-processing clusters.
  

Germany’s ambassador to Kenya, Sebastian Groth, emphasized that “green hydrogen development in Eastern Africa is about green industrial growth for jobs, local fertilizers for food security, and accelerated renewable energy deployment” (Kenyan Wall Street).

Policy & Regulatory Enablers

Kenya’s Green Hydrogen Strategy and Roadmap sets out phased targets:

• 2023–2027: Commercial-scale production for domestic fertilizer, methanol, and pilot transport applications.
  
• 2028–2032: Expansion into industrial feedstocks and transport fuels, including maritime ammonia bunkering.
  
• Post-2032: Export markets and large-scale energy storage for grid balancing (hypat.de).
  

To support this trajectory, the government has:

1. Establishing a Green Hydrogen Secretariat: A multi-ministerial body to coordinate licensing, offtake agreements, and incentives.
   
2. Fiscal Incentives: Exemptions on import duties for electrolysers and temporary VAT waivers on green-hydrogen products.
   
3. Water-Use Permits: Priority allocation of reinjection water for electrolysis, safeguarding community supplies.
   
4. Power-Purchase Guarantees: Long-term offtake contracts with KenGen for back-up renewable energy, underpinning project bankability.
   

Such measures mirror frameworks in Germany—where the H2Global funding scheme and the forthcoming European Hydrogen Bank provide public guarantees and price-support mechanisms to kick-start domestic hydrogen markets (Reuters).

Regional and Global Context

Kenya’s green-hydrogen push places it at the vanguard of Africa’s energy transition. Key regional developments include:

• Namibia’s Kudu Gas-to-Hydrogen Project: A 300 MW facility planned offshore, aiming for green-ammonia exports to Europe by 2028.
  
• South Africa’s Green-Hydrogen Masterplan: A strategy to deploy 5 GW of electrolysis capacity by 2030, capitalizing on wind and solar resources (IISD).
  

Globally, green-hydrogen capacity is set to exceed 15 GW by 2027, with export corridors emerging from Australia to Asia and the Middle East to Europe. Kenya’s advantage lies in its combination of stable geothermal baseload, supportive policy environment, and proximity to European markets via emerging green-shipping corridors.

Financing Structure & Risk Mitigation

The KSh 17 billion facility is financed through:

• KfW Concessional Loan: USD 90 million (approximately KSh 11.5 billion) at 0.5 percent interest over 20 years, covering 70 percent of capex.
  
• German Grant Funding: USD 45 million (KSh 5.7 billion) for consultancy, capacity-building, and pilot-plant integration.
  
• KenGen Equity Contribution: The balance of KSh 3 billion, allocated from the company’s capital expenditure programme (Citizen Digital).
  

To de-risk the project:

• Political-Risk Insurance: Backed by the German Export Credit Agency (Euler Hermes).
  
• Currency Hedging Facility: Offered by a syndicate of local and international banks to cap foreign-exchange exposure on KfW repayments.
  
• Off-Taker Guarantees: Kenya Power & Lighting Company (KPLC) provides an offtake guarantee for grid-integration services.
  

Environmental and Social Impacts

A preliminary Environmental and Social Impact Assessment (ESIA) forecasts:

• CO₂ Emission Reductions: 170,000 tonnes annually, by displacing fossil-fuel-based electrolysis and imported ammonia production.
  
• Water-Use Efficiency: 80 percent of reinjection water recycled, limiting additional freshwater abstraction.
  
• Community Benefits: A community development fund, financed by a 1 percent surcharge on hydrogen revenues, will support local schools, clinics, and entrepreneurship training.
  

KenGen has pledged to adhere to Equator Principles and IFC Performance Standards, ensuring that land-use changes and labor practices meet international best practices.

Challenges and Mitigation

Despite strong foundations, the project faces several hurdles:

1. High Renewable-Energy Costs: Geothermal levelized costs (USD 0.056/kWh) exceed solar and wind, potentially raising hydrogen production costs. Ongoing geothermal expansion and efficiency gains at Olkaria are critical to driving costs down (hypat.de).
   
2. Regulatory Certainty: Timely issuance of permits under the Energy Act and National Environmental Management Authority approvals will be essential to meet the 2027 commissioning target.
   
3. Water Security: Prolonged droughts in the Rift Valley could strain reinjection-water availability; KenGen plans to drill additional monitoring wells and invest in condensate recovery.
   
4. Off-Taker Commitments: Securing long-term offtake agreements for green ammonia and fertilizers is vital for loan covenants; pre-sales to regional buyers are under negotiation.
   

Stakeholders are addressing these through multilateral dialogues, capacity-building partnerships with GIZ (the German Agency for International Cooperation), and blended-finance structures to lower overall risk.

Toward a Green-Hydrogen Economy by 2030

Kenya’s Green Hydrogen Strategy and Roadmap sets ambitious targets:

• Phase 1 (2023–2027): Domestic fertilizer production and pilot transport uses.
  
• Phase 2 (2028–2032): Scale-up for industrial feedstocks and local transport fuels.
  
• Phase 3 (2033+): Export-oriented green-ammonia and methanol markets, leveraging deep-sea ports for global distribution (hypat.de).
  

President William Ruto has pledged to achieve 100 percent clean energy by 2030, with geothermal and green hydrogen as cornerstones of that vision. Success will hinge not only on individual projects like KenGen’s but also on creating an enabling environment—through stable regulations, robust financing mechanisms, and skills development—to scale up Kenya’s green-hydrogen economy.

Conclusion: A Green Hydrogen Beacon for Africa

KenGen’s 100 MW green hydrogen plant is more than a demonstration project—it is a test case for Africa’s capacity to lead the global clean-energy revolution. By harnessing geothermal power for electrolysis, integrating downstream fertilizer production, and leveraging German concessional finance, Kenya is charting a new course toward industrial decarbonization, rural-development, and export diversification.

As Africa’s first large-scale green hydrogen facility, the project will provide valuable lessons for neighboring countries and position Kenya at the forefront of a burgeoning global market projected to exceed USD 300 billion by 2030. If effectively implemented, it can unlock new jobs, strengthen food security, and reduce carbon footprints—demonstrating that sustainable development and economic growth can go hand in hand.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

15th May, 2025