Italy’s FER2 Auction Approves Two Zero‑Emissions Geothermal Projects — What It Means for the Market Overview: FER2’s first geothermal auction and the winners Italy’s FER2 incentive mechanism — established by the Ministry of the Environment and Energy Security (MASE) to stimulate renewable investment through long‑term Contracts for Difference (CfDs) — has completed its first geothermal tender, awarding favourable rankings to two zero‑emissions projects with a combined capacity of 29.4 MW. The auction aimed to allocate a dedicated 30 MW quota for geothermal plants that operate with no net emissions, and it selected: - Pola 1: a 24.4 MW project in Jolanda di Savoia, Ferrara. - ITW & LKW Geotermia Italia: a 5 MW plant in Castel Giorgio, Terni. Two other bids — a 12.69 MW project in Castelnuovo di Val di Cecina by Magma Energy Italia and a 5 MW proposal in Monterotondo Marittimo from Enel Green Power Italia — were excluded from the final rankings. The FER2 framework sets explicit timeli...
Geothermal Investment Opportunities in Kenya: Why Global Investors Are Watching Africa
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The center of gravity in the global geothermal energy industry is shifting. For decades, Iceland, the United States, and Indonesia have dominated the narrative of geothermal power. But in 2026, a new epicenter is emerging: the Great Rift Valley of Kenya.
The evidence is unmistakable. In April 2026, Kenya officially surpassed 1,000 megawatts of installed geothermal capacity, cementing its status as the 7th largest geothermal producer globally and the undisputed leader in Africa. At the World Geothermal Congress 2026 in Calgary, Kenya’s Energy and Petroleum Regulatory Authority issued a direct call to global financiers and developers to participate in what is rapidly becoming the world’s most dynamic geothermal frontier.
For institutional investors, infrastructure funds, and independent power producers seeking stable, long-term yields in renewable energy, the thesis is compelling. The country is not merely exploring its potential; it is executing a multi-billion-dollar expansion plan backed by sovereign guarantees, new fiscal incentives, and a mature regulatory framework.
Why Kenya? The Baseload Advantage
Unlike the intermittent nature of solar and wind, geothermal provides baseload power—electricity that runs 24/7, 365 days a year. This is a strategic asset for a rapidly industrializing nation. In the 11 months leading to November 2025, geothermal supplied approximately 40% of Kenya Power’s electricity, outpacing hydro, wind, and diesel generation. With national peak demand hitting a record 2,439 MW late last year, the strain on the grid is immense, making geothermal expansion not just an environmental policy but a national security imperative.
Kenya currently ranks seventh globally in geothermal capacity. However, the geological potential of the Rift Valley is estimated at over 10,000 MW, meaning the country is currently operating at less than 10% of its total capacity. This delta between current output and future potential represents the core investment opportunity.
The National Geothermal Strategy (2026–2036): A Blueprint for Private Capital
Historically, geothermal development in Kenya was dominated by the state-owned Kenya Electricity Generating Company (KenGen). However, the government has recognized that public financing alone cannot unlock the full potential of the Rift Valley. The result is a national strategy released in early 2026 that explicitly pivots toward private sector participation.
The strategy sets an installed capacity target of 1,413.5 MW by 2035, requiring the acceleration of greenfield site development and the diversification of revenue streams beyond electricity (such as direct heat use for agriculture and industry). To achieve these targets, the Ministry of Energy and Petroleum has proposed a sweeping set of reforms aimed at de-risking the sector. These include the issuance of forward‑bankable power purchase agreements upon completion of geoscientific studies, implementation of cost‑reflective steam tariffs, and off‑take guarantees of at least 25 years for industrial users.
The Menengai Model: A Template for Success
The most tangible proof of this strategy’s viability is the Menengai geothermal complex. This field is the testing ground for the
“GDC model,” where the state-owned Geothermal Development Company absorbs the high‑risk upstream costs—drilling wells, building steam gathering systems—and sells the steam to private IPPs who build and operate the power plants.
The results are concrete. Sosian Energy brought the first 35 MW plant online in 2023. By mid‑2026, the complex will be fully completed with the commissioning of two additional 35 MW plants—one backed by a $16.5 million loan from the African Development Bank, which entered operations in March 2026, and another expected online by June 2026. These projects are currently providing Kenya Power with electricity at some of the lowest tariffs in the country.
The Next Frontier: Suswa, Baringo, and Silali
With Menengai reaching maturation, investment attention is shifting to virgin territories.
The Suswa geothermal field represents the immediate next wave. In May 2026, the National Treasury cleared GDC to proceed with feasibility studies for a development estimated at 750 MW of total potential, with an initial phase targeting 300 MW. GDC has already begun mobilizing drilling rigs to the site, and the first phase seeks to onboard private investors by June 2027 to develop an initial 50 MW to 100 MW. To attract development, the government is offering a 35‑year project lifecycle (10 years of steam field development plus 25 years of power generation).
Simultaneously, KenGen and GDC are partnering to tap the Baringo–Silali fields, with plans to drill an additional 87 MW of steam capacity to meet rising industrial demand. Silali has been identified as the “next source” of geothermal power beyond Olkaria, signaling a deliberate push to distribute assets across the Rift Valley rather than concentrating them solely in Naivasha.
Financing the Pipeline: The Role of Development Finance
Private equity and infrastructure funds cannot enter these markets without credible anchor partners. The financing gap is being bridged by multilateral development banks acting as first movers.
The African Development Bank has been pivotal. Its recent $16.5 million loan to one of the Menengai IPPs built on a history of support that includes an initial $145 million to GDC for drilling infrastructure and subsequent backing of another developer. Beyond that, the French Development Agency has pledged €60 million for drilling rigs, while negotiations are ongoing with the Exim Bank of China for additional drilling hardware.
In a new and intriguing development, a UK‑based critical minerals firm has signed a Collaborative Research Agreement with GDC to explore not just steam but also the extraction of lithium and other critical minerals from geothermal brines. This partnership—leveraging geothermal wells for mineral recovery—adds a secondary revenue stream that could significantly enhance project IRRs for early‑stage investors.
Incentives and the Push for Cheap Power
For the risk‑adjusted return calculation to work, tariffs must be competitive. Kenya has set an aggressive target: geothermal power at no more than $0.07 (approximately Sh9) per kilowatt‑hour.
To achieve this while attracting private capital, the national strategy proposes specific fiscal interventions: tax exemptions on imported drilling equipment, longer power purchase agreements extending to 30 years or more (up from the current standard of 20–25 years), and a streamlined licensing process under forthcoming geothermal resources regulations.
Additionally, the KenGen Green Energy Park within the Olkaria field was designated a customs‑controlled area in June 2026, unlocking Special Economic Zone benefits that include a reduced corporate tax rate of 10% for the first decade, VAT exemptions, and work permit facilitation for foreign specialists. Five anchor investors, including steel fabricators and EV assemblers, have already committed to the park, creating a nascent industrial ecosystem powered directly by geothermal baseload.
East African Rift: Regional Spillover Effects
While Kenya leads, the investment thesis extends across the region. The East African Rift System contains an estimated geothermal potential that could power millions of homes across Tanzania, Ethiopia, Djibouti, and Uganda. At the recent World Geothermal Congress, Tanzania publicly invited private investors to participate in exploration and development, touting an estimated potential exceeding 5,000 MW and its strategic position bridging the East African and Southern African Power Pools.
Kenya’s hosting of the World Geothermal Congress in 2029 will further focus global attention on the region, providing a platform to showcase operational data and de‑risk perceptions among institutional investors who have historically remained on the sidelines.
Navigating the Risks
No investment case is complete without acknowledging headwinds. The national strategy candidly identifies persistent structural constraints: non‑cost‑reflective tariffs, protracted land acquisition processes, operational complexities in mature fields, and an overreliance on public funding that has slowed capacity growth. Kenya has also relied on power imports from Ethiopia to meet recent demand surges, highlighting the urgency of bringing new capacity online. The proposed regulatory overhaul is designed to address these risks, but investors must still account for implementation timelines.
Conclusion
Geothermal energy in Kenya has moved beyond the pilot stage. It is a proven, scalable asset class supported by a strategic policy environment, active multilateral financing, and a pipeline of bankable projects across Menengai, Suswa, and the northern Rift Valley. For global investors willing to engage in emerging markets, the steam rising from Kenya’s Rift Valley is not just a source of clean energy—it is a signal of one of the most compelling infrastructure opportunities in the developing world today.
Source: This article was written by Robert Buluma with insights from Alphaxioms
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