As of December 1, shares of KenGen (KEGN), formally Kenya Electricity Generating Company, were up 3.5% for the last 30 days, but down 22% for the last one year and down 62.4% for the last three years. While KenGen stock has struggled in the recent years as profits have stagnated or declined because a step-up in capital expenditure is eating into the bottom line, the long-term outlook for the company bright. That may mean the stock has only retreated to gather momentum for a more powerful rally.
KenGen is the principal electricity producer in Kenya. Although the Kenyan electricity production market is attracting more players that should mean increased competition for KenGen, the company has figured out how to do business with its rivals to grow and diversify its revenue sources. As such, the more players entering the Kenyan power production market the better for KenGen.
Renting rigs, selling steam and offering consultancy
KenGen is renting its drilling equipment to other electricity producers working on geothermal power projects. This practice of leasing drilling rigs allows KenGen to generate extra income. Demand for geothermal drilling services is expected to increase in the coming years not only because of more players entering then Kenya market, but also because of the country’s huge unexploited geothermal power potential.
KenGen said it generated Ks1.5 billion last year from leasing its drilling rigs and it expects the income from this source to keep swelling.
The other promising source of extra income for KenGen as Kenya’s power production market expands is the sale of geothermal steam. The company sells steam from its geothermal plants to other power producers. It also sells steam to companies that use it for on-site electricity production to supplement what they get from the national grid.
The sale of geothermal steam generated Ks6.8 billion in revenue for KenGen last year.
KenGen is also in knowledge business, offering consultancy services in areas that include feasibility study of geothermal projects. Because of its expertise and experience in Kenyan market, KenGen is getting consulting businesses from companies seeking to venture into geothermal power production in the country.
Monetizing geothermal by-products
KenGen is also venturing into the business of converting waste into cash (not exactly recycling). Specifically, the company is looking to monetize its geothermal by-products, especially by extracting valuable minerals from waste steam that it pumps out of the ground at its geothermal power facilities in the Rift Valley.
Geothermal brine, or waste steam, can contain a broad range of valuable minerals such as zinc, manganese, lithium and silica. KenGen has invited experts to analyze its geothermal brine to see if it contains economically viable quantities of lithium and silica. If the project is successful, it would open another important non-electricity revenue stream for KenGen, further boosting its efforts to break overreliance on electricity sales income as the market becomes more competitive.
Studies have shown that up to 800mgs of silica can be extracted from a kilogram of waste steam. The same amount of steam can yield up to 2mgs of lithium. Silica is known for its moisture absorption property and it is also used in glass industry.
On the other hand, lithium is widely used in battery manufacturing. Lithium-based batteries are used to power a range of devices including phones and electric cars. Lithium cells are also used in backup batteries to store energy from renewable sources such as wind and solar for offline use in home and businesses.
Combining lithium with aluminum produces a special metal alloy with wide application, including making of aircraft body. Lithium is also used in making medical devices.
Demand for lithium has spiked in the recent years amid growing adoption of smartphones and battery-powered vehicles. American electric car manufacturer Tesla ($TSLA) uses lithium-ion cells to power its vehicles, which are gaining traction in the U.S., Europe and China where authorities are trying to battle air pollution by encouraging adoption of electric vehicles.
Boosting non-electricity revenue
KenGen generates the bulk of its revenue from selling electricity to Kenya Power (KPLC), the primary power purchaser and distributor in the country. But KenGen has been working to expand its non-electricity business, which is the segment where activities such as renting drilling rigs, selling steam, consultancy and monetizing of geothermal by-products fall in.
According to KenGen Managing Director Albert Mugo and Finance chief John Mundany, there is opportunity to raise the profile of the company’s non-electricity business to account for 30% of total revenue. Non-electricity income is currently at 23% of KenGen’s total revenue.
KenGen belongs to Nairobi Security Exchange’s Energy and Petroleum sector that also includes companies like Umeme Limited (UMME), KenolKobil (KENO), Total Kenya (TOTL) and Kenya Power (KPLC). Umeme is a Ugandan electricity producer whose stock is cross-listed in Nairobi and Kampala.
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